By TIOL News Service

HYDERABAD, AUG 31, 2017: THE appellant is registered u/s 12 of the Income Tax Act, 1961 as a charitable institution and is also registered under the category of 'Club or Association Service' and 'Mandap Keeper Service'. On the Membership fee collected from members, they paid service tax. They were also collecting fees for issuing 'Country of Origin' certificate to its' members.

From June 2005 to March 2008, they did not pay Service Tax under the belief that membership fee and all other fee collected by them is not taxable based on series of judgment which laid that the principle of mutuality would exclude the associations, such as that of appellant from the purview of service tax under Club or Association Services.

In terms of section 96J(1) inserted by the FA, 2011, in the Finance Act, 1994,service tax on Club or Association Service was exempted for the period 16 June 2005 to 31 March 2008.

However, Audit raised an objection that Service Tax is liable to be paid for the period 2006-07 to 2010-11 on the fees collected from members for issuing Country of Origin certificate.

Appellant paid an amount of Rs. 10,65,541/- on 08.03.2012.

Thereafter, the department issued a letter dated 21.03.2012 calling upon the appellant to pay balance of Rs. 9,96,698/- with interest and penalty.

To this, the appellants replied that they are not liable to pay tax as the said services are exempted during the relevant period in terms of Section 96J(1) of the FA, 2011.

The department issued a letter dated 25.04.2013 intimating the appellants that vide Board Circular dated 19.08.2011 it is clarified that the issuance of a 'Country of Origin Certificates' attracts service tax under the category of 'Technical Inspection and Certification Agency Service' w.e.f. 01.07.2003 and, therefore, appellants are liable to pay service tax to the tune of Rs. 9,96,698/-.

While disputing the tax liability, the appellant informed that they had paid service tax from April, 2008 onwards under the category of Club and Membership Services and since the same has been accepted, therefore, the services cannot be considered as classifiable under Technical Inspection and Certification Agency service.

Further letter dated 05.07.2013 was issued by the department seeking payment of tax with interest and penalty.

The appellants paid the amount and vide letter dt. 01.08.2013 informed the department that they have paid service tax of Rs. 9,96,698/- for the period 2006-07 and 2007-08 Under protest.

To this, the department vide letter dated 19.08.2013 informed that the same is treated as acceptance of liability and that there is no provision to make payment of Service tax under protest.

Later, the appellant filed a claim for refund of the said amount paid under protest.

In response to the refund claim, instead of issuing a show cause notice, the department issued a deficiency memo putting forward the grounds for rejection of the refund claim. The main ground raised in the said deficiency memo was that the exemption under Section 96J(1) of Finance Act, 2011 is applicable only to membership fee collected by a Club or Association and that it does not apply to fees collected for issuing Country of Origin certificate to its members. Reliance is also placed on the Board Circular dated 19.08.2011 (supra).

The original authority rejected the refund claim on the grounds stated above and this order was upheld by the Commissioner (Appeals).

The appellant is before the CESTAT and submits that they paid the service tax to the tune of Rs. 9,96,698/- Under Protestonly to avoid the consequences of recovery envisaged in Section 87 of Finance Act, 1994; that it was incumbent upon the department to issue a show cause notice and determine the liability; that they have been deprived the chance to contest the demand raised for the period 2006-07 to 2007-08.

Reliance is placed on the decisions in The Cricket Club of India Ltd. -  2015-TIOL-2062-CESTAT-MUM, Goa Mineral Ore Exporter's Association -  2015-TIOL-2670-CESTAT-MUM, ICICI Bank Ltd. -  2015-TIOL-1164-HC-Mumbai-ST and M/s Sri Vishnu Cements Ltd. - 2017-TIOL-368-CESTAT-HYD in support.

The AR submitted that if the appellants were aggrieved for the reason that they are not liable to pay service tax for the period 2006-07 to 2007-08, they ought to have filed appeal upon the letter issued by department stating that the amount is accepted by the department as admission of liability; that there is no concept of payment of service tax under protest in the Finance Act, 1994 or the Service Tax Rules, 1994; that since the service tax has been rightly paid by appellant, the refund has been rightly rejected.

After considering the submissions made by both sides, the CESTAT observed -

++ In many judgments, the Tribunal as well as Hon'ble High Courts have held that a letter issued informing the decision which affects the right of the assessee can be considered as an appealable order. The department cannot take advantage of such judgments to wriggle out of their responsibility to adjudicate an issue and pass speaking order. The law laid in such judgments are intended to assist the assessee who is deprived of the natural justice of issuance of show cause notice and adjudication proceedings. Therefore this argument of department deserves to be brushed aside.

++ Marking of protest is a message to the department that there is a dispute in payment of tax. In such circumstances, it is for the department to issue a show cause notice and initiate proceedings for determination of tax as provided under Section 73 of the Finance Act, 1994. In the present case, no such show cause notice has been issued and thereby the appellants have been deprived of their right to contest the demand.

++ Even after filing a refund claim the department has issued only a deficiency memo.

++ The machinery for determination of amount due under Section 73 of the Act (ibid) extends to situation where the assessee makes payment as pointed out by department and raises dispute on the said payment. The department ought to have initiated proceedings for determination of the amount due. The unilateral decision taken by department by issuing a letter to retain the amount as acceptance of liability by appellant, gives the letter a cloak of recovery proceeding as under Section 87 of the Act (ibid) which the law does not permit.

Placing reliance on the decisions cited by the appellant in the case of ICICI (supra) and Sri Vishnu Cement Ltd. (supra) the CESTAT concluded as below –

"… When there has been no determination of the amount due after raising a dispute, the department cannot unilaterally determine that the amount is due and retain the same. The amount paid thus becomes an amount paid by mistake. The appellants are therefore eligible for refund."

Setting aside the impugned order, the appeal was allowed with consequential relief.