By TIOL News Service

MUMBAI, MAR 04, 2016: APPELLANT is a unit registered under the Software Technology Park Scheme embodied in the Foreign Trade Policy of the Government of India in the Ministry of Commerce and Industry. They are in the business of software development for export, software consulting engineering services and in licencing their own products to customers.

The Service Tax authorities in Pune opined that the appellant is liable to pay tax on the activity.

Despite assertions that they were not liable to tax for the period prior to 16th June 2005, the appellant, vide their letter dated 19th December 2007, paid service tax of Rs.38,94,950/- as providers of 'Management, maintenance and repair service' and Rs.1,38,941/- as providers of 'Business support services' for the period April 2005 to September 2007 and for the period from April 2006 to September 2007 respectively. A further amount of Rs.3,46,488/- inclusive of interest was paid for the period from October 2007 to December 2007 as provider of 'Management, Maintenance and Repair service'.

Later, the appellant filed two refund claims for Rs.38,94,950/- on 27th February 2008 and for Rs.3,46,488/- on 18th March 2008 in respect of these amounts been paid by them Under Protest on 31st December 2007 and 5th February 2008 respectively.

Incidentally, proceedings for appropriation of the very same amounts towards service tax dues was underway. And so, the original authority "returned" the refund claims on the ground that the same were 'premature' and that the appellant can file the same afresh after conclusion of the demand proceedings.

Aggrieved, the appellant filed an appeal before the CCE (A), Pune-III with the further plea that the claims be kept in abeyance till the proceedings under section 73 of Finance Act, 1994 were completed. The Commissioner (A) did not accede to the plea on the ground that there was no provision in the statute for keeping a refund application in abeyance.

The matter reached the Tribunal.

In an order emanating with a distinctive flavor from the pen of the Member (T), writing for the Bench, it was observed thus -

++ At the outset, we state that we find ourselves treading the thin edge of the wedge in this otherwise simple matter that is now unrecognizable in the cloak of complexity. We note two parallel tracks of proceedings which do not logically admit to such dichotomous treatment. It was probably the risk of 'interest' liability that led the appellant to pay the taxes but the 'equally probable' recourse to limitation for denial of refund that compelled the claims for refund.

++ The appeal in the matter of tax liability is also before us and decision in that would, undoubtedly, confirm or deny eligibility for refund. However, that would not dispose off the appeal against the impugned order which has neither conceded the claim for refund or rejected it. This appeal before us is for rendering a decision on the legality and propriety of the direction in the impugned order, i.e. the return of the refund application to the appellant sans sanction or rejection.

++ Both the lower authorities have rightly noted that there is no provision in law to permit entertainment of the plea of the assessee that the claim be held in abeyance. Yet they, without demur and with ingenuity, have devised the outcome of returning the application for refund without dealing with the ground for such claim - a course of action not thought of in the law and which borders on impossibility of implementation. The same law that did not consider it necessary to provide for keeping a decision in abeyance but has, on the contrary, attached penalty consequences to such holding in abeyance also did not provide for returning of a refund claim. The justification put forth by the two lower authorities appears to defy logic.

++ Justification afforded for the act of returning the claim appears to flow from it being 'premature.' Implicit in such a description is the existence of a time period prior to which no claim can be preferred. Again, the statute does not prescribe a near deadline for filing claims. 'Premature' is, therefore, inexplicable and incomprehensible in the context. Such a description would be apt only if an application has been made before taxes or duties were paid which is plainly an absurdity. It would appear that the two lower authorities chose to attach a status to the refund claim that is not contemplated in the statute.

++ Besides statutory impropriety and fallacious description, a consummation disconnect is also perceptible. The claim having been filed and taken on record, its return can be said to be complete only when its custody is transferred back to the claimant. It is moot whether an order can render it to be so without the willing participation of the claimant in a custodial transaction. That the claimant has been pursuing appellate remedies is a clear indication of lack of such willingness. The orders of the lower authorities would appear to be no whit more than printing on a piece of paper. Can the physical existence of a refund application with the Commisionerate be erased or wished away by an adjudication order? Is there a process contra to revenue recovery that entails the might of the State being resorted to for reposing the custody in the applicant? It would appear not. The 'bell, book and candle' routine does not trespass into the temporal! Tax administrators exercising statutory authority should be cautious in staking the credibility of the institution that they represent.

++ That the appellant is not put to any disadvantage or detriment is not relevant to the circumstances. The claim itself is symptomatic of a lack of faith in the fairness of the institution in dealing with refund claims. Every conceivable reason is assigned to justify the unwillingness to open the purse strings and not the least used are 'limitation' and 'pre-requisite of challenging the assessment.' It would appear that the claim has been filed to forestall recourse to these justifications. That the claim has been filed and that it has been preceded by payment of tax is undeniable. That the content of the order passed in relation to the refund claims is un-implementable is un-contestable. Nevertheless, there is an order and the fallacies therein need to be remedied because we have taken a solemn oath to uphold the laws of the country. The legislative organ of the state has imposed a burden of interest for delays in sanctioning of refund and prescribed a time frame of three months for processing claims. The impugned order appears to have been conceived as a tool to escape this burden without taking a decision on the refund claim. Such perversion of legislative intent cannot pass unchallenged.

++ The eligibility for refund should have been decided taking into consideration the taxability of the service and the procedures laid down in law relating to tax collection and refund. The form and substance of a disposal in adjudication is vested exclusively in the authority before whom the claim has been preferred and that is a responsibility which should have been responsibly discharged. The order of the original authority has merged with that of the first appellate authority and the merged order lacks legal sanctity for reason cited supra. Accordingly, the return of the refund claim is set aside and the original authority is directed to decided on the refund claim afresh in accordance with the law.

Not happy with the recourse adopted by the lower authorities, the Bench had the following sage advise to the CBEC. It said - we would also request the Central Board of Excise & Customs to take note of the lack of responsibility evinced in the handling of this claim and infuse robustness in implementation of law enacted for collection of taxes and duties.

The Appeal was disposed of.

In passing:

What has a writer to be bombastic about? Whatever good a man may write is the consequence of accident, luck, or surprise, and nobody is more surprised than an honest writer when he makes a good phrase or says something truthful - Edward Dahlberg.

(See 2016-TIOL-537-CESTAT-MUM)