Gaiagen Technologies Private Limited Vs State of Kerala (Kerala High Court)
Kerala High Court: Service tax refund/adjustment cannot be decided before determining whether pest control contract is a ‘Service Contract’ or ‘Works Contract’
Summary: The Appellant is providing pest control services. It is registered with service tax authorities and paid service tax. A demand of VAT was confirmed on the ground that activity is a works contact. It was challenged in writ on two grounds: (i) it is a service contract and hence; no VAT is payable; and (ii) service tax and VAT are mutually exclusive levies; hence; if VAT is held to be payable; service tax department should remit it to the State VAT authorities. The Ld. Single Judge set aside the order and remanded the matter back to the adjudicating officer to examine the contracts and then come to a conclusion whether VAT is payable or not. On second aspect; it was held that service tax is not refundable as principle of unjust enrichment would apply relying on Supreme Court decision in Mafatlal Case. Hence; writ appeal before the Division Bench.
The Hon’ble Kerala High Court (Division Bench) set aside the order; to the extent under challenge; and allowed the appeal. It held: (i) the question of refund or adjustment would arise once the authority holds that VAT is payable; hence; the decision on this count was premature and speculative; (ii) the Revenue also agreed with the said aspect; (iii) therefore; the said issue is left open to be agitated at an appropriate stage; after the principal issue on merits about “service contact” vs “works contract” is decided.
Argued by Adv. Bharat Raichandani i/b UBR Legal.
FULL TEXT OF THE JUDGMENT/ORDER OF KERALA HIGH COURT
The challenge in these Appeals travels along a small compass – namely, whether the learned Single Judge was right in concluding that the Service Tax already paid by the appellant cannot be either adjusted, or refunded, in the event that the contract in question is evaluated by the Assessing Authority to be a Works Contract, and not a Service Contract.
2. In our firm view, the aforesaid question need not have engaged the attention of the learned Single Judge, particularly when the matter had been relegated to the Assessing Authority to verify, inter alia, the contract and to ascertain whether it was a Works Contract or a Service Contract, based on which alone, the incidence and nature of tax liable would become clear.
3. The primary argument of the assessee before the learned Single Judge was that the ‘Service Tax’ and ‘Value Added Tax’ are mutually exclusive and cannot be imposed at the same time. Perhaps, as a matter of abundant caution, the assessee adscititiously took a contention that, if the Assessing Officer were to find that Value Added Tax is to be imposed, then the same may be adjusted against the Service Tax already paid by them, or that the same be refunded to them.
4. We notice that the learned Single Judge, after relegating the matter, as said above, virtually concluded that there could be no adjustment, or refund, of the Service Tax already paid. As indited above, this conclusion was not necessary; and was, in fact, premature. This is more so because, such declaration obtains a speculative element, since it is the nature of the contract that will determine whether one tax or the other is leviable or payable.
5. In fact, Sri.Bharat Raichandani, instructed by Sri.Hare Krishna – appearing for the appellant; as also Sri.Sudhish Kumar – learned Special Government Pleader (Taxes), conceded that the question of adjustment or refund of the Service Tax already paid by the assessee could have been left open to be decided by the appropriate Authority, after the Assessing Authority completes the exercise as ordered in the judgment – namely, to decide if the contract in question is a Works Contract, or a Service Contract.
6. We have little doubt that the above submissions of the parties on the afore issue are apposite.
In the afore circumstances, we allow these Appeals, however, only in part; and thus vacate the findings of the learned Single Judge on the question whether Service Tax already remitted by the assessee can be refunded or adjusted in future, depending upon the decision to be taken by the Assessing Authority in terms of the remand made to him, qua the contract in question.
Needless to say, all such issues will be available to the parties to litigate and pursue, after the Assessing Authority takes a view in terms of the impugned judgment.
