Custom, Excise & Service Tax Tribunal
Edelweiss Securities Limited vs Mumbai I on 31 December, 2015
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
WEST ZONAL BENCH AT MUMBAI
APPEAL NO: ST/502/2011
[Arising out of Order-in-Appeal No: MI/AV/251/2011 dated 29/04/2011 passed by the Commissioner of Central Excise (Appeals), Mumbai Zone I]
For approval and signature:
Honble Shri M V Ravindran, Member (Judicial)
Honble Shri C J Mathew, Member (Technical)
1.
Whether Press Reporters may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?
:
Yes
2.
Whether it should be released under Rule 27 of CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?
:
Yes
3.
Whether Their Lordships wish to see the fair copy of the Order?
:
Seen
4.
Whether Order is to be circulated to the Departmental authorities?
:
Yes
Edelweiss Securities Limited
Appellant
versus
Commissioner of Service Tax
Mumbai I
Respondent
Appearance:
Shri Bharat Raichandani, Advocate for the appellant Shri R.K. Das, Dy. Commissioner (AR) for the respondent CORAM:
Honble Shri M V Ravindran, Member (Judicial) Honble Shri C J Mathew, Member (Technical) Date of hearing: 31/12/2015 Date of decision: 03/05/2016 ORDER NO: ____________________________ Per: C J Mathew:
M/s Edelweiss Securities Ltd, a stock-broker, is before us against order-in-appeal no. MI/AV/251/2011 dated 29th April 2011 of Commissioner of Central Excise (Appeals), Mumbai-I that has credited the refund of service tax claimed by the appellant to the Consumer Welfare Fund. The dispute relates to tax on consideration received on brokerage that was claimed to have been paid in excess for the period from April 2007 to July 2007.
2. The appellant had entered into agreements dated 30th April 2007 with three clients which incentivised turnover with brokerage at rates lower than the standard rates; by its very nature, such reduction in brokerage would be applied ex-post facto in the month following which the prescribed threshold was crossed. Accordingly, the clients were entitled to lower brokerage during the above period but tax liability had been discharged with the prescribed deadline on the brokerage charged at standard rates the adjustment was given effect to by issue of credit notes in favour of the clients.
3. The refund sanctioning authority denied the claim on the primary ground that tax had been computed and paid by self-assessment and such assessment, having attained finality, could not be challenged through a refund claim. It was held that the assessee, in such cases of uncertainty about the brokerage, should have resorted to provisional assessment envisaged in rule 6(4) of Service Tax Rules, 1994. It was also noted that the claim for refund was not supported by documents that could conclusively cross the hurdle of unjust enrichment. In appeal, the impugned order held that assessment or self-assessment would not prejudice the claim for refund; however, the appellate authority was not satisfied that credit notes were sufficient to establish that the tax burden had not been passed on to the recipients of the service. Accordingly, the first appellate authority held the refund to be due but credited the same to the Consumer Welfare Fund leading to this appeal before us.
4. Before we proceed to assess the rival contentions, we take note of one submission made by the learned Authorized Representative relying upon the decisions of the Honble Supreme Court in Commissioner of Central Excise, Bangalore v. Mysore Electricals Industries Ltd [2006 (204) ELT 517 (SC)] and Thirumalai Chemicals Ltd v. Union of India [2011 (268) ELT 296 (SC)]. The thrust of the argument advanced thus was that the basis of assessment could be varied only with prospective effect. In like fashion, reliance was placed on the decision of the Tribunal in Commissioner of Central Excise, Chennai v. EID Parry India Ltd [2006-TIOL- 1624-CESATAT-MAD] that duty paid pursuant to self-assessment was not refundable and in JCT Ltd v. Commissioner of Central Excise, Ghaziabad [2005 (181) ELT 97 (Tri-Del)] holding that tax paid in excess could be recovered only through civil suit. It would appear that this was the foundation of the rejection of the refund claim by the original authority. We are not inclined to discuss the merits of this contention and the specific application of the cited judgements as this appeal is limited to the decision in the impugned order directing that the tax collected in excess be credited to the Fund. There is a clear finding by the first appellate authority that the provisions of section 11B would be stultified if that conclusion of the original authority is adopted. We content ourselves with observing that decisions cited relate to clearance of goods which rests on a taxable event that is entirely at odds with tax on services.
5. Another note of caution needs to be sounded here. It is not in dispute that the downward revision in brokerage charged from the recipients of service did occur. This dispute is restricted to the reversal of the service tax originally collected to the extent that is proportionate to the brokerage returned to the clients.
6. Learned Counsel for appellant cited the decision of the Tribunal in Shiva Analyticals (I) Ltd v. Commissioner of Service Tax, Bangalore [2007 (7) STR 35 (Tri-Bang)] which relied upon Mohd Ekram & Sons v. Commissioner of Trade Tax [2004 (6) SCC 1083 (SC)] to validate credit notes as evidence of payment and the judgment of the Honble High Court of Karnataka, upholding the decision. Learned Counsel also drew our attention to the decision of the Honble High Court of Rajasthan in Union of India v. AK Spintex Ltd [2009 (234) ELT 41 (Raj)] placing the onus on Revenue to evince lack of authenticity of accounting documents furnished in support of having borne the tax burden. Reliance was, in addition, placed on the decision of the Tribunal in Andhra Pradesh Paper Mills Ltd v. Commissioner of Central Excise, Vishakapatnam-II [2009 (247) ELT 659 (Tri-Bang)] and Commissioner of Central Excise, Hyderabad v. Sirpur Paper Mills Ltd [2010 (253) ELT 269 (Tri-Bang)] in support of the contention that post-clearance adjustments by issue of credit notes suffices as evidence of reduced assessable value and reversal of tax collected from customer. It was also submitted that in view of the decision of the Honble High Court of Jharkhand in McNally Bharat Engineering Co. Ltd v. Commissioner of Central Excise Ranchi [2011 (267) ELT 610 (Jhar)], the impugned order is flawed in having traversed beyond the scope of show-cause notice by denying the release of refund to the appellant on the ground that availment of CENVAT credit by the three clients amounts to unjust enrichment. Besides inviting attention to the decisions relied upon in the impugned order including those of the Honble Supreme Court in Grasim (Chemical Division) v. Commissioner of Central Excise, Bhopal [2011 (271) ELT 164 (SC)] and Rajasthan Spinning & Weaving Ltd v. Collector [1999 (112) ELT A115 (SC)], learned Authorized Representative relies upon M/s S Kumars Ltd v. Commissioner of Central Excise, Indore [2003-TIOL-01-CESTAT-DEL-LB], Sangam Processors (Bhilwara) v. Commissioner of Central Excise [1991 (71) ELT 989] and Commissioner of Central Excise v. Oriental Textiles Processing Co (P) Ltd [2012 (276) ELT 257 (Tri-Del)].
7. The refund claim preferred on 31st December 2007 for Rs 1,44,63,046 relates to brokerage collected in excess on business generated by three clients during the months of April to July 2007 and returned to them in accordance with terms of agreement entered into in April 2007. We have examined the credit notes dated 27th July 2007 and 31st August 2007 issued to M/s Crossborder Investments Pvt Ltd, M/s Edelweiss Commodities & Advisors Ltd and M/s ECL Finance Ltd acknowledging the liability of the appellant. In each, the difference in brokerage, service tax and cess returned have been segregated as separate columns. The issue for resolution is acceptability of credit notes and other accounting documents as sufficient evidence of not having passed on the burden of tax to the three clients and, thereby, be entitled to disbursement of eligible refund amount.
8. We consider it appropriate to reproduce the relevant finding in the impugned order:
10. It is not disputed that the appellants have recovered the excess payment of Service Tax from the clients who in turn have availed CENVAT credit on the same. The appellants have produced Chartered Accountants certificates all dated 28.01.2011 in respect of the three clients to whom credit notes have been stated to have been issued. As per the credit notes it is evident that the appellants have not only recovered the Service Tax paid from the clients but the latter have availed of CENVAT credit on the same amounts. The credit so availed is stated to have been reversed by way of journal voucher entries.
11. However, none of the activities of either availment of CENVAT credit or reversal of credit have been reflected in the ST3 returns of the three customers of the relevant period. The claim of the appellants therefore that the Service Tax paid in excess do not attract the doctrine of unjust enrichment, cannot be upheld. There is no doubt that the Service Tax paid in excess had been recovered by the appellants from their customers. Even though the credit notes had been issued, the fact that CENVAT credit had been availed on the said Service Tax paid in excess also confirms that the amounts had been fully recovered by the appellants form their customers. The Chartered Accountants certificate that the reversals have been effected by issuing journal vouchers without any narration does not lend any credibility to the certificates. The treatment of the amounts in the books of account has also not been explained. The adjudicating authority has relied upon the decision of S. Kumar Vs. CCE, Indore [2003-TIOL-01-CESTAT-Delhi-LB] to hold that mere issue of credit note cannot be said to be sufficient to cross the bar of unjust enrichment. That issue of credit does not satisfy the principle of unjust enrichment has also been held in the following cases:
(i) Grasim Indus. (Chemical Davison) Vs. CCE, Bhopal [2003 (153) ELT 694 (Tri.-LB)]
(ii) Rajasthan Processors (India) Ltd. Vs. Collector [1994 (70) ELT A182]
(iii) Orion Steel Corporation Vs. CCE, Vodadara [2010 (18) STR 237 (Tri.-Ahm)
(iv) 2010 (18) STR 701 (Tri.-Chennai) Sudhir Papers Ltd. Vs. CCE, Bangalore.
12. In view of the above case laws I hold that the principles of unjust enrichment are squarely attracted in this case. However the refund claim instead of being rejected should have been credited to the Consumer Welfare Fund.
9. That does not appear to be a proper finding as the entitlement for disbursement has been denied because the principles of unjust enrichment are squarely attracted in this case. Indubitably, every feature of tax administration is rooted in well-grounded principles just as taxation is, itself, founded on such principles. The enunciation of such principles, and knowledge thereof, is no substitute for the express requirement to base every order on statutory provisions. Unjust enrichment is undoubtedly repugnant to good governance but, laudable as such sentiment may be, specifics of statutory authorization must, necessarily, be the circumscribing limits rather than the elasticity inherent in broad generalization and pious incantation implicit in principles. To set the record straight, we recall to mind the framework of law that restricts disbursement of eligible refund in Central Excise Act, 1944:
Section 11B:
xxxxxxxxx (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 of excise paid by the applicant is refundable, he may make an order accordingly and the amount so determined shall be credited to the Fund: Provided that the amount of duty of excise as determined by the Assistant Collector of Central Excise under the foregoing provisions of this sub- section shall, instead of being credited to the Fund, be paid to the applicant, if such amount is, relatable to--
(a) rebate of duty of excise on excisable goods exported out of India or, on excisable materials used in the manufacture of goods which are exported out of India;
(b) unspent advance deposits lying in balance in the applicant's account current maintained with the Collector of Central Excise;
(c) refund of credit of duty paid on excisable goods used as inputs in accordance with the rules made, or any notification issued, under this Act;
(d) the duty of excise paid by the manufacturer, if he had not passed on the incidence of such duty to any other person;
(e) the duty of excise borne by the buyer, if he had not passed on the incidence of such duty to any other person;
xxxxxxx It is amply clear that the form of evidence of having borne the duty burden is not prescribed; sufficient flexibility is impliedly permissible and it behoves the original authority to be able to comprehend and appreciate rigorous documentary trail that enable business to be operated efficiently without recourse to rigidity of reporting that is characteristic of bureaucratic grind. That rigour, though arising from convention and practice, having been acknowledged by, and enforceable in, commercial law is the backbone of fiscal engagement. Credit and debit notes have been in use for centuries as acknowledgment of dues and debt; these are legally enforceable documents in commercial disputes. It affords a convenience when the financial engagement between two commercial entities is continuing, and not episodic or discrete, for adjustment in ledgers with settlements effected at intervals. Merely because it has the form and appearance of script on paper it cannot be said to be unreliable. More so, in the present matter, when the contents are sufficiently elaborate to include the tax components and there is not a whit of challenge to its authenticity. A casual dismissal of this document was, therefore, not a valid option available to the lower authorities. In re AK Spintex Ltd supra, the Honble High Court of Rajasthan has unequivocally specified the pre-requisite for denying credence to such documentation furnished by assessees as evidence of consideration or of having borne the tax burden thus:
12. The question, then arise is, the question of fact, as to who is an ultimate person, who has borne the burden. Obviously, if it is established by the assessee, that the burden has not been passed on, or has been appropriately reversed, the ultimate person, who has suffered the burden, would be the assessee himself.
13. It is faced with this situation, that the submission made by the learned counsel for the revenue, was, that in the scheme of things, when the goods are sold or cleared for sale, it has to be assumed, that the burden has been passed on to the purchaser, and this process of issuance of debit note or credit note, cannot have the effect of reversal of passing of the burden, as it is only a paper transaction, to get undue benefit by the assessee.
14. In our view, the stand cannot be accepted. Passing on the burden of excise duty to the next purchaser, cannot be left in the realm of presumption. In cases, where the assessee is able to show, that the burden is not passed on, or it has been reversed, the claim of refund cannot be denied.
15. It is, then, contended by the learned counsel for the revenue, that mechanism of debit note and credit note, if countenanced, it will open the flood gates for pilferage of revenue. Firstly, we do not agree with the preposition, that it can open flood gates, inasmuch as, where false, fictitious or sham Debit note and credit note are issued for adjustment, the revenue can very well lead evidence, or can lead evidence in rebuttal. Simply because the revenue fails, and is not able to rebut evidence, it cannot be assumed, that it will open flood gates for pilferage of the revenue. Difficulties may be on either side, but then, that cannot be considered as a ground for interpreting Sec 12B, in the manner the revenue wants us to interpret it. Credit notes do not exist as inactive exhibits; the financial adjustment is manifested as entries in journals and ledger to impact the consideration made over and received for any goods supplied or service rendered. With credit notes being a conventional method of reflecting the change in consideration, and its authenticity not having been refuted, reliance has necessarily to be placed on the net effect that it has on the taxable transaction. Reversal of brokerage carries with it the reversal of tax collected along with the excess brokerage. We, therefore, need merely to ascertain if any of the cited decision prevent acceptance of credit note.
10. In view of the decision in re AK Spintex supra, the decision of the Larger Bench of this Tribunal in re S Kumars Ltd affirming the applicability of the order in re Sangam Processors (Bhilwara) Ltd would be limited to claims for refund in the specific circumstances of that dispute and not on the principal issue here of validity of credit notes as evidence of having borne the tax burden. Both S Kumars Ltd and Sangam Processors (Bhilwara) Ltd supra dealt with refund of duty collected in excess owing to alteration of rates of duty. The dispute here relates to alteration of value of taxable service which has been adjusted through a standard instrument of commercial settlement and which, concomitantly, adjusted the tax collected in excess. Taxation of services is, in any case, on a different footing than duty of excise on manufacture as far as the taxable event is concerned. Service tax, being a destination-based tax and being a tax on invisibles, is levied only upon issue of documentation, that makes the rendition of service apparent. The tax is structured entirely on the existence of documentation and alienation of credit or debit notes from this documentary flow by conferment of finality to one document that serves the cause of Revenue is not consistent with the basis of taxation in section 67 of Finance Act, 1994 viz. consideration for services rendered. The decisions cited by Revenue do not, therefore, serve to support the findings in the impugned order.
11. We also notice that the original authority had not sought to reject the claim for refund on the ground of lack of evidence that CENVAT credit, that the recipients were entitled to, had been reversed. Therefore, invoking of this ground in the impugned order is tantamount to travelling beyond the show cause notice as held by the Honble High Court of Jharkhand in McNally Bharat Engineering Co Ltd v. Commissioner of Central Excise, Ranchi [2011 (267) ELT 610 (Jhar)]. We cannot but make a further observation that the ground itself lacks sufficient credence owing to very mechanism for availment and utilization of CENVAT credit. Availment of CENVAT credit is a privilege and exercisable option that follows discharge of duty or tax liability along with consideration for purchase of goods or procurement of service it is not evidence of or a mechanism for discharge of duty or tax liability at the providers end. The manner in which credit is administered is not within the obligatory supervision of the provider of service or supplier of goods. The system is honor-driven by predicating the availment on supporting documentation with the onus of reversals placed squarely on the recipient. The issuance of credit note automatically curtails the entitlement and their existence suffices to enforce reversal in the course of scrutiny of returns or audit. In view of implicit reduction of entitlement to credit, with ample recourse for recovery under the Rules, assumption of having passed on the burden of tax fails to be a valid conjecture. The provisions of section 11B of Central Excise Act, 1944 cannot be stretched to fasten what is, essentially, the monitorial responsibility of tax authorities on to an assessee.
12. For the above reasons, the impugned order has erred in crediting the excess tax collected in the Consumer Welfare Fund. We accordingly modify the order and direct that the refund be disbursed to the appellant.
(Pronounced in Court on 03/05/2016) (M V Ravindran) Member (Judicial) (C J Mathew) Member (Technical) */as 15