The Customs, Excise & Service Tax Appellate Tribunal (CESTAT), New Delhi, upheld the rejection of its refund claim of ₹22,07,529, comprising ₹18,73,318 towards service tax and ₹3,34,211 as interest paid on ocean freight under the reverse charge mechanism.
The bench of Hemambika R. Priya (Technical Member) has observed that the refund application, filed more than one year after the payment, was barred by limitation under Section 11B of the Central Excise Act, 1944, as applicable to service tax matters.
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The appellant/assessee is engaged in the manufacture of automobile tyres, tubes, flaps and pre-cured tread materials. For manufacturing its finished goods, the company imports as well as procures inputs domestically. Imported inputs were obtained either on CIF (Cost, Insurance and Freight) or FOB (Free on Board) basis.
In the case of CIF imports, the foreign exporter engaged shipping lines in its country for transportation of the goods. During an audit conducted by the Department for the period April 2017 to June 2017, an objection was raised that JK Tyre had not discharged service tax on ocean freight relating to CIF transactions.
Following the audit objection, JK Tyre deposited ₹18,73,318 as service tax and ₹3,34,211 as interest, aggregating to ₹22,07,529, on ocean freight under the reverse charge mechanism.
Subsequently, the Gujarat High Court, in SAL Steel Ltd. v. Union of India, held the relevant levy concerning ocean freight to be legally unsustainable. Relying upon that decision, JK Tyre filed a refund application on 23 September 2020under Section 83 of the Finance Act, 1994 read with Section 11B of the Central Excise Act, 1944.
The Department issued a Show Cause Notice proposing rejection of the refund claim on the ground that the application had been filed beyond the prescribed period of one year from the date of payment.
The adjudicating authority rejected the refund claim of ₹22,07,529, holding that the exemption relating to transportation of goods by vessel from outside India had been withdrawn with effect from 22 January 2017, and the liability to pay service tax on such transactions had been cast upon the recipient.
The authority further held that the refund application was hit by the limitation prescribed under Section 11B of the Central Excise Act. The Commissioner (Appeals), Jodhpur subsequently upheld the rejection, leading the assessee to approach the CESTAT.
The assessee argued that the amount had been deposited during audit proceedings and that the payment was made under the department’s insistence concerning the alleged service tax liability on ocean freight.
The assessee company contended that the Gujarat High Court’s ruling in SAL Steel Ltd. had held the levy relating to ocean freight to be ultra vires. Therefore, according to the appellant, the amount paid could not properly be regarded as tax or duty legally payable by it.
It was further argued that although the refund application had been filed under Section 11B, merely using the statutory refund mechanism could not convert an amount erroneously paid into legally payable duty or tax. According to the appellant, an amount which was never leviable should be treated as a deposit with the Government, rather than as duty or tax, and consequently the one-year limitation under Section 11B should not apply.
The assessee relied upon several judicial precedents, including decisions of the Supreme Court, High Courts and CESTAT, to support its contention that amounts paid when no tax liability existed could be refundable without applying the normal limitation applicable to legitimate tax or duty payments.
The appellant also relied upon the Gujarat High Court’s decision in SAL Steel Ltd., which had considered the validity of the provisions relating to service tax on ocean freight.
JK Tyre argued that, in the case of imported goods, customs duty was already payable on the CIF value, which included the freight component. According to the appellant, imposing a separate service tax on the same freight component resulted in double taxation.
The company also argued that once the refund application was filed, interest on delayed refund would become payable after the expiry of three months under Section 11BB of the Central Excise Act, as applicable to service tax through Section 83 of the Finance Act, 1994.
The Department opposed the appeal, submitting that the assessee had voluntarily deposited the service tax and interest following the audit objection and had filed the refund claim only on 23 September 2020, more than two years after the payment.
The Department relied upon Section 11B, which generally requires a refund application to be filed within one year from the relevant date. It also relied upon the Supreme Court’s decision in Mafatlal Industries Ltd., contending that claims arising from an unconstitutional levy are subject to the legal principles governing constitutional remedies rather than being treated as an ordinary statutory refund claim before the tax authorities.
The Tribunal identified the primary question as whether JK Tyre’s refund claim was barred by limitation under Section 11B of the Central Excise Act, 1944, as applicable to service tax under the Finance Act, 1994.
The Tribunal examined Section 11B, under which a person claiming refund of duty and interest is required to make an application before the expiry of one year from the relevant date. The provision also defines the relevant date for different categories of cases. In an ordinary case, the relevant date is the date of payment of duty.
The Tribunal noted that Section 11B specifically provides that, in cases falling within the residual category, the relevant date is the date of payment of duty.
Applying the statutory provision to the facts, CESTAT noted that JK Tyre had deposited ₹22,07,529 on 24 July 2018 towards service tax on ocean freight, whereas the refund application was filed on 23 September 2020.
The Tribunal observed that the application was therefore filed after expiry of one year from the date of payment. On this basis, it found no infirmity in the adjudicating authority’s conclusion that the refund claim was time-barred under Section 11B.
The appellant’s principal contention was that the limitation provision should not apply because the levy itself had subsequently been held unconstitutional.
CESTAT examined the Supreme Court’s ruling in Mafatlal Industries, particularly the distinction between an erroneous levy under a valid statutory provision and a levy imposed under a provision subsequently found unconstitutional or wholly without authority of law.
The Tribunal noted that Mafatlal Industries recognizes an exception where the levy is unconstitutional or wholly without authority of law. In such circumstances, the claim may arise from constitutional principles, including Article 265, and may be pursued through constitutional remedies. However, the Supreme Court had also clarified that such a declaration does not mean that refund automatically follows.
The Tribunal also considered the appellant’s submission that the amount had been paid under a mistaken understanding of law following the audit objection.
CESTAT emphasized that adjudicating authorities, appellate authorities and the Tribunal are creatures of statute and possess only such jurisdiction as is expressly conferred by the relevant legislation, together with necessary ancillary powers.
Relying upon the Supreme Court’s decision in Singh Enterprises v. CCE, Jamshedpur, the Tribunal observed that statutory authorities cannot exercise powers to condone delay beyond the extent permitted by the statute.
Since the record established that JK Tyre’s refund application had been filed beyond the prescribed period, the Tribunal held that the claim was hit by the limitation provision.
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