By TIOL News Service

MUMBAI, APR 14, 2014: Once again, a win for the Revenue as the appeal filed by the assessee was dismissed by the High Court.

The facts:

The assessee manufactures and exports telecommunication products. They entered into an agency commission agreement with their foreign principal. In terms of this agreement, they carried out marketing efforts to find Indian customers for the products manufactured by the principal. In return they were paid agency commission at specified percentage for the said services in convertible foreign exchange which they realized through normal banking channels. Since assessee was under bona fide belief that the said marketing services amounted to Business Auxiliary Services in terms of Section 65 (19) of the Finance Act, 1994 read with 65(105) (zzb) of the Finance Act, they paid Service Tax at appropriate rates and in case of delayed payment of said tax they also paid penal interest.

After going through the Board Circular No.111/05/2009-ST dated 24.02.2009 they realized that agency commission service activity amounted to export of services in terms of Export of Service Rules, 2005 and they were entitled to refund of the said service tax which they had paid.

Accordingly, they filed a refund claim on 28.04.2010 for the refund of service tax paid by them.

A SCN dated 11.05.2010 was issued to the respondent for rejection of their claim on the ground that their claim was filed beyond the period of one year from the relevant date.

The Assistant Commissioner rejected their claim.

However, the Commissioner(A) allowed their appeal holding that the activity of marketing services for overseas principal was amounting to export of services and, therefore, they were not required to pay any service tax on the said activity.

He inter alia relied upon the decision in Natraj and Venkat Associates - (2010-TIOL-67-HC-MAD-ST) to hold that the time limitation of Section 11B will not be applicable.

So, the Revenue took the matter to the CESTAT.

The Revenue representative submitted that -

++ the TR-6 challans submitted along with the refund claim indicated that the service tax payments were made during the period 2006-07 to 2007-08 and the last such challan is dated 1.12.2007.

++ Since, the refund claim was filed on 28.4.2010 the claim is clearly time barred in terms of Section 11B of the Central Excise Act, and, therefore, the claim was rightly rejected by the original authority.

++ reliance is placed on the decision in Mafatlal Industries Ltd. (2002-TIOL-54-SC-CX) to emphasize that all claims for refund except where levy is held to be unconstitutional are to be preferred and adjudicated upon under Section 11B of the CEA, 1944.

The respondent countered the Revenue view by submitting that the limitation will not be applicable when no tax is payable at all and the tax is paid due to misunderstanding of the law. Following decisions were relied upon in support of their stand -

++ KVR Constructions - (2010-TIOL-68-HC-KAR-ST)

++ Natraj and Venkat Associates - (2010-TIOL-67-HC-MAD-ST)

++ SGS India Pvt. Ltd. - (2011-TIOL-666-CESTAT-MUM)

An alternative submission was made that consequent upon the Board's Circular dated 24.02.2009, they had sent a letter addressed to the Supdt. CEX, Mapusa Range, Goa, on 5th March 2009 requesting that since no service tax was required to be paid they be entitled to take credit of the tax already paid and their application may be treated as a refund application.

The Bench took note of the facts involved and observed that the refund claim was filed much after the time limit of one year as prescribed under Section 11B of the CEA, 1944 and in view of the apex court decision in Mafatlal Industries Ltd. (supra) the claim was time barred and the case laws cited by the Commissioner(A) were not as per the law laid down by the apex court. In the matter of the alternative submission the Bench observed that since the last payment of service tax was made on 1 st December, 2007, the letter dated 5 th March, 2009 is also beyond one year from the date of payment and the claim is hit by limitation.

Holding so, the Order-in-Appeal was set aside and the Revenue appeal was allowed.

We reported this as 2012-TIOL-1137-CESTAT-MUM .

Revenue wins again

Against this CESTAT order, the assessee manufacturer filed an appeal before the High Court.

And the High Court after narrating the facts as mentioned above inter alia observed -

++ We are of the opinion that the Hon'ble Supreme Court may be considering the issue of validity of the provisions like Section 11B(1) introduced in the Central Excise Act, 1944, but the judgment cannot be applied to such an extent as would enable us to totally override and brush aside a provision like Section 11B with the rule of limitation carved out therein. The distinction as pointed out … from the judgment in the case of Mafatlal Industries (supra) between unconstitutional and illegal levy or in his submission both being treated as par, will not enable us to hold that in the facts and circumstances of the present case the Assistant Commissioner and the Tribunal committed any grave error of law or perversity in rejecting the refund claim.  

++ Suffice it to hold that once the application for refund was made in terms of the Central Excise Act, 1944, it has to be considered in accordance therewith and not otherwise. If the provision of the Central Excise Act, 1944 has been invoked, then, the same must apply with full force. One cannot agree with the Assessee that the provision may have been invoked, but the claim for refund should be considered by not applying the Rule of Limitation prescribed therein. …the Rule of Limitation is provided in order to uphold a larger public interest. The statutes and Rules of limitation are statutes and prescriptions of repose and peace. They give finality to certain proceedings and orders. The reopening thereof is not permissible beyond a particular limit. In these circumstances we do not see how the Tribunal erred in applying the Rule of Limitation and reversing the order passed by the Commissioner (Appeals). The order of the Assistant Commissioner and that of the Tribunal in the given facts and circumstances cannot be said to be perverse….We are, therefore, of the view that the Appeal fails and it is, accordingly, dismissed.

++ The undisputed position is that the amount was paid by the Appellant as service tax. That tax was not imposable or leviable on export of services was a clarification made by the Department and relying on that clarification, the refund of duty or service tax was claimed. This was squarely a case falling within the provisions of the Central Excise Act, 1944 and therefore, the rule of limitation under Section 11B was applied. That was applied when the application for refund was made invoking Section 11B of the Central Excise Act, 1944. We have no manner of doubt that when this was the provision invoked, same applies with full force including the rule of limitation prescribed therein. For these reasons, we are of the opinion that the decisions relied upon cannot be of any assistance.

++ Even a writ petition under Article 226 of the Constitution of India cannot be decided by overriding a law or legal regime. There is no warrant or justification for holding that a stale or belated claim can be granted in a Constitutional remedy by ignoring a statutory prescription.

In the matter of the reliance placed on the Karnataka HC decision in KVR Constructions, the High Court had the following to say -

"The last paragraph or some sentences therein cannot be read in isolation. We must, therefore, see all these observations in the context of the facts emerging from the record before the Division Bench. The facts and circumstances peculiar to the case before the Division Bench cannot be ignored, but have to be taken into consideration. The observations, therefore, must be seen in that context and not dehors the same. We are, therefore, of the view that the Division Bench in upholding the learned Single Judge's observations relied upon the principle that when the amount is deposited with the Department and it does not constitute any demand or payment in accordance with law, then, same deserves to be refunded and while granting and awarding such claim a technical plea of limitation cannot be raised. If the matter was outside the purview of Section 11B, then, the rule of limitation prescribed therein could not have been applied. This judgment is, therefore, clearly distinguishable on facts."

In fine, the appeal was dismissed.

(See 2014-TIOL-497-HC-MUM-ST)