Erroneous Tax Refund Not Unjust Enrichment: CESTAT-Jurishour

The Chandigarh Bench of Customs, Excise, And Service Tax Appellate Tribunal (CESTAT) has held that the erroneous payment of the duty/tax under mistake of law would not attract provisions of unjust enrichment as provided in Section 11B of Central Excise Act.

The bench of S. S. Garg (Judicial Member) and P. Anjani Kumar (Technical Member) has observed that denial of refund claim of the amount wrongly paid is in violation of Article 265 of Indian Constitution. As regards the claim of unjust enrichment, the respondent-assessee has proved that no tax has been charged from the SEZ unit. The invoices issued to SEZ units along with sample copies of tax invoice shows that no service tax was charged from SEZ unit. The assessee has proved that the amount of refund claim has actually been borne by them and sanctioning of the refund would not amount to unjust enrichment.

Background

The respondent/assessee is engaged in providing services of real estate agent services, maintenance and repair and consulting engineering services. The assessee provides services to various clients located in Domestic Tariff Area (DTA) as well as in Special Economic Zones (SEZ). In respect of the services rendered to clients located in DTA, the assessee duly discharged service tax liability after availing the credit of input services in terms of CCR Rules. However, with respect to the services rendered to SEZ Unit, the assessee claimed the exemption from the payment of service tax.

Since, the assessee was availing the CENVAT credit on the input services without maintaining separate accounts for taxable and exempted services. While considering the services rendered to SEZ Unit as exempted, the assessee paid an amount of Rs. 2,52,31,030 on the amount received against the services provided to SEZ Units for the period October 2011 to March 2012, in compliance of the Rule 6(3)(i) of the CCR Rule 2004.

The assessee showed the reversal of the amount in the service tax returns produced on record. Subsequently, the assessee came to know that in terms of Rule 6(6A) of the CCR Rules, Rule 6(3) of CCR Rules is not applicable in case the taxable services are provided to SEZ Unit without payment of service tax. The assessee filed a refund application claiming that the amount was paid inadvertently and erroneously during the disputed period.

After the lapse of almost 4 years, the department issued a ‘Deficiency Memo’ dated 24 January 2017 and proposed to reject the refund claim. The assessee filed the reply against the ‘Deficiency Memo’. The refund claim was rejected by the adjudicating authority.

Arguments

The department contended that the refund has rightly been rejected by the adjudicating authority because the amount paid for the service provided to SEZ unit was paid from Cenvat Credit and not in cash as claimed by the respondent. He further submits that the respondent must have taken into account this cost into the value of the services provided to SEZ units and passed on the same to them and the refund of such amount shall amount to unjust enrichment. The refund of deposit sought by the respondent is covered under Section 11B of the Central Excise Act, 1944 as made applicable to the service tax matters.

The department contended that the objection of the Department that the payment was made from Cenvat credit and not via cash challans is immaterial for the purpose of refund claim. The denial of the refund claim would be against the constitutional provision under article 265 of the Indian Constitution.