Brief of the Case
In the case of M/s Usha International Ltd. Vs. CST, it was held that In case of amalgamation of companies appointed date as per Amalgamation Scheme is required to be taken as the date of amalgamation and not the date on which entire formalities were completed and the service provided by assessee from the appointed date to Amalgamating Company is to be considered as provided to self, in which case, no service tax liability would arise against them.
Facts of the case
The appellant filed a refund claim of Rs.84,76,586/- on 8.1.2009 seeking refund of service tax paid on royalty paid by the transferee company M/s Usha International Ltd. (UIL) to transferor company M/s Jay Engineering Works Ltd. (JEW) on the basis of the High Court order dated 26.5.2008 approving merger of the erstwhile UIL and M/s Shree Ram Fuel Injections Ltd. (SRFIL) with JEW with effect from 1.4.2007 being appointed the date of said merger. JCW was receiving royalty from UIL for the use of it brand name and paid service tax on royalty so received and sought refund of service tax paid during the period 1.4.2007 to 31.3.2008 on the ground that as a result of merger from 1.4.2007 it became service to self and therefore no service tax was payable but was paid as the order of the High Court approving the merger was received only on 28.5.2008. Vide order-in-original dated 26.8.2009, the primary adjudicating authority sanctioned the refund of Rs.71,74,496/-. However, Revenue filed an appeal against the said order before Commissioner (Appeals). The Commissioner (Appeals) vide order in original dated 8.6.2008 remanded the case to the original adjudicating authority with the direction to UIL to file relevant documents before the primary adjudicating authority in respect of proof of compliance of the direction contained in the order dated 26.5.2008 of the Hon’ble High Court regarding the date of merger of three companies on which the issue of taxability of the payment in respect of royalty was dependent. The primary adjudicating authority in turn held that refund of Rs.71,74,496/- already granted deserved to be rejected and recovered.
The appellant filed appeal before the Commissioner (Appeals) against the said rejection order claiming that the service tax paid during the period 1.3.2007 to 31.8.2008 was paid on royalty received from erstwhile UIL and that as a consequence of merger with effect from 1.4.2007 it amounted to rendition of service to self and therefore no service tax was payable during the said period. It also stated that there was no unjust enrichment as has been certified by the Chartered Accountant and no Cenvat credit was taken of the service tax the refund of which was sought. The Commissioner (Appeals) came to a finding that Registrar of Companies, National Capital Territory of Delhi & Haryana, Ministry of Company Affairs, issued to the appellant its approval for change of name of JEW to Usha International Ltd. from 20.6.2008 and therefore up to that date the rendition of service cannot be termed as service to self and the service tax was correctly payable/paid and so no refund was admissible. Appeal No. ST/58043/2013 is against the said order in appeal. Appeal No. ST/56974/2013 is against order in original dated 16.1.2013 which was issued confirming demand of Rs. 71,74,496/- “erroneously” refunded earlier along with penalties under Sections 77 and 76 of the Finance Act, 1994.
Contentions of the assessee
The appellant has contended that :
(i) As per the scheme of arrangement between JEW and Usha International appointed date/transfer date for the said merger was 1.4.2007 or such other date as Hon’ble High Court directed. Vide order dated 26.5.2008 the Hon’ble High Court granted sanction to the said scheme of arrangement for amalgamation. Thus, the High Court approved to the appointed date as 1.4.2007 and therefore service tax paid from 1.4.2007 onwards up to 31.3.2008 is clearly refundable as it in effect became a case of service to self.
(ii) It is immaterial when the High Court order was passed and when the Registrar of Companies issued the letter of its approval of the change of name of JEW to Usha International Ltd.
(iii) The following judgements were cited in support of its contentions:
(a) Marshall Sons & Co. (I) Ltd. Vs. Income Tax Officer – 1997 (2) SCC 302.
(b) State of A.P. Vs. Jindal Strips Ltd. (2007) 10 VST 777.
(c) Commissioner of Service Tax, Delhi-I Vs. ITC Hotels Ltd. – 2012 (27) STR 145 (Tri.-Del.) : 2011-TIOL-1453-CESTAT-Delhi
Regarding unjust enrichment the assessee has contended as under :
(i) No Cenvat credit of the impugned service tax was taken by Usha International Ltd. During the relevant period M/s UIL did not manufacture any goods on which the brand name was used. Therefore it was not a manufacturer or provider of service and as a result, the presumption of passing on the burden does not arise in its case because such presumption arises by virtue of under Section 12B of Central Excise Act, 1944 which is applicable only to a person who has paid duty of excise on any goods (and by virtue of Section 83 of the Finance Act, 1994 also to a person who has paid service tax).
(ii) The reasoning given by the primary adjudicating authority in its order dated 20.12.2012 that the price for the same models of electric fan/sewing machine either remained the same or increased after 31.3.2007 and that if the burden had not been passed on the prices after 1.4.2007 would have been lower than the prices during the period prior to 1.4.2007 and even after post merger there was no decrease in the prices and in some cases the prices actually went up. The appellant contended that variation in prices is hardly a conclusive evidence with regard to passing of the burden or otherwise.
Contentions of the Revenue
The revenue contended that :
(i)The impugned service tax was paid by M/s JEW which worked as an independent company up to 20.6.2008 and therefore service tax was payable and correctly paid by it.
(ii) The onus is on the appellant to show that the burden was not passed on and such onus has not been discharged by the appellant.
(iii) The fact that the prices of electric fan/sewing machine did not go down post merger (from 1.4.2007) clearly shows that the burden was passed on to the customers.
Held by Hon’ble CESTAT
The Hon’ble CESTAT stated that Hon’ble High Court did not direct appointed date or transfer date to be any different date from 1st April 2007. It is clear that pending the approval and sanction of the scheme by the Hon’ble High Court, transferor company carried on its business and activities for and on account of and in trust for transferee company. In these circumstances the only inescapable conclusion which emerges is that the amalgamation was effective from 1.4.2007 even if its approval by the Hon’ble High Court and the letter of Registrar of Companies approving change of name of JEW to Usha International were issued later. This view is clearly supported by Supreme Court judgement in the case of Marshall Sons & Co. (supra).
The Hon’ble CESTAT further stated that in the case of CST Vs. ITC Hotels Ltd. (supra), CESTAT also applied the ratio of aforesaid judgment of Supreme Court holding that the High Court allowed the amalgamation of two companies with the parent company with effect from 1.4.2004 is the appointed date as per Amalgamation Scheme and therefore 1.4.2004 is required to be taken as the date of amalgamation and not the date on which entire formalities were completed and the service provided by assessee with effect from 1.4.2004 is to be considered as provided to self, in which case, no service tax liability would arise against them.
In the light of the foregoing binding precedents there remains no scope for any debate that the date of amalgamation in the present case is to be held to be 1.4.2007 and not 20.6.2008. Obvious consequence of this is that the service rendered during the impugned period (1.4.2007 to 31.3.2008) became service to self and consequently service tax paid during the said period became eligible for refund. Thus the refund of Rs. 71,74,496/- (as was initially sanctioned by the primary adjudicating authority) was clearly admissible to the appellant. However every refund has to be tested on the yardstick of the doctrine of unjust enrichment in terms of Section 11B of Central Excise Act read with Section 83 of the Finance Act, 1994. The appellant has contended that it was neither a manufacturer of goods nor was it providing any service (which utilized the impugned service) during the relevant period and therefore the presumption contained under Section 12B of the Central Excise Act made applicable to Service Tax Act was not attracted in the present case.
It is evident from the words of the Section 12B ibid that the appellant was not covered within the scope of the said section and therefore the contention of the appellant that presumption of having passed on the incidence of duty does not arise in its case has some merit.
From the wording of Section of 11B(2) it becomes clear that when an amount is held to be refundable, it is to be credited to the Consumer Welfare Fund and that the payment to applicant is more in the nature of exception inasmuch as that is subject to the condition that the person seeking refund has borne the burden and has not passed on the incidence of such duty to any other person. Thus even if Section 12B is held to be inapplicable to the present case, the onus still lies on the appellant to show that it had not passed on the burden to any other persons.
It is also pertinent to note that the refund in this case is arising on account of the fact that the effective date of merger/amalgamation is to be treated as 1.4.2007 making service rendered during the relevant period for which royalty was paid as service to self. As the service was rendered to self and service tax was paid thereon, burden can only passed on to self and passing on the burden to self is not tantamount to passing it to any other person. In other words in the present case in the given circumstances the appellant is not hit by the doctrine of unjust enrichment.
In the light of the foregoing discussion it was found that the appellant was entitled to the refund of Rs. 71,74,496/- and therefore appeal is allowed.