Wrongly Paid Service Tax under reverse charge is refundable

Wrongly Paid Service Tax under reverse charge is refundable


ICOMM Tele Ltd. v/s Commissioner of Customs, Central Excise & Service Tax, Hyderabad III

FINAL ORDER NO. A/30316/2016
APPEAL NO. ST/2075/2011

P. Dwarakanath, Consultant for the Appellant. Raj Kumar Maji, AC (AR) for the Respondent.


1. The appellant is aggrieved by the order passed by Commissioner (Appeals) directing the refund to be credited to the Consumer Welfare Fund for the reason that it is hit by unjust enrichment.

2. The appellants M/s ICOMM Tele Ltd., is engaged in manufacture of Transmission Towers & Tower parts & are also availing credit of Service tax paid on input services used in manufacture of excisable goods and in providing taxable output services. On verification of Annual Financial Report it was found that during the period 2005 06 to 2006-07 the appellants had paid commission to foreign agents for procuring material from abroad, export order etc., and showed as commission in expenditure in foreign currency. The department was of the view that appellant is liable to pay service tax of Rs. 25,74,320/- under the category of BAS as per section 66A of the Finance Act, 1994 (Reverse Charge). A show cause notice was issued. After due process of law, the original authority confirmed the demand along with interest and imposed penalty.

3. Aggrieved by this order, the appellant filed appeal before Commissioner (Appeals). The Commissioner (Appeals) vide order dated 14.12.2009 held that appellant is liable to pay service tax only w.e.f. 18.04.2006, and thus set aside the demand of Rs.14,24,210/- relating to the year 2005-2006 and also set aside the penalties imposed.

4. The appellants then issued letter dated 26.05.2010 to the department enclosing copy of Order-in-Appeal, requesting to refund Rs.4,74,251/- being the interest paid by them on the service tax amount of Rs. 14,24,120/- which was set aside by the Commissioner (Appeals). The original authority sanctioned an amount of Rs. 4,69,547/- after deducting the short paid interest of Rs. 4,704/- for the year 2006-07.

5. Aggrieved by the sanction of refund, the department filed appeal before Commissioner (Appeals) on the ground that the refund claim has not passed the test of unjust enrichment. The Commissioner (Appeals) vide the order impugned herein directed the sanctioned refund to be credited to the Consumer Welfare Fund for the reason that the appellant had shown the amount of refund claim as expenditure in their books of account, and that therefore appellant failed to establish that the incidence of duty has not passed on to another.

6. I have heard both sides and perused records. The issue is whether appellant is eligible for refund of interest paid on the service tax amount which was not required to be paid by appellant as per law. The excess amount paid is not in dispute. Further, it is to be borne in mind that the appellant is liable to pay service tax for the transactions on the basis of reverse charge mechanism. So, there is no question of the incidence of duty/tax being passed on to another. Without an iota of incidence the Commissioner (Appeals) has concluded that the refund is hit by unjust enrichment merely because the amount was said to be shown as expenditure. The constraints faced in accounting cannot be a ground to assume that the duty has been passed on to another. The appellant also produced Chartered Accountant certificate. The above issue was considered in the following cases and the issue was held in favour of assessee:

(1) CCE, Coimbatore v. Flowtech Power 2006 (202) ELT 404 (Mad.).
(2) CCE v. Ved Textiles (P.) Ltd. 2007 taxmann.com 22 (Mum. – CESTAT)
(3) CCE v. Cummins India Ltd. 2008 taxmann.com 616 (Mum. – CESTAT)
7. Following the dictums laid in above judgements and also in view of the discussions, I find that the refund amount is not hit by the doctrine of unjust enrichment. The order directing to credit the sanctioned amount to Consumer Welfare Fund is not sustainable and, therefore, set aside. Appellant is eligible to get the sanctioned amount.

8. In the result, the impugned order is set aside to the extent of ordering the sanctioned amount to be credited to Consumer Welfare Fund. The appeal is allowed with consequential reliefs, if any.

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