The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Mumbai, has ruled that a subsequent clarification from the tax Board could not substitute for a statutory challenge to the company’s self-assessments and also rejected the contention that issuing credit notes to educational institutions was sufficient to overcome the bar of unjust enrichment.
The Bench of S.K. Mohanty (Judicial Member) and Sanjiv Srivastava (Technical Member) has relied on Supreme Court decisions including Grasim Industries Ltd., Addison & Co. Ltd. and Allied Photographics India Ltd. It treated the requirement to establish who actually bore the tax burden as a substantive condition that could not be resolved merely by subsequent accounting adjustments.
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The appellant/assessee had paid service tax on housekeeping, facility management and canteen or outdoor catering services provided to educational institutions. The refund claims covered different periods between July 2012 and September 2013 and were filed during 2014.
The company relied on Notification No. 25/2012-ST dated June 20, 2012, which provided an exemption for specified auxiliary educational services. It maintained that uncertainty about the scope of the exemption had led it to pay service tax and seek clarification from the Central Board of Excise and Customs.
Through Circular No. 172/7/2013-ST dated September 19, 2013, the Board clarified the exemption applicable to auxiliary educational services, including activities such as housekeeping and canteen services. Assessee subsequently sought refunds under Section 11B of the Central Excise Act, 1944, as applicable to service tax through Section 83 of the Finance Act, 1994.
The company also stated that it had issued credit notes to the educational institutions for the service tax initially collected from them.
The original adjudicating authority rejected the refund claims. On appeal, however, the Commissioner (Appeals) modified those decisions through an order dated March 5, 2018.
The Commissioner allowed refunds totalling ₹1,20,95,023 for housekeeping services, accepting that the issuance of credit notes established that Assessee had borne the tax burden.
For canteen and outdoor catering services, the Commissioner sanctioned refunds totalling ₹4,70,89,131 but directed that the amount be transferred to the Consumer Welfare Fund. The Commissioner found that Assessee had failed to establish that the service tax burden had not ultimately been passed on to students and faculty members.
Both sides challenged the appellate order. Assessee contested the decision denying payment of the catering refund to it, while the Revenue challenged the relief granted in respect of housekeeping services and the treatment of limitation.
A central issue was whether the company could obtain a refund while leaving its original self-assessments undisturbed.
Assessee argued that the one-year limitation period should run from September 19, 2013, when the Board issued its clarification. It also submitted that, because it had made a representation to the Board, the tax payments should be treated as having been made under protest.
The Tribunal rejected this reasoning. It noted that the exemption notification was effective from July 1, 2012, and that the company had collected service tax, deposited it with the government and reported those payments in its ST-3 returns.
The Bench distinguished between an administrative clarification and a statutory order altering an assessment. The Board’s circular could clarify the exemption, but it did not modify the company’s assessments or amount to an appellate decision setting them aside.
The Tribunal held that the representation to the Board and the subsequent clarification were not equivalent to appellate proceedings under Section 85 of the Finance Act, 1994. It further observed that the Board was not the prescribed appellate authority for challenging the self-assessed returns.
Consequently, the Bench concluded that the refund claims were not maintainable unless the underlying self-assessments were modified.
The Tribunal relied on the Supreme Court’s decision in ITC Ltd., together with decisions applying that principle to service tax refund disputes.
The principle discussed in the order was that refund proceedings cannot be used to reopen an assessment that continues to stand. A claimant seeking a refund inconsistent with an existing assessment must first secure its modification through the appropriate legal mechanism.
The Bench referred to the Delhi High Court’s decision in BT (India) Pvt. Ltd. and the Tribunal’s decision in R.C. Gupta, which applied the requirement of challenging self-assessment in the service tax context.
Assessee’s reliance on Tamil Nadu Petro Products Ltd. and In-House Productions Ltd. did not persuade the Bench. It noted that those decisions preceded the Supreme Court’s ruling in ITC Ltd. and concerned limitation in cases involving payments made under a mistaken understanding of law.
In the present dispute, the Tribunal considered the more fundamental obstacle to be the maintainability of the refund claims while the self-assessments remained unchanged.
The Tribunal also examined whether credit notes issued to educational institutions established that Assessee had not passed on the service tax burden.
Under the statutory refund framework, the fact that tax was refundable does not by itself establish that the claimant should receive the money. The claimant must also satisfy the applicable requirement that the tax burden has not been passed on to another person.
The distinction was particularly relevant to catering services. The Commissioner (Appeals) had found that educational institutions received those services for students and faculty members and collected charges from them. Returning the tax amount to the institution would therefore not necessarily establish that the ultimate consumers had received the benefit.
The appellate order recorded that Assessee had attempted to obtain information about students’ fee receipts and the institutions’ pricing methods. The institutions, however, declined to share the information on confidentiality grounds. The Commissioner consequently found that Assessee had not established that the burden had not reached students and faculty members.
Assessee sought to distinguish the Supreme Court’s decision in Addison & Co. Ltd. on the ground that it concerned central excise duty. It relied on Rule 6 of the Service Tax Rules, 1994, to support its contention concerning credit notes.
The Tribunal rejected that distinction by referring to the Bombay High Court’s decision in Prachar Communication Ltd.
That decision concerned a service tax refund supported by credit notes and examined whether the recipient had passed the tax burden to its own customers. The High Court had held that the claimant needed to establish that the incidence of service tax had not been passed further down the chain.
Applying that reasoning, the Tribunal did not accept that reliance on the Service Tax Rules or credit notes removed the obligation to satisfy the unjust enrichment requirements under Section 11B.
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