Custom, Excise & Service Tax Tribunal
Commissioner, Service Tax-Delhi 11 vs Afflatus International on 16 May, 2023
Author: Dilip Gupta
Bench: Dilip Gupta
1 ST/52772/16
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
NEW DELHI
PRINCIPAL BENCH - COURT NO. 1
SERVICE TAX APPEAL NO. 52772 OF 2016
(Arising out of Order-in-Appeal No. 148/ST/DLH/2015 dated 21 March, 2016 passed
by the Commissioner of Central Tax (Appeals-I), New Delhi)
Commissioner of Service Tax ...... Appellant
Room No. 208, 17-B, IAEA House, MG Road
Indraprasth Estate
Delhi - 110 002
VERSUS
M/s Afflatus International ...... Respondent
D-19/4-5, Okhla Industrial Area Phase-II New Delhi - 110 020 APPEARANCE:
Shri Prashant Kumar Sinha, Authorised Representative of the Appellant Shri Siddharth Srivastava, Advocate, for the Respondent CORAM : HON'BLE MR. JUSTICE DILIP GUPTA, PRESIDENT HON'BLE MR. P. ANJANI KUMAR, MEMBER (TECHNICAL) FINAL ORDER NO.50697/2023 DATE OF HEARING/DECISION: May 16, 2023 JUSTICE DILIP GUPTA :
The Department has filed this appeal for setting aside the order dated March 21, 2016 passed by the Commissioner (Appeals-I), Service Tax, New Delhi1.
1 Commissioner (Appeals) 2 ST/52772/16
2. The respondent, M/s Afflatun International had filed the appeal before the Commissioner (Appeals) to assail the order dated December 10, 2015 passed by the Assistant Commissioner of Service Tax rejecting the refund claim of Rs. 1,55,13,061/- filed by the respondent. The Commissioner (Appeals) held that the respondent was not required to pay service tax under the reverse charge mechanism for „manpower recruitment or supply agency‟ services and since service tax was paid under a mistake of fact and law, the provisions of section 11-B of the Central Excise Act, 19442 would not be attracted and so the respondent would be entitled to refund. The Commissioner (Appeals) relied upon a certificate issued by a Chartered Accountant as also the balance sheet to hold that the principles of unjust enrichment would not apply.
3. The respondent had filed the refund claim alleging that it had wrongly paid service tax under reverse charge mechanism as a service receiver under „manpower recruitment or supply agency‟ service defined under section 65(68) of the Finance Act, 19943 as provided under Notification dated June 20, 2012. The relevant portion of the said Notification is reproduced below :
"1. The taxable services, -
(A)(i) xxxxxx xxxxxx xxxxxx
(ii) xxxxxx xxxxxx xxxxxx
(iii) xxxxxx xxxxxx xxxxxx
(iv) xxxxxx xxxxxx xxxxxx
(v) provided or agreed to be provided by way of renting of a
motor vehicle designed to carry passengers to any person who is not in the similar line of business or supply of manpower for any purpose or security services or service portion in execution of works contract by any individual, Hindu Undivided Family or 2 the Excise Act 3 the Finance Act 3 ST/52772/16 partnership firm, whether registered or not, including association of persons, located in the taxable territory to a business entity registered as body corporate, located in the taxable territory;"
[emphasis supplied]
4. The definition of „body corporate‟ under the Finance Act is as follows :
"65(14) „body corporate‟ has the meaning assigned to it in clause (7) of section 2 of the Companies Act, 1956 (1 of 1956)."
5. Under section 2(7) of Companies Act, 1956, „body corporate‟ or „corporation‟ includes a company incorporated outside India but does not include a corporation sole.
6. The respondent claimed that as it was not a „body corporate‟, it was not liable to pay any service tax under reverse charge under section 68(2) of the Finance Act and, therefore, filed the refund application before the Commissioner, but the application was rejected. The Commissioner (Appeals) accepted this contention of the respondent and held that as the respondent was not a „body corporate‟, it was not required to pay service tax. The Commissioner (Appeals) also found that as the activities undertaken by the contractor in the premises of the respondent were for cutting, fabrication & stitching, finishing, thread cutting, pressing and packing, they would amount to manufacture of production of goods and, therefore, service tax would not be leviable.
7. Shri Prashant Kumar Sinha, the learned authorized representative appearing for the Department contended that the Commissioner (Appeals) placed emphasis on the second agreement 4 ST/52772/16 dated May 31, 2014 executed between the respondent and the contractor to arrive at a conclusion that the job work was performed by the contractor and he had not supplied manpower, but the Commissioner (Appeals) failed to correctly appreciate the agreement dated June 01, 2013, which agreement would make it evident that the contractor had supplied manpower to the respondent.
8. This submission of learned authorized representative appearing for the Department cannot be accepted. A reading of both the agreements leaves no manner of doubt that the contractor was required to perform a job work and not supply of manpower. The contractor had to execute and effectively handle the job entrusted in accordance with the directions issued by the respondent and if the job assigned to the contractor was not satisfactory or in accordance with the specification, the contractor would have to alter, change or repair the same.
9. It is after perusal of both the agreements that the Commissioner (Appeals) observed as follows :
"6.4.3 From both the above agreements it can simply be construed that the contractor (i.e M/s M.S. Enterprises in this case) has been assigned special task which the contractor has to complete in the premises of the Appellant by using his own manpower and that the Appellant will provide the requisite raw material and other infrastructural assistance to the contractor.
I have also gone through the party wise ledge account maintained by M/s Afflatus International and find that the bills are raised for Fabrication & Tailoring and Contractor Labour etc. wherein the type of bills are shown as Misc. Job Work Bill."
10. This finding of the Commissioner (Appeals) does not suffer from any infirmity.
5 ST/52772/16
11. The finding recorded by the Commissioner (Appeals) that the work undertaken by the contractor in the premises of the respondent would amount to manufacture, has not been seriously disputed by the Department.
12. The Commissioner (Appeals) also committed no illegality in relying upon the certificate issued by the Chartered Accountant and the trial balance sheet to hold that the principles of unjust enrichment would not be applicable.
13. The issue that arises for consideration in this appeal is, whether the limitation provided for under section 11-B of the Excise Act for claiming refund before the expiry of one year from the relevant date, would be applicable or not to the application filed by the respondent.
14. Provisions of section 11-B of the Excise Act relating to limitation would not be applicable in case where payment was made purely on account of a mistake in understanding the Notification.
15. In Commissioner of Central Excise (Appeals), Bangalore vs KVR Construction4, service tax was paid by the assessee under a mistaken notion that it was liable to pay, though it was not liable to pay by virtue of a Circular dated 17 September, 2004 and, accordingly, a refund was sought. The Karnataka High Court examined whether section 11-B of the Excise Act would be applicable if the amount was paid under a mistaken impression that it was liable to be paid. The High Court found that section 11- 4 2012 (26) STR 195 (Kr.) 6 ST/52772/16 B of the Excise Act refers to a claim for refund of duty of excise only and does not refer to any other amount collected without authority of law. Thus, it was held that section 11-B of the Excise Act would not be applicable. The relevant observations are as follows :
"18. From the reading of the above Section, it refers to claim for refund of duty of excise only, it does not refer to any other amounts collected without authority of law. In the case on hand, admittedly, the amount sought for as refund was the amount paid under mistaken notion which even according to the department was not liable to be paid.
19. According to the appellant, the very fact that said amounts are paid as service tax under Finance Act, 1994 and also filing of an application in Form-R of the Central Excise Act would indicate that the applicant was intending to claim refund of the duty with reference to Section 11B, therefore, now it is not open to him to go back and say that it was not refund of duty. No doubt in the present case, Form-R was used by the applicant to claim refund. It is the very case of the petitioner that they were exempted from payment of such service tax by virtue of circular dated 17-9-2004 and this is not denied by the Department and it is not even denying the nature of construction/services rendered by the petitioner was exempted from to payment of Service Tax. What one has to see is whether the amount paid by petitioner under mistaken notion was payable by the petitioner. Though under Finance Act, 1994 such service tax was payable by virtue of notification, they were not liable to pay, as there was exemption to pay such tax because of the nature of the institution for which they have made construction and rendered services. In other words, if the respondent had not paid those amounts, the authority could not have demanded the petitioner to make such payment. In other words, authority lacked authority to levy and collect such service tax. In case, the department were to demand such payments, petitioner could have challenged it as unconstitutional and without authority of law. If we look at the converse, we find mere payment of amount, would not authorize the department to regularise such payment. When once the department had no authority to demand service tax from the respondent because of its circular dated 17-9-2004, the payment made by the respondent company would not partake the character of "service tax" liable to be paid by them. Therefore, mere payment made by the respondent
7 ST/52772/16 will neither validate the nature of payment nor the nature of transaction. In other words, mere payment of amount would not make it a "service tax" payable by them. When once there is lack of authority to demand "service tax" from the respondent company, the department lacks authority to levy and collect such amount. Therefore, it would go beyond their purview to collect such amount. When once there is lack of authority to collect such service tax by the appellant, it would not give them the authority to retain the amount paid by the petitioner, which was initially not payable by them. Therefore, mere nomenclature will not be an embargo on the right of the petitioner to demand refund of payment made by them under mistaken notion.
xxxxxx xxxxxx xxxxxx
23. Now we are faced with a similar situation where the claim of the respondent/assessee is on the ground that they have paid the amount by mistake and therefore they are entitled for the refund of the said amount. If we consider this payment as service tax and duty payable, automatically, Section 11B would be applicable. When once there was no compulsion or duty cast to pay this service tax, the amount of Rs. 1,23,96,948/- paid by petitioner under mistaken notion, would not be a duty or "service tax" payable in law. Therefore, once it is not payable in law there was no authority for the department to retain such amount. By any stretch of imagination, it will not amount to duty of excise to attract Section 11B. Therefore, it is outside the purview of Section 11B of the Act."
[emphasis supplied]
16. The Supreme Court, on 11 July, 2011, dismissed the Special Leave Petition filed by the Department to assail the aforesaid judgment of the Karnataka High Court.
17. The same view was taken by the Madras High Court in M/s 3E Infotech vs Customs, Excise & Service Tax Appellate Tribunal & Anr.5. It was observed that :
"13. On an analysis of the precedents cited above, we are of the opinion, that when service tax is paid by mistake a claim for refund cannot be barred by limitation, merely because the period of limitation under Section 11B had expired. Such a 5 2018-TIOL-1268-HC-MAD-ST 8 ST/52772/16 position would be contrary to the law laid down by the Hon‟ble Apex Court, and therefore we have no hesitation in holding that the claim of the Assessee for a sum of Rs. 4,39,683/- cannot be barred by limitation, and ought to be refunded."
18. The Bombay High Court in M/s Parijat Construction vs Commissioner of Central Excise, Nashik6 also took a similar view and the observations are as follows :
"5. We are of the view that the issue as to whether limitation prescribed under Section 11B of the said Act applies to a refund claimed in respect of service tax paid under a mistake of law is no longer res integra. The two decisions of the Division Bench of this Court in Hindustan Cocoa (supra) and Commissioner of Central Excise, Nagpur v. M/s.
SGR Infratech Ltd. (supra) are squarely applicable to the facts of the present case.
6. Both decisions have held the limitation prescribed under Section 11B of the said Act to be not applicable to refund claims for service tax paid under a mistake of law. The decision of the Supreme Court in the case of Collector of C.E., Chandigarh v. Doaba Co- Operative Sugar Mills (supra) relied upon by the Appellate Tribunal has in applying Section 11B, limitation made an exception in case of refund claims where the payment of duty was under a mistake of law. We are of the view that the impugned order is erroneous in that it applies the limitation prescribed under Section 11B of the Act to the present case were admittedly appellant had paid a Service Tax on Commercial or Industrial Construction Service even though such service is not leviable to service tax. We are of the view that the decisions relied upon by the Appellate Tribunal do not support the case of the respondent in rejecting the refund claim on the ground that it was barred by limitation. We are, therefore, of the view that the impugned order is unsustainable."
[emphasis supplied]
19. The Kerala High Court in Geojit BNP Paribas Financial Services Ltd. vs CCE, Cus & ST, Kochi7 also held that when levy is not in accordance with the provisions of the Act, such 6 2017-TIOL-2170-HD-MUM-ST 7 2015 (39) STR 706 (Ker.) 9 ST/52772/16 payment cannot be taken as payment made relatable to section 11-B of the Excise Act and, therefore, refund has to be allowed. The observations are as follows :
"8. The learned counsel for the Department, relying on the judgment of the Hon‟ble Supreme Court in Mafatlal Industries Ltd. and Others v. Union of India and Others [(1997) 5 SCC 536 = 1997 (89) E.L.T. 247 (S.C.)] would argue that even if the payment was made under a mistake, the refund can only be processed in terms of Section 11B of the Central Excise Act. In the above case, the Apex Court elaborately classified claim for refund into three groups or categories, vis-à-vis, (i) unconstitutional levy, (ii) illegal levy, and (iii) mistake of law, and held that the remedies involved in all the three categories are the remedies provided under the Excise and Customs Act. None of the above categories would attract to the case in hand. In this case, the levy was purely on account of mistake of fact in understanding the law. The petitioner assumed that the transaction for which he has paid tax, is covered under the law. The law does not cover such transaction for payment of Service Tax. Therefore, it is not on account of any mistake of law but mistake of fact the Service Tax was paid. In that view of the matter it has no colour of tax for the purpose of levy by the Department. The distinguishing feature for attracting the provisions under Section 11B is that the levy should have the colour of validity when it was paid and only consequent upon interpretation of law or adjudication, the levy is liable to be ordered as refund. When payment was effected, if it has no colour of legality, Section 11B is not attracted. This Court is also of the view that levy is not in accordance with the provisions of the Service Tax and therefore, such payment cannot be taken as a payment made relatable to Section 11B of the Central Excise Act."
[emphasis supplied]
20. In G.B. Engineers vs Union of India8, the Jharkhand High Court observed that when the amount is not paid under the provisions of the Excise Act or the Finance Act, then if the amount is paid under a mistake, the same cannot be retained by the Government and the provisions of section 11-B of the Excise Act cannot be applied. The observations are as follows :
8 2016 (43) STR 345 (Jhar.) 10 ST/52772/16 "9. Section 11B of the Central Excise Act to be read with Section 83 of the Finance Act, 1994 are not applicable to the facts of the present case because, the amount paid by the petitioner is never under the Central Excise Tax nor under the service tax when there is no liability to make the payment of the amount and under the mistake of facts or under mistake of law or under both if any amount is deposited by the assessee, the same cannot be retained by the Union of India under the one or other pretext when a service provider is not liable to make payment of the service tax and if any payment is made, it cannot be covered under Section 11B of the Central Excise Act to be read with Section 83 of the Finance Act, 1994."
21. Thus, for all the reasons stated above, there is no merit in this appeal filed by the Department. It is, accordingly, dismissed.
(Dictated & pronounced in the open Court) (JUSTICE DILIP GUPTA) PRESIDENT (P. ANJANI KUMAR) MEMBER (TECHNICAL) Golay