#GSTCase-242- Applicability of Limitation Period given in Statute for claim of refund of amount paid by Mistake and whether such amount if refunded to the taxpayer beyond limitation period can be recovered as tax by the Revenue from the Taxpayer
Uniroyal Marine Exports Ltd. v. Commissioner of Central Excise- 122 taxmann.com 114 (Kerala)
Facts of the Case-
Appellant was a processor and exporter of seafood. The controversy was with respect to the refund of service tax paid by the appellant for services rendered prior to 18-4-2006 when service tax on foreign agency commission was not leviable. The appellant paid tax without demur. The High Court of Bombay held in Indian National Ship Owners Association v. Union of India [2009 (13) STR 235 (Bom)] that service recipient in India is liable to service tax for payments in lieu of service received from abroad only from 18-4-2006 after Section 66A was incorporated in the Finance Act, 1994. The Hon’ble Supreme Court upheld the judgment of the High Court of Bombay on 14-12-2009.
The assessee filed the refund application within eight months of Judgement of the Hon’ble Supreme Court. The review filed against the order was rejected, however in first appeal, the refund order was set aside, by which time the refund had been made. A further appeal before the CESTAT also ended in rejection.
Question of Law-
● Whether the Appellate Tribunal was right in setting aside the order passed by the Deputy Commissioner in refunding the amount collected illegally by the department?
● When service tax on foreign agency commission came into force only on 18-4-2006 by the introduction of Section 66A in the Finance Act, 1994, whether the Tribunal erred in setting aside the order of refund on the ground of limitation in submitting the application for refund?
● When the amount collected by the department does not have the colour of legality, whether Section 11B of the Central Excise Act, 1944 is attracted so as to refuse the claim of refund made by the assessee?
● Whether the impugned order is against the mandate of Article 265 of the Constitution of India?
Submission by the Appellant-
The appellant relied upon thedecision of Division Bench of Kerala High Court in C.E.Appeal No. 14 of 2018 decided on 3-9-2018 [V.P. Khader v. The Commissioner for Central Excise, Service Tax and Customs] wherein it was held that payments were made by a mistake in law and hence the same has to be refunded even if the application is not filed within the time provided.
Submission by Respondent–
The respondent department relied on the Constitution Bench decision of the Hon’ble Supreme Court reported in Mafatlal Industries Ltd. v. Union of India [(1997) 5 SCC 536] and a decision of this Kerala High Court in Southern Surface Finishers and Another v. Assistant Commissioner of Central Excise [2019 KHC 47].
Observation by the Hon’ble Court-
Part-1-Issure surrounding applicability of Limitation Period given in Statute for claim of refund of amount paid by Mistake-
The Court referred to its decision in Southern Surface Finishers wherein it considered the Constitution Bench decision and found that the mistake if committed by the assessee, whether it be on law or facts; the remedy would be only under the statute. Thus the court answered the questions of law in favour of the Revenue and against the assessee.
Part-2-In case wherein the amount paid under mistake of law has been refunded by department, can the same be recovered as Tax under Article 265 of Constitution of India
It was observed that the amounts were already refunded to the assessee as per the order of the original authority. In such circumstances, the Revenue would have to recover the amounts from the assessee, in which event the court observed that it would be directing recovery of an amount which cannot be treated as tax due under Article 265 of the Constitution of India.
The judgement of Hon’ble Supreme Court in CIT, Madras v. Mr. P Firm Muar [AIR 1965 SC 1216], wherein it was held as follows:
“If a particular income is not taxable under the Income-tax Act, it cannot be taxed on the basis of estoppel or any other equitable doctrine. Equity is out of place in tax law; a particular income is either exigible to tax under the taxing statute or it is not. If it is not, the Income-tax Officer has no power to impose tax on the said income”.
The Hon’ble Court answered the question of law in favour of the Revenue however it found that Revenue would be incapable of recovery of the amounts refunded as tax due. The appeal was disposed of, answering the questions of law in favour of the Revenue; but restraining the respondent-Revenue from recovering the amounts refunded since as of now the levy of service tax on the payment in lieu of foreign agency commission will not be leviable as ‘Business Auxiliary service’ prior to 18-4-2006.
For detailed reference to the Judgement of Hon’ble Apex Court in the Mafatlal Industries Ltd. vs. Union of India, (1997) 5 SCC 536, Please click on the said link-