It was a very debatable issue under the service tax regime regarding applicability of principle of unjust enrichment to such refund claims where the service tax (either paid correctly or wrongly) required to be paid, was paid under reverse charge basis. In other words, there has been always a confusion that in case of tax paid under reverse charge mechanism, the refund claim filed for the service tax paid can be brought under the ambit of 'principle of unjust enrichment' and rejected on the ground that the burden of tax has been passed on to the ultimate consumer. That in case of reverse charge mechanism the tax is directly paid to the Government exchequer out of his own pocket by the service recipient and the burden of such tax paid is borne by the service recipient only. However, the department ignoring the law, was issuing show cause notices to the assessee, which later on resulted in the confirmation of demand against the assessee.
Though, various assessees were facing the similar difficulty and had pending litigation regarding the aforesaid issue before the authorities, our matters involving the aforesaid issue came up for hearing before the Hon'ble Customs, Excise and Service Tax Appellate Tribunal, Allahabad, wherein 'the tax which was not required to be paid, was wrongly paid under reverse charge mechanism and later on when it came to the knowledge that there is exemption, the refund from the amount paid as Service tax was filed.
The matter was vehemently argued by team and it was contended that the principle of unjust enrichment would not be applicable to the case in hand, as the tax has been under reverse charge mechanism, and the amount earlier shown as 'expense' in the Profit and Loss Account was later on transferred to 'refund receivable account'. Hence, the question of passing on the said wrongly paid service tax to the consumer does not arise.
To support the said contention reliance was placed on the decisions of Radicura Pharmaceuticals Pvt. Ltd. vs. Commissioner of Service Tax, Delhi-II 2015 (39) S.T.R. 485 (Tri.-Del.); Needle Industries (India) Pvt. Ltd. vs. Commissioner of Central Excise, Salem 2016 (46) S.T.R. 489 (Tri.-Chennai); M/s ICOMM Tele Ltd. vs. CC, CE & ST, Hyderabad-III 2016 (6) TMI 779 – CESTAT Hyderabad, and it was submitted the principle of unjust enrichment would not be applicable to the tax paid under reverse charge mechanism. Thus, in the instant case the burden of the tax has been borne by the appellant/assessee only and not passed on to the consumer.
That merely because the amount is showing as expense or expenditure in the Profit & Loss Account does not indicate that the incidence of tax has been passed on to the consumer. The burden rests upon the department to prove that this amount had been recovered by the assessee from the consumer. To further strengthen its stand, reliance was placed on the decisions of Balaji Pressure Vessels Ltd. Vs. Commissioner of Central Excise – 2016 (5) TMI 132 – CESTAT Mumbai; Commissioner of Central Excise, Pune-III Vs. Cummins India Ltd. – 2007 (10) TMI 117 – CESTAT, Mumbai; M/s ICOMM Ltd. Vs. CC, CE & ST, Hyderabad III – 2016 (6) TMI 779 – CESTAT, Hyderabad; and other relevant judgments.
That the Chartered Accountant Certificate submitted is sufficient to substantiate that the refund claim has been rightly filed by the assessee and the tax in question was not passed on to the consumer, when the said C.A. certificate has been given after the due examination of books of accounts and other supporting documents. Reference was made to the various judgments wherein, similar issue was dealt with in the matter of R.B. Agarwalla & Co. Pvt. Ltd. Vs. Commr. Of C. Ex. Bhubaneswar – II – 2007 (6) TMI 103 – CESTAT, Kolkata; Commr. Of C. Ex., Pune – II Vs. Pauls Engineering Industries Pvt. Ltd. – 200 8 (10) S.T.R. 561 (tri – Mumbai); R. B. Agarwalla & Co. Pvt. Ltd. Vs. Commissioner of C. Ex. & Cus. BBSR – II – 2005 (11) TMI 478 – CESTAT Kolkata, it was submitted
The Hon'ble CESTAT, Allahabad after considering the submissions made at length, observed 'that during the course of litigation, the adjudicating authority accepted the fact that GTA services availed by the assessee is exempt from payment of service tax in terms of Notification No. 25/2012-ST read with Notification No. 3/13 and therefore, sanctioned the refund claim filed by the assessee/appellant.
However, in the appeal preferred by the departmental before the Ld. Commissioner (Appeals), it was observed that the assessee has shown the subject amount as expenditure in their Profit and Loss Account and has indirectly passed on the burden to the consumer.
The Hon'ble CESTAT agreeing with our submissions found that there is no dispute about the claim of the appellant on merits. The only reason for denial of refund claim is unjust enrichment.
Thereafter, the Hon'ble CESTAT taking note of the decisions referred by the Assessee/Appellant in the matter of Radicura Pharmaceuticals Pvt. Ltd. vs. Commissioner of Service Tax, Delhi-II 2015 (39) S.T.R. 485 (Tri.-Del.); Needle Industries (India) Pvt. Ltd. vs. Commissioner of Central Excise, Salem 2016 (46) S.T.R. 489 (Tri.-Chennai); M/s ICOMM Tele Ltd. vs. CC, CE & ST, Hyderabad-III 2016 (6) TMI 779 – CESTAT Hyderabad, found that it has been held in number of cases by the Tribunal that the refund of Service Tax paid under reverse charge basis would not invite the principles of unjust enrichment. Therefore, the impugned order of Commissioner (Appeals) rejecting the refund claim on the ground of unjust enrichment is not justified. Accordingly, the same is set aside and the appeal is allowed.
Case details — Dharampal Satyapal Limited v. Commissioner CGST, Noida
Forum — CESTAT
Case No. — Final Order No. 70790/2019 dated 15.03.2019 in ST/71062/2018
Represented by — Adv. Varun Gaba