Pradeep Jain - Chartered Accountant

Case Study

Prepared by:

CA Pradeep Jain
Megha Jain

Introduction: -

When an assessee has erroneously pays the Service tax on the services provided by them on which he is not liable to pay service tax, and then time limit for claiming refund claim applies in that case. The amount deposited will be treated as deposit with the department or service tax erroneously deposited. Whether the service tax collected will be treated as collected without the authority of law? The time limit of one year for claiming refund claim under Section 11B of Central Excise Act will apply in that case or not? This issue has been taken in view in this case study.

Relevant Legal Provisions:-

· Section 83 of the finance Act, 1994[ Application of certain provisions of Act 1 of 1944]

The provisions of the following section of the [Central Excise Act, 1944], as in force from time to time, shall apply, so far as may be, in relation to service tax as they apply in relation to a duty of excise :-

9C, 9D, [OMITTED- 11, ] 11B, [11BB, 11C, [OMITTED- 11D, ] 12, 12A] 12B. 12C, 12D, 12E, 14, 14AA *15,33A,35F35FF to 350 (both inclusive), 35Q, 36, 36A, 36B, 37A, 37B, 37C, 37D,38A, and 40.

(In Section 83 the figures and letters "35FF" has been inserted vide Finance Bill 2008)

(In above Section 83. the figures and letters "14AA" & "38A" has been inserted vide Union Budget 2007 - 2008)

(In Section 83., the figures and letter "11 & 11D" has been omitted vide Union Budget 2006-2007 -Finance Bill)

(Bold words* has been substituted vide Finance Bill 2005-2006)

(In section 83 figures and letter 11D has been substituted with Bold figures and letters vide Finance Bill 2003)

(In section 83 figures and letter 11D has been inserted vide Budget 2002-2003)

· SECTION 11B of the Central Excise Act, 1944[Claim for refund of duty]

(1) Any person claiming refund of any duty of excise and interest, if any, paid on such duty [OLD- duty of excise ] may make an application for refund of such duty and interest, if any, paid on such duty [OLD-duty ] to the Assistant Commissioner of Central Excise or Deputy Commissioner of Central Excise before the expiry of one year from the relevant date in such form and manner as may be prescribed and the application shall be accompanied by such documentary or other evidence (including the documents referred to in section 12 A) as the applicant may furnish to establish that the amount of duty of excise and interest, if any, paid on such duty [OLD- duty of excise ] in relation to which such refund is claimed was collected from, or paid by, him and the incidence of such duty and interest, if any, paid on such duty[OLD- duty ] had not been passed on by him to any other person :

Provided that where an application for refund has been made before the commencement of the Central Excises and Customs Laws (Amendment) Act, 1991, such application shall be deemed to have been made under this sub-section as amended by the said Act and the same shall be dealt with in accordance with the provisions of sub-section (2) substituted by that Act :

Provided further that the limitation of six months shall not apply where any duty and interest, if any, paid on such duty [OLD- duty ] has not been paid under protest.

(In sub-Section (1), the words "duty of excise and interest, if any, paid on such duty" & "duty and interest, if any, paid on such duty" has been substituted vide Finance Bill 2008)

(2) If, on receipt of any such application, the Assistant Commissioner of Central Excise or Deputy Commissioner of Central Excise is satisfied that the whole or any part of the duty of excise and interest, if any, paid on such duty [OLD- duty of excise ] paid by the applicant is refundable, he may make an order accordingly and the amount so determined shall be credited to the Fund :

Provided that the amount of duty of excise and interest, if any, paid on such duty [OLD- duty of excise ] as determined by the Assistant Commissioner of Central Excise or Deputy Commissioner of Central Excise under the foregoing provisions of this sub-section shall, instead of being credited to the Fund, be paid to the applicant, if such amount is relatable to –

(a) rebate of duty of excise on excisable goods exported out of India or on excisable materials used in the manufacture of goods which are exported out of India;

(b) unspent advance deposits lying in balance in the applicant’s account current maintained with the Commissioner of Central Excise;

(c) refund of credit of duty paid on excisable goods used as inputs in accordance with the rules made, or any notification issued, under this Act;

(d) the duty of excise and interest, if any, paid on such duty [OLD- duty of excise ] paid by the manufacturer, if he had not passed on the incidence of such duty and interest, if any, paid on such duty [OLD-duty ] to any other person;

(e) the duty of excise and interest, if any, paid on such duty [OLD- duty of excise ] borne by the buyer, if he had not passed on the incidence of such duty and interest, if any, paid on such duty [OLD- duty ]to any other person;

(f) the duty of excise and interest, if any, paid on such duty [OLD- duty of excise ] borne by any other such class of applicants as the Central Government may, by notification in the Official Gazette, specify :

Provided further that no notification under clause (f) of the first proviso shall be issued unless in the opinion of the Central Government the incidence of duty has not been passed on by the persons concerned to any other person.

(In sub-Section (2), the words "duty of excise and interest, if any, paid on such duty" & "duty and interest, if any, paid on such duty" has been substituted vide Finance Bill 2008)

(3) Notwithstanding anything to the contrary contained in any judgment, decree, order or direction of the Appellate Tribunal or any Court or in any other provision of this Act or the rules made thereunder or any other law for the time being in force, no refund shall be made except as provided in sub-section (2)

(4) Every notification under clause (f) of the first proviso to sub-section (2) shall be laid before each House of Parliament, if it is sitting, as soon as may be after the issue of the notification, and, if it is not sitting, within seven days of its re-assembly, and the Central Government shall seek the approval of Parliament to the notification by a resolution moved within a period of fifteen days beginning with the day on which the notification is so laid before the House of People and notification should cease to have effect, the notification or directs that the only in such modified form or be of no effect, as the case may be, but without prejudice to the validity of anything previously done thereunder.

(5) For the removal of doubts, it is hereby declared that any notification issued under clause (f) of the first proviso to sub-section (2), including any such notification approved or modified under sub-section (4), may be rescinded by the Central Government at any time by notification in the Official Gazette

Explanation. - For the purposes of this section, -

(A) “refund” includes rebate of duty of excise on excisable goods exported out of India or on excisable materials used in the manufacture of goods which are exported out of India;

(B) “relevant date” means,-

(a) in the case of goods exported out of India where a refund of excise duty paid is available in respect of the goods themselves or, as the case may be, the excisable materials used in the manufacture of such goods,

(i) if the goods are exported by sea or air, the date on which the ship or the aircraft in which such goods are loaded, leaves India, or

(ii) if the goods are exported by land, the date on which such goods pass the frontier, or

(iii) if the goods are exported by post, the date of dispatch of goods by the Post Office concerned to a place outside India;

(b) in the case of goods returned for being remade, refined, reconditioned, or subjected to any other similar process, in any factory, the date of entry into the factory for the purposes aforesaid;

(c) in the case of goods to which banderols are required to be affixed if removed for home consumption but not so required when exported outside India, if returned to a factory after having been removed from such factory for export out of India, the date of entry into the factory;

(d) in a case where a manufacturer is required to pay a sum, for a certain period, on the basis of the rate fixed by the Central Government by notification in the Official Gazette in full discharge of his liability for the duty leviable on his production of certain goods, if after the manufacturer has made the payment on the basis of such rate for any period but before the expiry of that period such rate is reduced, the date of such reduction;

(e) in the case of a person, other than the manufacturer, the date of purchase of the goods by such person;

(ea) in the case of goods which are exempt from payment of duty by a special order issued under sub-section (2) of section 5A, the date of issue of such order;

(eb) in case where duty of excise is paid provisionally under this Act or the rules made thereunder, the date of adjustment of duty after the final assessment thereof;

(ec) in case where the duty becomes refundable as a consequence of judgment, decree, order or direction of appellate authority, Appellate Tribunal or any court, the date of such judgment, decree, order or direction ;

(Sub-clause (ec) has been inserted vide Union Budget 2007 - 2008)

(f) in any other case, the date of payment of duty.

KVR Constructions versus CCE, Bangalore [2010(17) STR 6 (KAR.)]

Brief Facts of the Case: -

The petitioner carries on construction activity and in the process though not liable to pay Service Tax under Finance Act, 1994, nevertheless paid amounts through T.R. – 6 challans.

The petitioner has paid the Service Tax in respect of Civil Structure constructed for and on behalf of M/s Adichunchanagiri Shikshana Trust put to use for education, religious, charitable, health, sanitation and philanthropic purpose and not for the purpose of profit. Thus, it is not covered in commercial construction activity.

Having noticed that the service tax was not due and payable by the appellant, in the light of Board’s Circular No. 80, Dated: 17.09.2004, they have filed refund claim on 19.3.2008. It was contented that Section 11B of Central Excise Act applies to Service tax matters as there is provision in Section 83 of Finance Act. As such, the time limit of Section 11B applies in this case also.

Question for Consideration: -

Whether time limit prescribed under Section 11B of the Central Excise Act, 1944 will also apply for this refund?

Appellant’s Contention: -

As per the Asst. Commissioner of Central Excise, the assessee is not liable to pay any service tax and he has paid it under the misunderstanding of law. Since the amount collected by the government is not at all payable by the assessee. This amount would resemble the amount collected without any authority of law. Hence, the amount paid by the assessee is not service tax but in the nature of deposit with the government.

Reasoning of the Judgement: -

The Assistant Commissioner of Central Excise having recorded a positive finding that the petitioner was not liable to pay the Service Tax in respect of Civil Structure constructed for and on behalf of M/s Adichunchanagiri Shikshana Trust put to use for education, religious, charitable, health, sanitation and philanthropic purpose and not for the purpose of profit in the light of the circular no. 80/10/2004 dated 17/09/2004.

Section 11B provides for making a claim of refund duty. Admittedly, the sum deposited by the petitioner is held to be a deposit and not as a duty, therefore, there was no necessity for the petitioner to have made a claim invoking section 11Bof the Act for refund.

Hence, the Asst. Commissioner of Central Excise has erroneously assumed that Section 11B of the Act applies in this case, so as to decline the petitioner’s claim for refund of amount of deposit saying that refund was time barred.

Decision of the High Court: -

The impugned order insofar as it relates to the denial of the claim for refund is unsustainable and the High Court has also quashed the order. The respondent is directed to refund the amount of Service Tax to the petitioner within a period of two weeks from the date of judgment in any event.

Comments & Conclusion: -

This is very good decision. The service tax deposited without authority of law will be refunded without any time limit. But we have came to know that the department has filed appeal before two member bench against the decision of single member and stay is also granted to them. Thus, issue is not final. Moreover, a similar decision has also come in case of NATRAJ AND VENKAT ASSOCIATES V. ASSTT. COMMR. OF S.T., CHENNAI-II [2010(17)STR 3] from Madras High Court. We will also analysis that decision and prepare case study for the readers of our website.

******

CASE STUDY