By TIOL News Service

MUMBAI, JUNE 12, 2018: REFUND of Rs.9,73,425/- was claimed by the appellant in terms of rule 5 of the CCR, 2004.

The original authority granted a refund of Rs.7,63,725/- and disallowed the claim of Rs.2,09,700/- on the ground that some of the services were ineligible as Input service and others could not be linked to the output services that were exported.

Revenue filed an appeal against the order of sanction which culminated in the impugned order disallowing the entire claim for non-conformity with rule 6A of Service Tax Rules, 1994 leading to the present appeal by the assessee before the CESTAT.

The appellant submitted that identical dispute had been decided by the Tribunal in Sai Life Sciences Ltd - 2016-TIOL-433-CESTAT-MUM which placed reliance upon the decision of the Tribunal in SGS India Pvt Ltd. - 2011-TIOL-666-CESTAT-MUM as affirmed by the Bombay High Court.

The Bench observed that in view of the decision rendered in the case of Sai Life Sciences (supra) which caters to identical circumstances as prevailing in the present case, the findings of the Commissioner(A) were incorrect.

Nonetheless, the CESTAT found it apt to examine the proceedings per se which culminated in the present appeal.

It was observed that –

+ While restricting the claim to a lesser amount, the original authority had not issued any show cause notice to justify the proposed restriction.

+ It was Revenue that chose to challenge the sanctioned amount in review proceedings. It is indeed questionable whether it was legal and proper for the appellate authority to hold to the detriment of an assessee by recourse to a belated and indirect notice in the form of an appeal by Revenue.

+ The statute does not specifically provide for enhancement of refund beyond that was claimed but specifies that there is scope for enhancement of that which was restricted subject to sufficient cause being shown to the respondent. This would presume that the enhancement detriment in appeal is limited to the show cause notice with which the proceedings leading to the appeal commenced. Such a show cause notice has not been issued in the present instance.

+ It would, therefore, appear from a harmonious construction of this (section 73) with section 85 of the Finance Act, 1994 that it is not within the jurisdiction of the first appellate authority to enhance the amount of rejection of a refund claim that was disposed off by the lower authority in the absence of a show cause notice. The proper course of action for Revenue to dispute the sanction of refund claim by the original authority should have been the issue of a notice under section 73(1) of Finance Act, 1994. The failure to issue such a notice stultifies the present proceedings before the first appellate authority.

Concluding that on account of the above reasons, taken severally and jointly, the impugned order failed to meet the requirement of the statute, the same was set aside and the appeal was allowed.

(See 2018-TIOL-1795-CESTAT-MUM)