Custom, Excise & Service Tax Tribunal
Service Tax - Ahmedabad vs Rajpath Club on 15 April, 2025
Page |1
Reportable
CUSTOMS,EXCISE & SERVICE TAX APPELLATE TRIBUNAL,
WEST ZONAL BENCH : AHMEDABAD
REGIONAL BENCH : COURT NO. 3
SERVICE TAX APPEAL No.11308 of 2018-DB
[Arising out of Order-in-Appeal No AHM-EXCUS-001-APP-237-17-18 dated 29.12.2017
passed by Commissioner (Appeals), Central Tax - AHMEDABAD]
Commissioner of Service Tax- Service Tax-Ahmedabad ...Appellant
7 th Floor, Central Excise Bhawan, Nr. Polytechnic
Central Excise Bhavan, Ambawadi, Ahmedabad,
Gujarat- 380015
VERSUS
Rajpath Club Ltd ...Respondent
S.G. Road, Ahmedabad, Gujarat WITH Service Tax Appeal No. 11309 of 2018-DB [Arising out of Order-in-Appeal No AHM-EXCUS-001-APP-237-17-18 dated 29.12.2017 passed by Commissioner (Appeals),Central Tax, AHMEDABAD] Commissioner of Service Tax- Service Tax-Ahmedabad ...Appellant 7 th Floor, Central Excise Bhawan, Nr. Polytechnic Central Excise Bhavan, Ambawadi, Ahmedabad, Gujarat- 380015 VERSUS Rajpath Club Ltd ...Respondent S.G. Road, Ahmedabad, Gujarat ST/11308-11309/2018 & ST/10180/2019 Page |2 AND SERVICE TAX Appeal No. 10180 of 2019-DB [Arising out of Order-inAppeal No AHM-EXCUS-002-APP-80-81-18-19 dated 22.10.2018 passed by Commissioner ( Appeals ) Central Tax-AHMEDABAD] Commissioner of Central Excise-Ahmedabad-II ...Appellant First Floor, Old High Court Road, Navrangpura, Ahmedabad, Gujarat-380009 VERSUS Karnavati Club Ltd ...Respondent S.G. Road, Ahmedabad, Gujarat APPEARANCE:
Shri. Mohit Agarwal, Commissioner (AR) for the appellant Shri Bishan R Shah, Chartered Accountant and Shri Jagrat Shah, Advocate for the Respondent CORAM: HON'BLE MR. SOMESH ARORA, MEMBER ( JUDICIAL ) HON'BLE MR. SATENDRA VIKRAM SINGH, MEMBER ( TECHNICAL ) Final Order No. _10246-10248 /2025 DATE OF HEARING : 14.02.2025 DATE OF DECISION: 15.04.2025 SOMESH ARORA The brief facts of the case are as under :
M/s. Rajpath Club Ltd., S. G. Road, Ahmedabad (hereinafter referred to as the Respondent-1) had filed a refund claim for Rs. 20,46,47,216/-on 21.02.2017 of Service Tax already paid by them against "Club or Association Services" during the period 01.04.2016 to 30.09.2016. They were holding Service Tax registration number AAACR7379AST001 under the category of "Club or Association Services", Security/Detection Agency Service.
ST/11308-11309/2018 & ST/10180/2019 Page |3 Manpower Recruitment/Supply Agency Service, Works Contract Service, Outdoor Catering Service etc. The Adjudicating Authority vide Order-In- Original bearing No. SD-02/REF-20/VJP/2017-18 dated 15.05.2017 rejected the refund claim of Rs.20,46,47,216/-. Being aggrieved with the above OIO, they filed appeal before Commissioner (Appeals), Ahmedabad who vide Order-in-Appeal No. AHM-EXCUS-001-APP-237-17-18 dated 29.12.2017, allowed the appeal by holding that the appellants are eligible for refund under the principles of mutuality. Aggrieved with this order, the department filed this appeal bearing No. 11308 of 2018-DB. As per the Department, decision of Hon'ble High Court of Gujarat's in Order dated 25.03.2013 pertains to the period prior to 01.07.2012 whereas, the legal position has changed from 01.07.2012 which negates the issue of mutuality between the club and its members and they are deemed to be separate persons and hence, the said order of Hon'ble High Court is not applicable in this case.
2. The grounds of Appeal taken by the Revenue are-
2.1 The respondent was registered with the service tax department and as per rules, they were required to make payment of tax on monthly basis and file returns on half yearly basis on self assessment as per the Section 70 of the Finance Act, 1994 which is reproduced as under:-
"SECTION 70. Furnishing of returns.
(1) Every person liable to pay the service tax shall himself assess the tax due on the services provided by him and shall furnish to the Superintendent of Central Excise, a return in such form and in such manner and at such frequency and with such late fee not exceeding twenty thousand rupees, for delayed furnishing of return, as may be prescribed. (2) The person or class of persons notified under sub-
section (2) of section 69, shall furnish to the Superintendent of Central ST/11308-11309/2018 & ST/10180/2019 Page |4 Excise, a return in such form and in such manner and at such frequency as may be prescribed."
2.2 The respondent has made payment of service tax on self-assessment basis towards Club and Association Service from 01.04.2016 to 30.09.2016 as per Section 70 of the Finance Act, 1994. The moot question which arises is when levy of Service Tax became 'ultra vires' as per their understanding of the law, i.e. not legally correct and not required to be collected and paid, then why did the assessee pay service tax on self-assessment basis in term of Section 70 of the Finance Act, 1994, especially when Hon'ble High Court of Gujarat's order dated 25.03.2013 was in their knowledge and why the said service tax was collected at all by the claimant if they were of the view that the service tax was not leviable? This clearly indicates a modus operandi for unjust enrichment of the clubs as the members of the clubs pay taxes from their personal income and incidence of the tax is borne only by these members. The Service tax so collected, if refunded to the claimant, will be nothing but sheer profit to the club in the form of unjust enrichment as it will never be returned to the persons utilizing the club services. 2.3 The Section 73A of the Finance Act, 1994 is re-produced as under-
"SECTION 73A. Service tax collected from any person to be deposited with Central Government- (2) Where any person who has collected any amount, which is not required to be collected, from any other person, in any manner as representing service tax, such person shall forthwith pay the amount so collected to the credit of the Central Government. Above Section clearly prescribes that even if an amount has been collected as service tax which was not required to be collected, it is required to be credited to the Central Government. Thus, in such scenario no refund arises. Hence, the payment of service tax made is ST/11308-11309/2018 & ST/10180/2019 Page |5 to be treated as a deposit of tax and allowing the refund of such payment is bad in law and Commissioner(A) erred in allowing the same.
2.4 With effect from 01.07.2012, a new system of taxation of services has been introduced. Besides other changes, the word "services" has also been defined under Section 65B (44) of the Finance Act, 1994 as given below:-
"(44) Service means any activity carried out by a person for another for consideration, and includes a declared service, but shall not include:-
(a) an activity which constitutes merely.-
(i) a transfer of title in goods or immovable property, by way of sale, gift or in any other manner, or
(ii) such transfer, delivery or supply of any goods which is deemed to be a sale within the meaning of clause (29A) of article 366 of the Constitution; or
(iii) a transaction in money or actionable claim;
(b) a provision of service by an employee to the employer in the course of or in relation to his employment;
(c) fees taken in any court or tribunal established under any law for the time being in force.
Explanation 3:-For the purposes of this Chapter:-
(a) an unincorporated association or a body of persons, as the case may be, and a member thereof shall be treated as distinct persons:
ST/11308-11309/2018 & ST/10180/2019 Page |6
(b) an establishment of a person in the taxable territory and any of his other establishment in a non taxable territory shall be treated as establishments of distinct persons."
2.5 Article 265 of the Constitution of India provides, "Taxes not to be imposed save by authority of law. No tax shall be levied or collected except by authority of law." Chapter 5 of the Finance Act, 1994 defines services under Section 66B (44) as also provides for levy of tax on the services under Section 65(105).
2.6 Section 65B(44) defines the term "service". as any activity carried out by a person for another for consideration. Explanation 3 to the said Section explicitly states that for the purpose of this chapter, an unincorporated association or a body of person, as the case may be, and the member thereof, shall be treated as distinct persons. In the instant case, services are provided to the members of the Club. To become a member of a Club, the person is required to pay Membership Entrance Fee (Non Refundable) and Refundable Security Deposit as specified. Having become the member of the club, in order to avail of the services of the Club, a member is required to pay Annual Subscription charge. For specified services provided by the Club, a member is required to pay the consideration separately. Membership provides privileges to avail of the facilities and services of the Club. In view of the above deeming provisions introduced with effect from 01.07.2012 vide Section 65B(44) of Finance Act, 1994, the club and the members are deemed to be separate persons, and the judgments of Hon'ble High Courts relied upon by the Respondent, is no longer applicable to the facts of the present refund claim. Therefore, the findings of the Commissioner (A) that club and its members are not two distinct persons is not legally incorrect. 2.7 The term "person" is defined in Section 65B (37) inter alia to include a company, a society, an association of persons or body of individuals, ST/11308-11309/2018 & ST/10180/2019 Page |7 whether incorporated or not, every artificial juridical person, not falling within any of the sub-clauses.
2.8 The Section 65(105)(zzze) defines the taxable service provided by clubs and association. Section 65(25aa) defines the term club and associations and Section 66 is the charging Section of Service Tax. These provisions are reproduced below:
Section 66 of the Finance Act, 1944 provides that, there shall be levied a tax (hereinafter referred to as the service tax) at the rate of twelve per cent of the value of taxable services referred to in sub-clause (zzze) of clause (105) of section 65 and collected in such manner as may be prescribed.
Section 65 (25aa)"Club or association" means any person or body of persons providing services, facilities or advantages, primarily to its members for a subscription or any other amount, but does not include-
i) Any body established or constituted by or under any law for the time being in force; or
ii) any person or body of persons engaged in the activities of trade unions, promotion of agriculture, horticulture or animal husbandry, or
iii) any person or body of persons engaged in any activity having objectives which are in the nature of public service and are of a charitable, religious or political nature, or
iv) any person or body of persons associated with press or media, Section 65(105)(zzze "taxable service" means any service provided or to be provided to its members, by any club or association in relation to provision of services, facilities or advantages for a subscription or any other amount;
ST/11308-11309/2018 & ST/10180/2019 Page |8 2.9 It was also submitted that the argument of doctrine of mutuality bears no significance in the context of taxable service provided by clubs and association as the same has been legally overcome by creating a legal fiction treating clubs and associations and its members as two separate persons. This is evident from the definition of clubs and association. 2.10 2.10 The adoption of "Mutuality Aspect" leads to an absurd result and the Section and Act may not convey any outcome; the pragmatic way to properly reach the root of logic behind the legislation should be the outcome. Thus, it was submitted that, in the instant case, mutuality is not a valid ground of challenge, as the appellant is incorporated under the Companies Act and a company being a legal entity, has a separate identity from its members. The provisions of the Companies Act, 1956 have been interpreted by the Apex Court observing, inter alia, that an incorporated company has a separate existence and the law recognizes it as a juristic person separate and distinct from its members (AIR 1970 SC 82).
2.11 M/s Karnavati Club Ltd who is also one of the respondents in this matter involving similar issue along with other clubs had preferred writ petition before the High Court of Gujarat inter alia with the prayer that Section 65(25a) [later renumbered as 65(25aa)], section 65(105)(zzze) and 66 of the Finance Act, 1994 as amended by the Finance Act, 2005 to the extent that the said provision purporting to levy Service Tax in respect of services provided by the club to its members be declared ultra vires and unconstitutional. Taking note of the Principle of Mutuality applied by different High Courts, the Gujarat High Court vide its judgment dated 25.03.2013 allowed the petition observing inter alia, that, though the petitioner is giving service to its members, the club is formed on the principle of mutuality, and, therefore, any transaction by the club with its member is not a transaction between two parties. When a club is dealing with its members, it is not a ST/11308-11309/2018 & ST/10180/2019 Page |9 separate and distinct individual. In view of the mutuality and in view of the activities of the club, if club provides any service to its members may be in any form, then it is not a service by one to another in the light of the decisions referred above as foundational facts of existence of two legal entities in such transaction is missing.
2.12 The aforesaid judgment records that the department has challenged the judgment of the Division Bench of the Jharkhand High Court before the Hon'ble Supreme Court, which was then pending. The department has also challenged judgment of Hon'ble Gujarat High Court in the case of Sports Club Limited and sought stay of the Judgment. However, this litigation pertains to the period prior to 01.07.2012.
2.13 Vide amendment in Section 66B, it is provided that there shall be levied a tax (hereinafter referred to as the service tax) at the rate of twelve per cent on the value of all services, other than those services specified in the negative list (Sec. 66D), provided or agreed to be provided in the taxable territory by one person to another and collected in such manner as may be prescribed. Section 66BA provides that reference to section 66 to be construed as reference to Section 66B.
The insertion of section 66BA vide Finance Act (17) of 2013 replacing the reference of section 66 in the Finance Act or any other Act, is for a purpose.
For the services in dispute to qualify to be taxable under the Act in view of section 66B, would have to be the activity carried out by a person for another as provided U/s 65B (44) The amendment in the Act is subsequent to the judgment by the High Court, therefore the rigors thereof would have to be independently appreciated under section 66B and 65B (44).
ST/11308-11309/2018 & ST/10180/2019 P a g e | 10 The amendment provides that an unincorporated association or a body of persons and a member thereof shall be treated as distinct persons. 2.14 The term "Body of persons" has not been defined under the Act. However, a body of persons can be read in the definition of 'Person' applying Section 3 (42) in the General Clauses Act, which reads as under:
"person" shall include any company or association or body of individuals, whether incorporated or not.
2.15 The term unincorporated association or a body of persons can be read disjunctively. However, conversely, applying the principles of ejusdem generis an interpretation can be advanced that the term may be read as unincorporated body of persons.
2.16. As regarding any exceptions wherein services provided by a person to the same person are taxable, there are two exceptions which have been carved out of the general rule that only services provided by a person to another are taxable. These exceptions, contained in Explanation 3 of clause (44) of section 65B, are:
i) an establishment of a person located in taxable territory and another establishment of such person located in non-taxable territory are treated as establishments of distinct persons. [Similar provision exists presently in Section 66A(2))
(ii) an unincorporated association or body of persons and members thereof are treated as distinct persons. [Also exists presently in the explanation to section 65].
These deeming provisions imply that inter-se provision of services between such persons, deemed to be separate persons, would be taxable. For ST/11308-11309/2018 & ST/10180/2019 P a g e | 11 example, services provided by a club to its members and services provided by the branch office of a multi-national company to the headquarters of the multi-national company located outside India would be taxable provided other conditions relating to taxability of service are satisfied. 2.17 Regarding principle of mutuality after 01.07.2012, in a case of M/s Emerald Leisures Limited, Mumbai (Formerly Apte Amalgamations Ltd) before AUTHORITY FOR ADVANCE RULINGS (Central Excise, Customs and Service Tax) DATED 11th day of September, 2015 in Ruling No. AAR/ST/10/2015 in Application No. AAR/44/ST/07/2014, it was held, in para 15 & 27, that:
"15. Applicant also relied upon the judgments of the Hon'ble High Court in case of Saturday Club Ltd vs. A.C Service Tax Cell, Calcutta | 2006 (3) STR 305 (Cal) | and Sports Club of Gujarat Itd us. U.O.I (2013 (31) STR 645 (Guj) to emphasize that in view of principles of mutuality, no service tax is payable by the applicant. The Hon'ble High Court observed that principally there should be existence of two sides / entities for having transaction as against consideration - In a members club, there is no question of two sides members and club, both are same entity. We observe that with effect from 01.07.2012, new system of taxation of services has been introduced by the Government. Besides other changes, the word "service" has also been defined under Section 65B (44) of the Finance Act, 1994. Explanation 3 (a) to said Section states that for the purposes of this chapter, an unincorporated association or a body of persons. as the case may be, and a member thereof shall be treated as distinct persons. Therefore, deeming provision has been introduced with effect from 01.07.2012 to the effect that the club and members are deemed to be separate persons. In view of these recent changes, the judgments of Hon'ble High Courts relied upon by the applicant, are no more applicable to facts of the case before us. Therefore, the contention of the applicant that club and its members are not two distinct persons, is incorrect. "27. In view of the above, we rule as under,
(a) The relationship between the applicant and members of the club should be considered as provision of "service" by one person (service provider) to another person (service receiver) for the purpose of Section 65B (44) of the Finance Act, 1994 read with Sections 66B, 66D and Section 66B of the Finance Act, 1994 and accordingly, the ST/11308-11309/2018 & ST/10180/2019 P a g e | 12 Membership fee, Annual fee and other charges received from members from time to time be liable for Service Τax."
2.18 From the above, it is clear that the assessee is not eligible for refund, as the said claim relates to the period from 01.04.2016 to 30.09.2016 i.e. after 01.07.2012 and therefore, it is out of the purview of the order of Hon'ble High Court Gujarat dated 25.03.2013 in the case of Sports Club of Gujarat Ltd & others (2013(31)S.T.R.645 [Guj]. The said case is distinguishable from the instant case for the reason that facts obtaining here are different from those in the cited case.
2.19 Further, the assessee is registered with the Service Tax department as 'Club' under the constitution of business for providing 'club or association service' to its members. Hence, the assessee i.e. M/s. Rajpath Club Ltd., S. G. Road, Ahmedabad which is working as club is an entity distinct from its members. Thus, the services rendered by M/s. Rajpath Club Ltd to its members as a club are not hit by the bar of mutuality. Hence, service tax collected and paid by Respondent 1 for provision of Club or association service is legal and correct. Therefore, no refund can be claimed by the assessee for collection and payment of such legally correct taxes. Accordingly, Order-in-Appeal No.AHM-EXCUS-001-APP-237-17-18 dated 29.12.2017, passed by the Commissioner (Appeals) CGST and Central Excise Ahmedabad in case of M/s Rajpath Club Ltd., S. G. Road, Ahmedabad is not proper and legal and deserves to be set aside.
2.20 Another important issue is that when Service Tax became ultra vires as per the understanding of law, vide Hon'ble High Court of Gujarat's order dtd. 25.03.2013, why was then the Service Tax collected for the period 01.04.2016 to 30.09.2016, for which they have now claimed refund. This clearly indicates a modus operandi for unjust enrichment of the clubs as some (not all) members of the clubs paid Service Tax from their personal ST/11308-11309/2018 & ST/10180/2019 P a g e | 13 income and as such the incidence of Service tax is borne only by those members. If such Service Tax collected, is refunded to the Club (Claimant), it will be nothing but sheer profit to the club in the form of unjust enrichment as it will never be returned to the persons who had paid the Service Tax for utilizing the services. The respondents filed a refund claim escaping the principles of Unjust Enrichment on the ground of doctrine of mutuality. In terms of Hon'ble Supreme Court Order in the case of State of West Bengal v/s. Calcutta Club Ltd. 2019 (29) GSTL 545 (SC), the club and members were held to be not separate from each other on the basis of mutuality. Therefore, the liability of service tax was held to be ultra vires. 2.21 It needs to be appreciated that though the mutuality exists between the clubs and members, the same does not exist between one Member and other Member as they are distinct persons. Each member may hold mutuality with respect to club in terms of case law cited Supra but not with respect to other member. If any excess amount has been collected by the club purporting the same as service tax, the same has to be returned to either the same member from whom it has been collected or be deposited to the Consumer Welfare Fund in view of unjust enrichment principle laid down by Hon'ble Supreme Court in Mafatlal Industries Ltd. v/s UOI case [1997 (89) ELT 247 (SC)). The interpretation of keeping the money collected from one member with the collective funds of the club for the sake of benefit of all other members would be at the peril of the member from whom such amount was collected. This would imply and go beyond the mandate of jurisprudence and result in mutuality of one member with respect to the other though they are two distinct persons.
2.22 The Hon'ble Supreme Court in their judgment in the case of Calcutta Club Ltd. mentioned above, did not dwell into the matter of unjust enrichment but only decided on the levy of Service Tax and the principle of ST/11308-11309/2018 & ST/10180/2019 P a g e | 14 mutuality between a Club with its member. The Impugned Order of the Commissioner (Appeal) in the present case has decided that the question of unjust enrichment will arise only when there is existence of two or more distinctly separate parties, but when there are no separate entities, the argument of unjust enrichment does not hold any ground. He appears to have erred as in the present case only certain members had paid service tax and only such certain members are entitled to receive refund and this amount cannot be transferred to the common pool of the club for benefit of all the members including those who had not paid such service tax. Therefore, here exist two separate entities i.e. those who paid service tax and those who did not pay service tax. Accordingly, these two types of members cannot be clubbed together in support of doctrine of mutuality because these members are not similarly placed. The principle of mutuality decided by Hon'ble Supreme Court in the case of State of West Bengal v/s. Calcutta Club Ltd. was on the aspect of mutuality of the members and the club. It held that the judgments of Jharkhand High Court in Ranchi Club Ltd. (Supra) and the Gujarat High Court in Sports Club of Gujarat (Supra) are correct in their view of the law in Young Men's Indian Association (Supra). It was also held that with effect from 2005, no service tax could be levied on the services by clubs or associations to their members in the incorporated form and therefore, show-cause/ demand notices and other action taken to levy and collect service tax from incorporated clubs are declared to be void and would have no effect in law. The said judgment of State of West Bengal v/s. Calcutta Club Ltd. neither discussed the aspect of unjust enrichment of the refund originating out of the judgement nor go in to the principle of mutuality between one member and another member of the Club. Therefore, the law pertaining to unjust enrichment prevailing as on date, would be squarely applicable in this case when the refund claim is found to be sanctionable.
ST/11308-11309/2018 & ST/10180/2019 P a g e | 15 2.23 In this regard, reliance is placed on the decision of Nine Member Larger bench of the Hon'ble Supreme Court. The judgement of Hon'ble Supreme Court of India in the case of Mafatlal Industries Ltd. v/s UOI is a defining law, wherein in at Para 99, it has been said that -
"Where the burden of the duty has been passed on, the claimant cannot say that he has suffered any real loss or prejudice. The real loss or prejudice is suffered in such a case by the person who has ultimately borne the burden and it is only that person who can legitimately claim its refund. But where such person does not come forward or where it is not possible to refund the amount to him for one or the other reason, it is just and appropriate that that amount is retained by the State, i.e., by the people. There is no immorality or impropriety involved in such a proposition."
2.24 Further, in the same Para 99, the Hon'ble Apex Court further says that -
"The doctrine of unjust enrichment is a just and salutory doctrine. No person can seek to collect the duty from both ends. In other words, he cannot collect the duty from his purchaser at one end and also collect the same duty from the State on the ground that it has been collected from him contrary to law. The power of the Court is not meant to be exercised for unjustly enriching a person. The doctrine of unjust enrichment is, however, inapplicable to the State. State represents the people of the country. No one can speak of the people being unjustly enriched."
2.25 Finally, the Hon'ble Supreme Court emphasizing the supremacy of the Constitution in this matter, in the said Para 99 says that-
ST/11308-11309/2018 & ST/10180/2019 P a g e | 16 "(v) Article 265 of the Constitution has to be construed in the light of the goal and the ideals set out in the Preamble to the Constitution and in Articles 38 and 39 thereof. The concept of economic justice demands that in the case of indirect taxes Central Excises duties and Customs duties, the tax collected without the authority of law shall not be refunded to the petitioner-plaintiff unless he alleges and establishes that he has not passed on the burden of duty to a third party and that he has himself borne the burden of the said duty."
2.26 Thus, it is imperative that every refund claim has to pass through the test of unjust enrichment, which has not been justifiably examined in the impugned order, as it is a fact that the Service tax was paid by the individual member, while the refund claim in this case has been filed and claimed by the appellant, who is a Club. The mutuality between a club and the member of a club, decided by the judgement of State of West Bengal v/s. Calcutta Club Ltd., cannot be directly inferred as a mutuality between one member of a club and another member of the same club. The service tax paid by one member of the club, on being refunded to the Club, would be unjustly enriching another member/s of the club, who had not paid the Service Tax. This aspect of unjust enrichment of the other member or members of the club at the expense of the member who had paid the Service Tax, has not been addressed by any judgement of any Court. The distinction between mutuality of the club with the member and one member of the club with another member of the club, cannot be construed to be the same in case of jurisprudence. Therefore, Non-invoking the Principle of Unjust Enrichment on the basis of Mutuality would amount to enlarging/broadening the scope of the judgement of State of West Bengal v/s. Calcutta Club Ltd. To state that not only the Club and Members have mutuality with respect to each other but even distinct and independent Members of the club also follow the Principle of Mutuality, would further lead to purported proposition that any ST/11308-11309/2018 & ST/10180/2019 P a g e | 17 services rendered by one member to other member would not attract Service Tax.
2.27 In this context, reliance is placed on the following Judgements:
a. The Hon'ble Supreme Court in the case of Commissioner of Customs (Import), Mumbai Vs. Dilip Kumar & Company (2018 (361) E.L.T. 577 (S.C.)) at Para 19 had held that -
"19. the well-settled principle is that when the words in a stature are clear, plain and unambiguous and only one meaning can be inferred, the Courts are bound to give effect to the said meaning irrespective of consequences. If the words in the statute are plain and unambiguous, it becomes necessary to expound those words in their natural and ordinary sense. The words used declare the intention of the Legislature. In Kani Lal Sur Vs. Paramnidhi Sadhukhan, AIR 1957 SC 907, it was held that if the words used are capable of one construction only then it would not be open to the Courts to adopt any other hypothetical construction on the ground that such construction is more consistent with the alleged object and policy of the Act."
b. The Hon'ble Supreme Court has stated in the Judgement of Padmasundara Rao (Dead) & Ors. v/s. State of Tamil Nadu [AIR 2002 SUPREME COURT 1334] that-
"Courts should not place reliance on decisions without discussing as to how the factual situation fits in with the facts of the decision on which reliance is placed. There is always peril in treating the words of a speech or judgment as though they are words in a legislative ST/11308-11309/2018 & ST/10180/2019 P a g e | 18 enactment, and it is to be remembered that judicial utterances are made in the setting of the facts of a particular case, said Lord Morris in Herrington Vs. British Railways Board (1972) 2 WLR
537.Circumstantial flexibility, one additional or different fact may make a world of difference between conclusions in two cases."
On factual matrix, principle of mutuality between one member of the club and another member of the same club is notably not addressed in the decision of Hon'ble Supreme Court in the case of State of West Bengal v/s. Calcutta Club Ltd. and hence the reliance thereon cannot be made while deciding whether the refund claim in this case is hit by the bar of unjust enrichment.
c. Hon'ble High Court of Madras, in Commissioner of Income Tax v/s. M/s. TVS lean Logistics Ltd., held that-
"4.3. Similarly, there should be a literal rule of interpretation of a statute, which is the first and foremost principle of interpretation and where the words of a statute are absolutely clear and unambiguous, recourse cannot be had to the principles of interpretation other than the literal rule and even if the literal interpretation results in hardship or inconvenience, it has to be followed. The language employed in a statute is the determinative factor of the legislative event and even assuming there is a defect or any omission in the words used in the legislature, the Court cannot correct or make up the deficiency, especially when a literal reading thereof produces an intelligible result and any departure from the literal rule would really be amending the law in the garb of interpretation, which is not permissible and which would be destructive of judicial discipline, vide RAGHUNATH RAI BAREJA v. PUNJAB NATIONAL BANK [2007] 2 SCC 230."
ST/11308-11309/2018 & ST/10180/2019 P a g e | 19 d. In another case, Hon'ble Supreme Court in ESCORTS LTD. Versus COMMISSIONER OF CENTRAL EXCISE, DELHI-II [2004(173) ELT 113 (SC)], held that-
"8. Courts should not place reliance on decisions without discussing as to how the factual situation fits in with the fact situation of the decision on which reliance is placed. Observations of Courts are neither to be read as Euclid's theorems nor as provisions of the statute and that too taken out of their context. These observations must be read in the context in which they appear to have been stated. Judgments of Courts are not to be construed as statutes. To interpret words, phrases and provisions of a statute, it may become necessary for judges to embark into lengthy discussions but the discussion is meant to explain and not to define. Judges interpret statutes, they do not interpret judgments. They interpret words of statutes; their words are not to be interpreted as statutes. In London Graving Dock Co. Ltd. v. Horton (1951 AC 737 at p. 761), Lord Mac Dermot observed:
"The matter cannot, of course, be settled merely by treating the ipsissima vertra of Willes, J. as though they were part of an Act of Parliament and applying the rules of interpretation appropriate thereto. This is not to detract from the great weight to be given to the language actually used by that most distinguished judge."
e. In another case Hon'ble Supreme Court in COLLECTOR OF C. EX., CALCUTTA v/s. ALNOORI TOBACCO PRODUCTS (2004 (170) ELT 135 (SC)), the Hon'ble Court held that -
ST/11308-11309/2018 & ST/10180/2019 P a g e | 20 "13. Circumstantial flexibility, one additional or different fact may make a world of difference between conclusions in two cases. Disposal of cases by blindly placing reliance on a decision is not proper." 2.28 Learned A.R. further submitted that, whether it is a Statute or a Judgement, the language employed and the matter dealt therein is of utmost importance while relying upon the same by any Court. Therefore, it appears that principles of unjust enrichment laid down in Mafatlal Industries case as indicated above, would be squarely applicable in this case and refund is erroneously granted by the Commissioner (Appeal) vide impugned order. It was not proper for the Commissioner (Appeal) to have gone beyond law laid down by Hon'ble Supreme Court in Mafatlal Industries case on the bar of unjust enrichment while sanctioning refund claim. The Hon'ble High Court of Karnataka in the case of Bharti Airtel Ltd. v/s. State of Karnataka [2012 (25)S.T.R. 514 (Kar)) at Para 129 stated that -
"129. The Supreme Court is not only the constitutional Court, but it is also the highest court in the country, the final court of appeal. By virtue of Article 141 of the Constitution, what the Supreme Court lays down is the law of the land. Its decision are binding on all courts. Its main role is to interpret the constitutional and other statutory provisions bearing in mind the fundamental philosophy of the Constitution. The Supreme Court is expected to decide questions of law for the country and not to decide individual cases without reference to such principles of law. The Supreme Court under Article 141 of the Constitution is enjoined to declare law. The expression 'declared' is wider than the words 'found or made'. To declare is to announce opinion. The law declared by the Supreme Court is the law of the land. The Supreme Court has always been a law maker and its ST/11308-11309/2018 & ST/10180/2019 P a g e | 21 role travels beyond merely dispute-settling. It is a problem-solver in the 'nebulous areas' without ignoring statutory provisions. The Supreme Court only interprets the law and cannot legislate it. The general principle of law laid down by the Supreme Court is applicable to every person including those who were not parties to that order. Judicial discipline to abide by declaration of law by the Supreme Court, cannot be forsaken under any pretext by any authority or court, be it even the highest court in a State, oblivious to Article 141 of the Constitution. What is binding in terms of Article 141 of the Constitution is the ratio of the judgment. The ratio decidendi of a judgment is the reason assigned in support of the conclusion. The decision of the Supreme Court upon a question of law is considered to be a binding precedent, and this must be ascertained and determined by analysing all the material facts and issues involved in the case. The doctrine of precedent helps in promoting certainty and consistency in judicial decisions and enables an organic development of law besides providing assurance to the individual as to the consequences of transactions forming part of daily affairs. The decision in a judgment of the Supreme Court cannot be assailed on the ground that certain aspects were not considered or the relevant provisions were not brought to the notice of the Court. The judgments of the Supreme Court are binding on all authorities under Article 142 of the Constitution and it is not open to any authority to ignore a binding judgment of the Supreme Court on the ground that the full facts had not been placed before it and/or the judgment of the Supreme Court in the earlier proceedings had only collaterally or incidentally decided the issues, in the case of Bharti Airtel."
ST/11308-11309/2018 & ST/10180/2019 P a g e | 22 2.29 During hearing, the respondent themselves admitted that they are in the process of issuing refund to the members from whom service tax was collected. Therefore, by their own admission they had claimed refund even prior to fulfilling the condition of unjust enrichment. Thus, the condition of unjust enrichment has not been complied with in this case even in terms of the respondent's own submission. Hence, principle of unjust enrichment as laid down by the Apex Court in Mafatlal Industries case is applicable in the present case and therefore, the refund sanctioned to M/s. Rajpath Club Ltd. requires to be examined in terms of above Principles as to whether the same has been given to the specific Member who has borne the burden of Service Tax or not and if not, the same requires to be credited to Consumer Welfare Fund. As this aspect needs minute verification with regard to payment of Service Tax by individual members, it was requested to set aside the impugned order of the Commissioner (Appeal) and to remand the matter back to the Sanctioning Authority for testing the bar of unjust enrichment in this refund claim.
3. The Respondent Party in response through their advocate submitted as follows :
M/s. Rajpath Club Ltd. the appellant is an incorporated entity under the companies Act. 1956 and its certificate of incorporation had been produced before the Commissioner (Appeals) as it is can be seen from page 63 of the Appeal Paper Book (internal page 6 of the commissioner appeals order). It is to be noted that the doctrine of unjust enrichment has been agitated before the tribunal but the doctrine nowhere finds mention in the appeal memorandum filed by the department.
3.1. The doctrine of unjust enrichment generally applies to prevent entities from claiming a refund of taxes when they have already passed on the tax burden to consumers or clients, thereby enriching themselves unjustly at the ST/11308-11309/2018 & ST/10180/2019 P a g e | 23 expense of the government or taxpayers. However, this principle does not uniformly apply to all cases, particularly where the nature of the relationship between the entity and those to whom services are rendered is not that of a typical service provider and client.
3.2. It sought to rely upon various decisions as follows :
1. Karnavati Club Limited v. CST Ahmedabad- 2013 (5) TMI 752 The CESTAT Ahmedabad in its 2013 judgment held in the appellants very own case that Karnavati Club was not liable to pay Service Tax on the services provided to its members because the members and the club are not distinct entities. The club operates on the principle of mutuality, which means that the services rendered by the club to its members cannot be considered as services to an external client or customer. Consequently, any Service Tax paid by the club on these services was not a tax liability in the legal sense and thus, should be refunded.
The Tribunal clearly stated that the question of unjust enrichment does not arise in this scenario because the club cannot enrich itself by claiming a refund from itself. The club and its members are seen as one entity, and therefore, the incidence of tax was never passed on to an external party. The relevant para has been produced here under.
"11. It can be seen from the above reproduced paragraphs that their Lordships have come to a categorical conclusion that the members of the club cannot be seen separately as a client or customer and the mandap or the club is one and the same. Since the Service Tax is sought from the club and it has been set aside at the show cause notice stage, by the Hon'ble High Court, it cannot be said that said club has passed on the incidence of Service Tax liability to its members, as the members are not separate from the club, is the ratio of their Lordships. If that be so, it cannot be said that by claiming the refund from self, the club itself will be unjustly enriched. Services rendered to self cannot be equated with the services rendered to a client or customer.
12. In my view, the appellant has passed the hurdle of unjust enrichment and I hold that the provisions of Section 12B will not be applicable in this case as the club and the members are not separate and are one as held in ST/11308-11309/2018 & ST/10180/2019 P a g e | 24 this case by Hon'ble High Court, the question of producing any other evidence in support of non-passing of Service Tax liability does not arise."
2. Commissioner of Service Tax - Ahmedabad v. Young Men's Christian Association:-2024 (5) TMI 200.
The Hon'ble CESTAT Ahmedabad has reaffirmed that the doctrine of mutuality applies to transactions between a club and its members, meaning there is no taxable service between two distinct entities and therefore, the doctrine of unjust enrichment is not applicable in the cases of a club. The relevant paragraphs have been reproduced here under "4. We have carefully considered the submission made by both the sides and perused the records. We find that even the aspects of taxability decided by the Hon'ble Supreme Court is on the principle that due to doctrine of mutuality no service exists between the club or association and its members. When the Hon'ble Supreme Court held that the club or association and its members are not two distinct identity and there is a mutuality of interest between both of them on that basis only it was held that since no service provider or service recipient exists service tax is not payable. On the same principle, if any service tax is paid, it has gone from one hand to other within the same entity it cannot be said that the incidence of the service tax has been passed on. We find that the Learned Commissioner (Appeal) while deciding the unjust enrichment, given the following finding in his order:-
"7. The issue pertains to applicability of unjust enrichment in the refund claims sanctioned by the adjudicating authority. The respondents had filed the claims in view of the decision of Hon'ble High Court of Gujarat in the case of Sports Club of Gujarat vs Union of India. The judgment of the Hon'ble High Court of Gujarat is based on the 'Principles of Mutuality. I also have the same view that any transaction by the club with its member is not a transaction between two parties. The question of unjust enrichment will arise only when there is the existence of two or more distinctly separate parties. But when the respondents are dealing with their members, we find that they are not separate entities. The Hon'ble High Court proclaimed that; "The petitioner is giving service to its members but the club is formed on the principle of mutuality and, therefore, any transaction by the club with its member is not a transaction between two parties. However, being a company, it may enter into a transaction with anybody, a 3rd person, not a member, then in that situation, this club becomes a legal entity and can certainly enter ST/11308-11309/2018 & ST/10180/2019 P a g e | 25 into any transaction and such transaction are not on the principle of mutuality and, therefore, may be liable to any tax as a transaction between two parties. However, when the club is dealing with its members, it is not a separate and distinct Individual. It is submitted that in Identical facts and circumstances, however, in the matter of Imposition of sales tax, when the club was expressly included in the statutory definition of 'dealer' under Madras General Sales Tax Act, 1959, so as to bring the club within the purview of taxing statute of the Madras Sales Tax, the Hon'ble Supreme Court, in the case of the Joint Commercial Tax Officer Vs. The Young Mens'Indian Association, considered the definition of the 'dealer' by which the club was declared dealer and after considering the definition of sale as given in the Act of 1959 and explanation-1 appended to Section 2(n), specifically declaring the sale or supply or distribution of goods by a club to its members whether or not in the course of business was declared deemed to be a sale for the purpose of the said Act. In that situation, Hon'ble Supreme Court considered the issue that the club is rendering service or selling any commodity to its members for a consideration then whether that amounts to sale or not. Hon'ble Supreme Court held that it is a mutuality which constitutes the club and, therefore, sale by a club to its members and its services rendered to the members, is not a sale by club to the members. In the case of Commissioner of Income Tax Vs. Ranchi Club Limited, the Hon'ble Patna High Court affirmed that no one can earn profit out of himself on the basis of principle of mutuality and held that income tax cannot be imposed on the transaction of the club with its members.
From the above finding, it can be seen that the Learned Commissioner (Appeals) held that unjust enrichment is not applicable due to principle of mutuality, we completely agree with the finding of the commissioner (Appeals) which is supported by the Hon'ble Gujarat High Court judgment (Supra)."
3 Commissioner Service Tax - Ahmedabad v. Young Men's Christian Association:-2024 (10) TMI 679-Annexure C ST/11308-11309/2018 & ST/10180/2019 P a g e | 26 Following the earlier decision, Hon'ble CESTAT Ahmedabad again held that the doctrine of Unjust Enrichment is not applicable in the case of clubs and held as under.
In view of the above decision, the doctrine of unjust enrichment is not applicable in the present case. In view of our above observation, the appellant is eligible for refund of service tax paid by them along with interest in accordance with law. Accordingly, the impugned order is upheld and Revenue's appeal is dismissed.
4. Commissioner of Excise & ST-Ahmedabad North v. Rajpath Club Ltd.:-
In a recent decision of the tribunal in Rajpath's own case, Tribunal has rejected the department's appeal based upon the earlier decision in State of West Bengal and Ors. v. Calcutta Club Ltd 2019 (10) TMI 160 (SC). It is pertinent to note here that the grounds of appeal taken by the department in present appeal i.e. ST/12846/2018 and taken in ST/11309/2018 are similar and therefore, the present appeal must also be dismissed like ST/12846/2018.
Based on the principles laid out in above judgments, it is evident that the doctrine of unjust enrichment does not apply to incorporated clubs like Rajpath Club when seeking refunds of Service Tax paid on services rendered to their members, more importantly in the appellant's own case. As a result, Rajpath Club is rightfully entitled to refund of the Service Tax paid, and any claims by the Revenue that unjust enrichment applies in this context are without merit and the appeal filled by the revenue is liable to be dismissed. 3.3. He also relied upon the following judgements :
2019 (10) TMI 160-SC-State of West Bengal & Ors Versus Calcutta Club Limited 2013 (1) TMI 343-SCM/s Bangalore Club Versus Commissioner of Income Tax & Anr ST/11308-11309/2018 & ST/10180/2019 P a g e | 27 1997 (5) TMI 392-SC-Commissioner of Income-Tax Versus Bankipur Club Limited Relevant Pages- The Law and Practice of Income Tax-Kanga and Palkhivala-11th Edition Section 11B-Claim for Refund of Duty- Central Excise Act 2013 (5) TMI 752-AT-Karnavati Club Limited Versus CST Ahmedabad 2018 (7) TMI 2359-AT-M/s Agra Club Ltd Versus Commissioner of Central Excise & Service Tax Agra 2024 (5) TMI 200AT-Commissioner of Service Tax -Ahmedabad Versus Young Men's Christian Association 2024 (10) TMI 679-AT-Commissioner of Service Tax-Ahmedabad Versus Young Mens Christian Association Rajpath Club-STA 12846 of 2018- Order Dated-28.06.2024 Karnavati Club- STA 12428 of 2018- Order Dated-29.11.2024 1981 (4) TMI 96-HC-JK Synthetics Ltd Versus Union of India 3.4. Additionally the club was required to file an affidavit as to what all happened of the previous refund claims filed by them from time to time as the present claims are also involving the same issue and are only periodic Vide an affidavit dated 5th March, 2025 both Rajpath Club Ltd as well as Karnavati Club filed the affidavit which are similarly worded and which, inter alia, indicate that in the Annual General Meeting of the members it affirmed that refund of Service Tax was grantable to the members on their filing a form along with necessary proofs, as per the guidance of the committee formed by the club. The refund will be processed based on details submitted in the forms and that the club had sent letters to its members requesting them to visit the club and complete refund form. All this was done in pursuance of refund order dated 20.04.2018 in favour of Rajpath Club which was not further challenged by the department and therefore findings have attained finality. That till date, the refund allowed by Rajpath club was ST/11308-11309/2018 & ST/10180/2019 P a g e | 28 to the tune of Rs. 17,18,14,651/- and as per Karnavati Club, amount refunded is to the tune of Rs. 2,66,58,750/-. It has also been mentioned that the endeavors of the club is to refund the said amount to its past members and legal heirs of the members, wherever entitled to.
4. In response to the affidavit filed, learned AR has responded by raising following objection-
" In Para 2 of identically worded letters, both the Respondent Clubs have mentioned that "the club as decided in Annual general Meeting of the member has prepared a form for refund of service tax, which is to be filled by the members along with necessary proofs.....". This points out to the fact that refund process adopted by both the clubs is the same and it can at best be described as a conditional refund process. The clubs have thus conveyed to their members that if there is no proof then there is no refund. When the details about each of the members are available with the clubs it is unfathomable as to why the clubs need proofs to refund the amount collected as service tax, which has already been refunded by the department.
(ii) Karnavati Club Ltd. as per their submission has been able to refund back Rs. 2,66,58,750/-, and Rajpath Club Ltd. as per their submission has been able to refund back Rs. 17,18,14,651/- (though no evidence has been furnished to support their claim). However, they are silent about the period for which this amount belongs. Further, they have not submitted any evidence that the amount claimed to be refunded by the clubs to their members are in respect of the period for which the present appeals."
5. We appreciate both sides for their valued assistance. We have considered the rival submissions in details. We find that the trail leading to the present litigation by the department emanates from the principle of mutuality between the club and association and its members which needed resolution by the Apex Court prior to and after 01.07.2012. The Apex Court after considering various facts of the levy held that principle of mutuality applies between the club and its members vide decision reported in 2019 (10) TMI 160-SC in the case of state of West Bengal & other Vs. Calcutta Club Ltd. Hon'ble Supreme Court also held that post amendment in Finance Act, 1994 vide amendment carried out on 1st July, 2012, the definition of ST/11308-11309/2018 & ST/10180/2019 P a g e | 29 service contained in Section 65B(44) was still wide enough to include the 'doctrine of mutuality' at least in relation to incorporated clubs or association to claim exemption from Service Tax. The basis of principle propounded was that there cannot be a service and therefore the levy between the club and members, inter-se, as the member collectively constitute the club and cannot be stated to be providing service mutually. We also find that this Bench in the matter of Karnavati Club Vs. CST Ahmedabad vide its order dated 29.01.2013 as reported in 2013 (5)TMI-752-CESTAT-Ahmedabad had held that provision of Section 11B particularly in relation to unjust enrichment will not apply to club and members as they are not separate and as held by Hon'ble Gujarat High Court which view got endorsed by the Hon'ble Supreme Court in Culcutta club matter (supra) and, the principle of mutuality will apply in relation to refund also. This Hon'ble Bench vide its above decision held that the club and members not being separate, therefore the question of producing any other evidence in support of not passing of Service Tax liability does not arise. In short it extended the 'principle of mutuality' even to unjust enrichment, apart from levy of Service Tax. By virtue of this observation, the refund was allowed in favour of Karnavati Club which is also one of the Respondents before us. We also observe that in the Tribunal it's final order No 12909/2024 dated 29.11.2024 in the case of Commissioner of Central Excise and Service Tax Ahmedabad North Vs. Karnavati Club Ltd in in which decision in Karnavati Club vs. CGST Ahmedabad as reported in 2013 (5) TMI 752-CESTAT- Ahmedabad was also cited, has made the following observations.
Para "4. On careful consideration of submissions made by both the sides and perusal of the records we find that both the lower authorities have not touched upon the vital issue of unjust enrichment that whether in the fact of the present case, the unjust enrichment is applicable and if yes whether the respondent have discharged the burden to prove that the incidence of the service tax paid by them was not passed on to any other person. We further find that both lower authorities had no occasion to see the light of the Hon'ble Supreme ST/11308-11309/2018 & ST/10180/2019 P a g e | 30 Court judgment in the case of STATE OF WEST BENGAL & ORS. VERSUS CALCUTTA CLUB LIMITED, therefore, the matter needs to be remanded to the adjudicating authority.
Para 5. Accordingly, we set aside the impugned order and allow the Revenue's appeal by way of remand to the adjudicating authority to decide a fresh on all the issues".
5.1 Therefore, the later view of Ahmedabad Bench did not endorse the earlier view in Karnavati Club order passed in 2013, which extended the doctrine of mutuality even to the unjust enrichment by ignoring the principle of mutuality between club and members, for the angle of unjust enrichment. We also find force in the arguments advance by the Learned Commissioner (AR) who pointed out that the doctrine of mutuality cannot be extended beyond the scope of levy provisions and if the same is done absurd consequence shall follow. As a club will be able to claim tomorrow that all assets of its members are the assets of the club. The levy collected without force of law too is an asset of the member and enriching club by extending 'principle of mutuality' beyond levy will amount to interpreting law in a manner that promotes misappropriation of members funds as well as probably the "consumer Welfare Fund". His argument that the prayer of the department to subject the refund claim to unjust enrichment must be allowed even if silence on this aspect was maintained by the appellate authority, while allowing the refund due to levy provision having been interpreted by the Hon'ble Supreme Court in the matter of Calcutta Club (cited supra). That Section 11B has a statutory stipulation that refunds have to be subjected to scrutiny of "unjust enrichment" and same cannot be done away by unduly extending the scope of "mutuality" beyond levy. We find and concur that if for all aspects including refund "the members and club are considered as mutual" then such interpretation will lead to absurdity whereby all members will lose their right to be paid their dues which were recovered as a tax by the club. The levy if it is not sustained, but still the ST/11308-11309/2018 & ST/10180/2019 P a g e | 31 recovery has been made by the club, it cannot be allowed to enrich itself at the cost of members by treating them to be the same as themselves. The provision of unjust enrichment enjoins upon the person who collects a tax which is refunded as not being covered by lawful levy to either pay back the same to the person from whom the same was recovered or if it cannot be paid back for any reason then the department has the right to apply provisions of unjust enrichment and recover the amount which could not be paid back and credit it to the Consumer Welfare Fund etc. Any interpretation that can encourage misappropriation, defiance of rightful claims has to be eschewed. " The Principle of mutuality" as propounded by Hon'ble Apex Court has to be with reference to Levy of Tax only and any extension beyond this should be the scope in the instant case even to non-applicability provisions of "unjust enrichment" require rejection being "ab incontinent"
and having tendency to promote hardship inconvenience and injustice and even absurdity to a greater number of members. "Purposive interpretation"
to Section 11B for maximization of public good should therefore sub-serve provisions of Section 11B and "Principle of mutuality". The Hon'ble Supreme Court did not have the occasion to consider unjust enrichment and principle of mutuality while passing its decision on scope of levy in Calcutta club case (cited supra), we are further fortified in our conclusion by the decision of Apex Court in the case of Commissioner of Central Excise, Chennai-II Vs. Grasim Industries as reported in 2015 (318) ELT 594 (S.C.) in which, it, inter alia, held that in case of refund the principle of unjust enrichment will apply even to captive consumption. Thus what is applicable within same entity, but different Sections consuming captively shall equally apply between club and its members in relation to refund of levy collected. Para 3 to 10 above judgment which are relevant to the point are reproduced below:
"3. A perusal of the order of the CESTAT would reveal that the CESTAT was grapping with the question as to whether the doctrine of unjust ST/11308-11309/2018 & ST/10180/2019 P a g e | 32 enrichment will be applicable in case of refund of duty paid on capital goods, which are used captively. The CESTAT has taken note of certain judgments including judgment of this Court in case of Union of India v. Solar Pesticides Pvt. Ltd. [2000 (2) SCC 705 = 2000 (116) E.L.T. 401 (S.C.)] which was relied upon by the Revenue. However, the said judgment is distinguished as not applicable in the instant case on the ground that this Court in the said case was not concerned with the issue of unjust enrichment in connection with capital goods used captively.
4. It is in this backdrop the issue, as formulated in the first para above, arises for consideration.
5. Since the judgment of Solar Pesticides Pvt. Ltd. has been distinguished and held not applicable to the facts of the present case, we shall start our discussion by analysing the said judgment. In the said case the question which was formulated for decision was as under :
"Whether the doctrine of unjust enrichment is applicable in respect of raw material imported and consumed in the manufacture of a final product is the question which arises for consideration in these appeals."
6. The Court in detail discussed the principle of unjust enrichment. At the outset it took note of the Constitution Bench judgment in Mafatlal Industries Ltd. and Others v. Union of India and Others [1997 (5) SCC 536 = 1997 (89) E.L.T. 247 (S.C.)] and the principles laid down therein. Thereafter the position in law on this aspect is succinctly summed up in paras 17 to 20 which are reproduced below :
"17. Section 11B, along with Section 11-A, was introduced by Customs, Central Excises and Salt and Central Board of Revenue (Amendment) Act, 1978 with effect from 17-11-1980, a fact mentioned hereinbefore. Until the enactment and enforcement of Sections 11-A and 11-B, the recovery and refund of excise duties was governed by the Rules. Rule 11 which dealt with claims for refund of duty, as in force prior to 6-8-1977 read as follows :
11. No refund of duties or charges erroneously paid, unless claimed within three months. - No duties or charges which have been paid or have been adjusted in an account current maintained with the Collector under Rule 9, and of which repayment wholly or in part is claimed in consequence of the same having been paid through inadvertence, error or misconstruction, shall be refunded unless the claimant makes an application for such refund under his signature and lodges it with the proper officer within three months from the date of such payment or adjustment, as the case may be."
"18. Rule 11 was amended with effect from 6-8-1977 and it remained in force till the coming into force of Section 11B. Rule 11, as it obtained during the said period, read as follows :
11. Claim for refund of duty.-
(1) Any person claiming refund of any duty paid by him may make an application for refund of such duty to the Assistant Collector of Central Excise before the expiry of six months from the date of payment of duty.
ST/11308-11309/2018 & ST/10180/2019 P a g e | 33 Provided that the limitation of six months shall not apply where any duty has been paid under protest.
Explanation. - Where any duty is paid provisionally under these rules on the basis of the value or the rate of duty, the period of six months shall be computed from the date on which the duty is adjusted after final determination of the value or the rate of duty, as the case may be.
(2) If on receipt of any such application the Assistant Collector of Central Excise is satisfied that the whole or any part of the duty paid by the applicant should be refunded to him, he may make an order accordingly.
(3) Where as a result of any order passed in appeal or revision under the Act, refund of any duty becomes due to any person, the proper officer may refund the amount to such person without his having to make any claim in that behalf.
(4) Save as otherwise provided by or under these rules no claim for refund of any duty shall be entertained.
Explanation. - For the purposes of this rule, refund' includes rebate referred to in Rules 12 and 12A."
19. We may now set out Section 11-B, as amended by Act 40 of 1991. (Even subsequent to 1991, there have been certain minor amendments to the said section.) As it stands today, Section 11-B reads as follows (portions not necessary for the purposes of the present controversy omitted) :
"11B. Claim for refund of duty.-- (1) Any person claiming refund of any duty of excise may make an application for refund of such duty to the Assistant Commissioner of Central Excise before the expiry of six months 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 12A as the applicant may furnish to establish that the amount of duty of excise in relation to which such refund is claimed was collected from, or paid by, him and the incidence of such 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 subsection (2) substituted by that Act :
Provided further that the limitation of six months shall not apply where any duty has been paid under protest.
ST/11308-11309/2018 & ST/10180/2019 P a g e | 34 (2) .....................
(a) ....................
(b) ...................
(c) ...................
(d) ...................
(e) ..................
(f) ...................
(3) ..................
(f) ..................."
20. The said Amendment Act also amended Section 11-C, besides introducing Section 11-D and an entire new chapter, Chapter II-A. Since Section 11-C does not fall for our consideration, we need not refer to it. Section 11-D reads as follows :
11D. Duties of excise collected from the buyer to be deposited with the Central Government. - (1) Notwithstanding anything to the contrary contained in any order or direction of the Appellate Tribunal or any court or in any other provision of this Act or the rules made thereunder, every person who has collected any amount from the buyer of any goods in any manner as representing duty of excise, shall forthwith pay the amount so collected to the credit of the Central Government.
(2) The amount paid to the credit of the Central Government under sub-section (1) shall be adjusted against duty of excise payable by the person on the finalisation of assessment and where any surplus is left after such adjustment, the amount of such surplus shall either be credited to the Fund or, as the case may be, refunded to the person who has borne the incidence of such amount, in accordance with the provisions of section 11B and the relevant date for making an application under that section in such cases shall be the date of the public notice to be issued by the Assistant Commissioner of Central Excise."
7. Two things which emerge from the reading of the aforesaid judgment and need to be emphasized are as under :
(i) in attracting the principle of unjust enrichment it is not only the actual burden which is passed on to the another person that would be taken into consideration even if the incident of such duty had not been passed on by him to any other person;
(ii) the principle of unjust enrichment shall be applicable in the case of captive consumption as well. According to the Court the principle of unjust enrichment would be applicable in both the circumstances.
8. This case, therefore, makes it clear that the principle of unjust enrichment is applicable even when the goods are used for captive consumption. No doubt, in the said case the goods with which the Court was concerned was raw material, imported and consumed in the manufacture of the final product. The question is as to whether ST/11308-11309/2018 & ST/10180/2019 P a g e | 35 this principle would be extended to capital goods also, as it was in respect of raw material. This was left open in Mafatlal Industries case. As it falls for determination in the present case, we are addressing this issue. To answer this issue, we may drawn some sustenance from the judgment of this Court in the case of Indian Farmers Fertiliser Coop. Ltd. v. C.C.E., Ahmedabad [1996 (86) E.L.T. 177 (S.C.)]. Though that case is concerned with the exemption of Raw Naptha was used to produce ammonia which is used in effluent treatment plant. Notification No. 187/61-C.E. provided for exemption to such Raw Naptha as is used in the manufacture of ammonia provided such ammonia is used elsewhere in the manufacture of fertilizers. The question was as to whether the ammonia used in the off-site plants is also ammonia which is used elsewhere in the manufacture of fertilizers. The court answered the question in the affirmative thereby holding that exemption provided under Notification No. 187/61-C.E. shall be available to the assessee.
9. However, what follows from the reading of the said judgment is that if a particular material is used for manufacture of a final product, that has to be treated as the cost of the product. Insofar as cost of production is concerned, it may include capital goods which are a part of fixed cost as well as raw material which are a part of variable cost. Both are the components which come into costing of a particular product. Therefore it cannot be said that the principle laid down by the Court in Solar Pesticides would not extend to capital goods which are used in the manufacture of a product and have gone into the costing of the goods. In order to come out of the applicability of the doctrine of unjust enrichment, it therefor becomes necessary for the assessee to demonstrate that in the costing of the particular product, the cost of capital goods was not taken into consideration. We, thus, are of the opinion that the view taken by the Tribunal is not correct in law.
10. We also find from the reading of the judgment of Tribunal that the Tribunal has observed that capital goods viz. ESPs have been only used captively for pollution control purpose and the same is not used for processing or manufacturing of any final product and therefore there is no question of passing on the burden of duty to any one. These observations are clearly erroneous in law in view of the judgment of this Court in Indian Farmers Fertilisers Co-op. Ltd." 5.2 In the instant case, it is not doubted that levy was collected from the members initially treating them as separate. Now even if levy is not sustainable on principle of mutuality, the examination of unjust enrichment for refund cannot be allowed to be ignored, as the same was applied by the Apex Court even for captive consumption within the same entity. 5.3 In the present matter, affidavits were called for from both the clubs and considerable progress in returning back the money to the members of the clubs has been noted with satisfaction. Though a note of discord with the ST/11308-11309/2018 & ST/10180/2019 P a g e | 36 progress by the Commissioner (AR), is also on record indicating that the progress is tardy, considering the time which has passed since the earlier refund was sanctioned. While we categorically state that in no situation, the club can be allowed to unjust enrich itself at the cost of Members which will be nothing but deception and misappropriation, we in the peculiar facts and circumstances of the matter note with satisfaction that considerable amount has been paid back to the Members and is still in progress for the past refunds. Even the legal heirs of the deceased members and also for those who took short term membership have been attempted to be traced. We also find that the exercise cannot go on endlessly and certain time bond limit say of up to two to complete the exercise needs to be considered while considering various aspects of "unjust enrichment". While the first right to any refund is of the members from whom it was recovered, in case, same cannot be paid back the amount it cannot be retained by the clubs. We therefore, while allowing request of the department for remanding the matter to examine the angle of unjust enrichment, allow it on the basis of certain caveats.
While framing our caveats as below, we have been also guided by the following decision:
Mafatlal Industries Ltd Vs. Union of India-(1997) 5 SCC 536, [1997 (89) ELT 247 (SC)) (Nine Member Bench) in which Apex Court held that any claim for refund of taxes must pass the test of unjust enrichment. Relevant Para-99 is reproduced below:-
"99. The discussion in the judgment yields the following propositions. We may forewarn that these propositions are set out merely for the sake of convenient reference and are not supposed to be exhaustive. In case of any doubt or ambiguity in these propositions, reference must be had to the discussion and propositions in the body of the judgment.
(i) Where a refund of tax/duty is claimed on the ground that it has been collected from the petitioner/plaintiff - whether before the commencement of the Central Excises and Customs Laws ST/11308-11309/2018 & ST/10180/2019 P a g e | 37 (Amendment) Act, 1991 or thereafter - by mis-interpreting or mis-
applying the provisions of the Central Excises and Salt Act, 1944 read with Central Excise Tariff Act, 1985 or Customs Act, 1962 read with Customs Tariff Act or by mis-interpreting or mis-applying any of the rules, regulations or notifications issued under the said enactments, such a claim has necessarily to be preferred under and in accordance with the provisions of the respective enactment before the authorities specified thereunder and within the period of limitation prescribed therein. No suit is maintainable in that behalf. While the jurisdiction of the High Courts under Article 226 - and of this Court under Article 32 - cannot be circumscribed by the provisions of the said enactments, they will certainly have due regard to the legislative intent evidenced by the provisions of the said Acts and would exercise their jurisdiction consistent with the provisions of the Act. The writ petition will be considered and disposed of in the light of and in accordance with the provisions of Section 11B. This is for the reason that the power under Article 226 has to be exercised to effectuate the rule of law and not for abrogating it.
The said enactments including Section 11B of Central Excises and Salt Act and Section 27 of the Customs Act do constitute "law" within the meaning of Article 265 of the Constitution of India and hence, any tax collected, retained or not refunded in accordance with the said provisions must be held to be collected, retained or not refunded, as the case may be, under the authority of law. Both the enactments are self-contained enactments providing for levy, assessment, recovery and refund of duties, imposed thereunder . Section 11B of the Central Excises and Salt Act and Section 27 of the Customs Act, both before and after the 1991 (Amendment) Act are constitutionally valid and have to be followed and given effect to. Section 72 of the Contract Act has no application to such a claim of refund and cannot form a basis for maintaining a suit or a writ petition. All refund claims except those mentioned under Proposition
(ii) below have to be and must be filed and adjudicated under the provisions of the Central Excises and Salt Act or the Customs Act, as the case may be. It is necessary to emphasise in this behalf that Act provides a complete mechanism for correcting any errors whether of fact or law and that not only an appeal is provided to a Tribunal - which is not a departmental organ - but to this Court, which is a civil court.
(ii) Where, however, a refund is claimed on the ground that the provision of the Act under which it was levied is or has been held to be unconstitutional, such a claim, being a claim outside the purview of the enactment, can be made either by way of a suit or by way of a writ petition. This principle is, however, subject to an exception :
where a person approaches the High Court or Supreme Court challenging the constitutional validity of a provision but fails, he cannot take advantage of the declaration of unconstitutionality obtained by another person on another ground; this is for the reason that so far as he is concerned, the decision has become final and cannot be re-opened on the basis of a decision on another person's case; this is the ratio of the opinion of Hidayatullah, CJ. in Tilokchand Motichand and we respectfully agree with it. Such a claim is maintainable both by virtue of the declaration contained in Article 265 of the Constitution of India and also by virtue of Section 72 of the Contract Act. In such cases, period of limitation would naturally be calculated taking into account the principle underlying Clause (c) of sub-section (1) of Section 17 of the Limitation Act, 1963. A refund claim in such a situation cannot ST/11308-11309/2018 & ST/10180/2019 P a g e | 38 be governed by the provisions of the Central Excises and Salt Act or the Customs Act, as the case may be, since the enactments do not contemplate any of their provisions being struck down and a refund claim arising on that account. In other words, a claim of this nature is not contemplated by the said enactments and is outside their purview.
(iii) A claim for refund, whether made under the provisions of the Act as contemplated in Proposition (i) above or in a suit or writ petition in the situations contemplated by Proposition (ii) above, can succeed only if the petitioner/plaintiff alleges and establishes that he has not passed on the burden of duty to another person/other persons. His refund claim shall be allowed/decreed only when he establishes that he has not passed on the burden of the duty or to the extent he has not so passed on, as the case may be. Whether the claim for restitution is treated as a constitutional imperative or as a statutory requirement, it is neither an absolute right nor an unconditional obligation but is subject to the above requirement, as explained in the body of the judgment. Where the burden of the duty has been passed on, the claimant cannot say that he has suffered any real loss or prejudice. The real loss or prejudice is suffered in such a case by the person who has ultimately borne the burden and it is only that person who can legitimately claim its refund. But where such person does not come forward or where it is not possible to refund the amount to him for one or the other reason, it is just and appropriate that that amount is retained by the State, i.e., by the people. There is no immorality or impropriety involved in such a proposition.
The doctrine of unjust enrichment is a just and salutory doctrine. No person can seek to collect the duty from both ends. In other words, he cannot collect the duty from his purchaser at one end and also collect the same duty from the State on the ground that it has been collected from him contrary to law. The power of the Court is not meant to be exercised for unjustly enriching a person. The doctrine of unjust enrichment is, however, inapplicable to the State. State represents the people of the country. No one can speak of the people being unjustly enriched.
(iv) It is not open to any person to make a refund claim on the basis of a decision of a Court or Tribunal rendered in the case of another person. He cannot also claim that the decision of the Court/Tribunal in another person's case has led him to discover the mistake of law under which he has paid the tax nor can he claim that he is entitled to prefer a writ petition or to institute a suit within three years of such alleged discovery of mistake of law. A person, whether a manufacturer or importer, must fight his own battle and must succeed or fail in such proceedings. Once the assessment of levy has become final in his case, he cannot seek to reopen it nor can he claim refund without re-opening such assessment/order on the ground of a decision in another person's case. Any proposition to the contrary not only results in substantial prejudice to public interest but is offensive to several well established principles of law. It also leads to grave public mischief. Section 72 of the Contract Act, or for that matter Section 17(1)(c) of the Limitation Act, 1963, has no application to such a claim for refund.
(v) Article 265 of the Constitution has to be construed in the light of the goal and the ideals set out in the Preamble to the Constitution and in Articles 38 and 39 thereof. The concept of economic justice demands that in the case of indirect taxes Central Excises duties and Customs duties, the tax collected without the authority of law ST/11308-11309/2018 & ST/10180/2019 P a g e | 39 shall not be refunded to the petitioner-plaintiff unless he alleges and establishes that he has not passed on the burden of duty to a third party and that he has himself borne the burden of the said duty.
(vi) Section 72 of the Contract Act is based upon and incorporates a rule of equity. In such a situation, equitable considerations cannot be ruled out while applying the said provision.
(vii) While examining the claims for refund, the financial chaos which would result in the administration of the State by allowing such claims is not an irrelevant consideration. Where the petitioner- plaintiff has suffered no real loss or prejudice, having passed on the burden of tax or duty to another person, it would be unjust to allow or decree his claim since it is bound to prejudicially affect the public exchequer. In case of large claims, it may well result in financial chaos in the administration of the affairs of the State.
(viii) The decision of this Court in Sales Tax Officer, Benaras v. Kanhaiyalal Mukundlal Saraf [1959 S.C.R. 1350] must be held to have been wrongly decided insofar as it lays down or is understood to have laid down propositions contrary to the propositions enunciated in (i) to (vii) above. It must equally be held that the subsequent decisions of this Court following and applying the said propositions in Kanhaiyalal have also been wrongly decided to the above extent. This declaration - or the law laid down in propositions (i) to (vii) above - shall not however entitle the State to recover the taxes/duties already refunded and in respect whereof no proceedings are pending before any Authority/Tribunal or Court as on this date. All pending matters shall, however, be governed by the law declared herein notwithstanding that the tax or duty has been refunded pending those proceedings, whether under the orders of an Authority, Tribunal or Court or otherwise.
(ix) The amendments made and the provisions inserted by the Central Excises and Customs Law (Amendment) Act, 1991 in the Central Excises and Salt Act and Customs Act are constitutionally valid and are unexceptionable.
(x) By virtue of sub-section (3) to Section 11B of the Central Excises and Salt Act, as amended by the aforesaid Amendment Act, and by virtue of the provisions contained in sub-section (3) of Section 27 of the Customs Act, 1962, as amended by the said Amendment Act, all claims for refund (excepting those which arise as a result of declaration of unconstitutionality of a provision whereunder the levy was created) have to be preferred and adjudicated only under the provisions of the respective enactment. No suit for refund of duty is maintainable in that behalf. So far as the jurisdiction of the High Courts under Article 226 of the Constitution or of this Court under Article 32 - is concerned, it remains unaffected by the provisions of the Act. Even so, the Court would, while exercising the jurisdiction under the said articles, have due regard to the legislative intent manifested by the provisions of the Act. The writ petition would naturally be considered and disposed of in the light of and in accordance with the provisions of Section 11B. This is for the reason that the power under Article 226 has to be exercised to effectuate the regime of law and not for abrogating it. Even while acting in exercise of the said constitutional power, the High Court cannot ignore the law nor can it over-ride it. The power under Article 226 is conceived to serve the ends of law and not to transgress them.
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(xi) Section 11B applies to all pending proceedings notwithstanding the fact that the duty may have been refunded to the petitioner/plaintiff pending the proceedings or under the orders of the Court/Tribunal/Authority or otherwise. It must be held that Union of India v. Jain Spinners [1992 (61) E.L.T. 321 (SC) = 1992 (4) S.C.C. 389] and Union of India v. I.T.C. [1993 (67) E.L.T. 3 (SC) = 1993 Suppl. (4) S.C.C. 326] have been correctly decided. It is, of course, obvious that where the refund proceedings have finally terminated - in the sense that the appeal period has also expired - before the commencement of the 1991 (Amendment) Act [September 19, 1991], they cannot be re-opened and/or governed by Section 11B(3) [as amended by the 1991 (Amendment) Act]. This, however, does not mean that the power of the Appellate Authorities to condone delay in appropriate cases is affected in any manner by this clarification made by us.
(xii) Section 11B does provide for the purchaser making the claim for refund provided he is able to establish that he has not passed on the burden to another person. It, therefore, cannot be said that Section 11B is a device to retain the illegally collected taxes by the State. This is equally true of Section 27 of the Customs Act, 1962." The guiding caveats are as follows:-
i) To the extent possible, the club will refund the collected Service Tax to the persons or established legal heirs or part time members from whom the money was recovered as levy, as the first step
ii) As considerable interest has been earned/will be earned on the amount refunded to the club, the same shall be deposited in escrow account with no claim of interest by the club. This will curb tendency to delay, if any of the club.
iii) Department shall examine unjust enrichment angle to adjudge to the extent that after two years, if some amount remains un paid to any member or its legal heirs or not passed including to the temporary members, not being available, then such un-paid amount shall be available for crediting to the Consumer Welfare Fund along with the interest amount if any earned in the escrow account. Endeavor shall be made by the department as well as the club to maximize interest by making appropriate FDRs in Nationalized Bank Account.
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6. With above discussions we allow the appeal of the department with above caveats as per Para 5.3 (supra).
7. The appeal is allowed in above terms.
(Pronounced in the Open Court on 15.04.2025) (SOMESH ARORA) MEMBER ( JUDICIAL ) (SATENDRA VIKRAM SINGH) MEMBER ( TECHNICAL ) Arpita