By TIOL News Service

MUMBAI, JUNE 12, 2015: THIS is a Revenue appeal against the order passed by CST, Mumbai.

The respondents while providing telecom services sold recharge vouchers (RCV) to distributors at a discount on the printed MRP which is clearly indicated in the sale invoices raised on the distributors. For the month of November 2005, service tax was paid by them on the prepaid RCVs, by considering the MRP printed on the RCVs as cum tax price. But since the value realised on sale of RCVs was less than the MRP, they claimed refund of excess service tax paid.

The Assistant Commissioner sanctioned the refund amount.

This order was subject to revision proceedings.

As section 84(1) of FA, 1994 at the relevant time stated that the Commissioner in review proceedings may pass such order subject to the provisions of this chapter, the Commissioner concluded that any order passed by him in the matter of recovery of service tax erroneously refunded would be subject to the provision of section 73 of the Finance Act 1994.

Moreover, Section 73(1) required that the show cause notice for recovery of refund erroneously sanctioned should be issued within one year from the relevant date.

In the present case the refund order was passed by the Assistant Commissioner on 09.7.2008 whereas the show cause notice for recovery was issued in terms of Section 84 read with Section 73, on 25.2.2010 and which culminated in the impugned order of Commissioner on 10.05.2010.

Holding that there being no circumstances for applying the extended period of limitation of five years, the Commissioner held that the show cause notice dated 25.2.2010 issued for recovery in terms of Section 84 is beyond the prescribed period of limitation of one year and, therefore, no recovery can be effected under the show cause notice.

Not happy with this decision, the Revenue is before the CESTAT.

The AR reiterated the points set out in the appeal and which were -

i) service is provided by the respondent to retail customers. Therefore the value for the purpose of charging service tax should be the value paid by the customers, that is the MRP. The difference between the MRP and the sale price is on account of commission of distributors and other incidental costs such as staff cost, bank interest, building hire charges, transportation cost, promotional charges on the brand, license fee paid to the government etc. and these are part of the assessable value of telephone services provided by the respondent to the customers/subscribers.

ii) as the MRP includes the incidence of service tax payable on the RCVs, the burden of service tax element is passed on to the customers/subscribers. And therefore the refund has resulted in unjust enrichment to the respondent.

iii) in terms of sections 73A, the service tax collected from any person should be deposited with the Central government. Therefore the sanctioning authority erred in holding that the respondent have neither charged nor collected the extra amount representing service tax from their distributors.

The respondent submitted that the Commissioner in the impugned order has correctly come to the conclusion that although the revision proceedings under erstwhile section 84 must be concluded by passing of an order within two years in terms of clause (5) of section 84, the notice for recovery of refund under section 73(1) must be issued within the period of one year in view of the phrase 'subject to the provisions of this chapter' in clause (1) of section 84.

The Bench observed -

++ The Commissioner, in the impugned order, did not consider it necessary to go into the merits of the case and refrained from examining the issue of unjust enrichment as well as the aspect of section 73A raised in the show cause notice.

++ The Commissioner strikes at the very root of validity of the show cause notice issued under Section 84 by invoking Section 73(1).

++ We note that Section 84 distinctly requires in clause (1), that the order to be passed by the Commissioner in terms of this Section must be 'subject to the provisions of this Chapter'.

++ In our view, the word Chapter can only mean the chapter of the Act in which Section 84 occurs. All Sections of the Service Tax Law are comprised in Chapter V of the Finance Act 1994. Therefore, we see no fault in the reasoning of the counsel that the order passed by the Commissioner is subject to the time limitation prescribed under Section 73 of chapter V of the Finance Act 1994.

++ And since there is no allegation regarding presence of elements of fraud, misrepresentation etc. involving extended time period, the show cause notice should have been issued under section 73 (1) within one year from the relevant date prescribed under section 73(6)(iii), which in this case would be the date on which the refund order was passed by the sanctioning authority.

In response to these observations the AR submitted that if such a view is taken it would render clause (5) of section 84 otiose.

The Bench reproduced the said clause (5) which reads -

And, thereafter, observed -

"We find no contradiction between clause (1) and clause (5). The latter clause merely says that the revision proceedings initiated by the Commissioner must be completed by passing an order within two years from the date on which the order sought to be revised has been passed. In this case the order sought to be revised was passed on 9.07.2008 and therefore order of Commissioner is required to be passed before 8.7.2010 which was done. However the requirement of clause (1) that the Order is subject to the provisions of Section 73 has to be met simultaneously. That is, the requirement of Section 73 has to be fulfilled. Section 73 (1) of the Finance Act is the provision in service tax law with regard to, inter alia, recovery of amounts erroneously refunded. The Section specifically lays down the procedure and time period within which Show Cause Notice must be issued for recovery of erroneous refunds. This position has been confirmed by the Larger Bench decision in the case of Best and Crompton Engg. Ltd. vs Commissioner C.EX. Chennai - 2000 (121) ELT 272 (Tri-LB). It was held in this decision that the show cause notice as contemplated under section 11A of the Central Excise Act is required to be issued for recovery of erroneously refunded amounts within the time limit as provided in that Section from the relevant date and not through proceedings under section 35E. Although these decisions were rendered in the context of the Central Excise Act, the ratio will apply in the context of Service Tax law because the provisions of recovery and review under sections 11A and 35E of the Central Excise Act are identical to the provisions under Section 73(1) and erstwhile Section 84 of the Service Tax law. The issue is no more res integra. We therefore agree with the order of the Commissioner."

To the statement made in the Revenue appeal that such an interpretation would render clause (5) of Section 84 completely nugatory and unworkable, the CESTAT commented -

"…We cannot agree with this apprehension. A harmonious reading of sections 73 and 84 lead to the conclusion that once the order passed in terms of section 84 holds that the refund was erroneously sanctioned, the recovery thereof can be effected only through the mechanism of section 73 (1). Naturally the time limits laid down in section 73 (1) have to be adhered to. Rather we find that if any other interpretation of a combine reading of Section 73 and erstwhile Section 84 is accepted, it would lead to an incongruous situation whereby every show cause notice for recovery of erroneous refund could be issued beyond the time stipulation of one year as long as the proceedings under Section 84 are completed within the specified time limit of two years. It is obviously not the intention of the lawmakers to provide incongruity in the combined reading of these Sections."

In the matter of applicability of s.73A of FA, 1994, the Bench noted that the same was inserted by the FA, 2006 on 18.04.2006 whereas the period of contention in the case on hand is November 2005.

The order passed by the CST was upheld and the Revenue appeal was dismissed.

Quick reference:

Section 84. Revision of Orders by the Commissioner of Central Excise. -

1) The Commissioner of Central Excise may call for the record of a proceeding under this Chapter in which an adjudication authority subordinate to him has passed any decision or order and may make such inquiry or cause such inquiry to be made and, subject to the provisions of this Chapter, pass such order thereon as he thinks fit.

2) No order which is prejudicial to the assessee shall be passed under this section unless the assessee has been given an opportunity of being heard.

3) The Commissioner of Central Excise shall communicate the order passed by him under sub-section (1) to the assessee, the such adjudicating authority and the Board.

4) No order under this section shall be passed by the Commissioner of central Excise in respect of any issue if an appeal against such issue is pending before the Commissioner of Central Excise (Appeals).

5) No order under this section shall be passed after the expiry of two years from the date on which the order sought to be revised has been passed.

(See 2015-TIOL-1109-CESTAT-MUM)