Raj Construction Vs Commissioner of Central Excise & CGST (CESTAT New Delhi)
Summary: The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), New Delhi, allowed the appeal filed by Raj Construction concerning the refund of service tax amounting to Rs. 11,42,999 paid on the construction of individual residential houses and duplexes for the Rajasthan Housing Board. The appellant had deposited service tax during April 2007 to September 2008 under the belief that its construction activities were taxable under the categories of Construction of Residential Complex Service or Works Contract Service. Subsequently, the appellant filed a refund application on 30 March 2009, contending that the construction of independent residential units did not fall within the taxable category of residential complex construction. The refund claim was initially rejected by the Assistant Commissioner through an order dated 26 October 2009. In the appellate proceedings, the Commissioner (Appeals) accepted that the construction of individual houses and duplexes was not liable to service tax, relying on the decision in Macro Marvel Projects Ltd. v. Commissioner of Service Tax, Chennai, 2008 (12) STR 603 (Tri.-Chennai). However, the Commissioner (Appeals) denied Rs. 3,99,607 on the ground of limitation and rejected the remaining Rs. 7,43,392 on the ground of unjust enrichment, observing that the appellant had recorded the tax payments as expenditure in its Profit and Loss Account.
Before the Tribunal, the appellant argued that once the construction activity was found to be outside the scope of taxable services, the amount deposited could not retain the character of service tax and must instead be treated as a revenue deposit made under a mistake of law. Consequently, the limitation prescribed under Section 11B of the Central Excise Act, 1944, could not govern its refund. Regarding unjust enrichment, the appellant relied on the work orders and correspondence issued by the Rajasthan Housing Board, which expressly provided that service tax and other government levies, if payable, would be borne by the contractor. The Housing Board had not reimbursed any service tax to the appellant. Therefore, the appellant maintained that the entire amount had been paid from its own funds and that the incidence of tax had not been transferred to any customer or third party. The appellant also relied on the Tribunal’s decision in Alliance Infrastructure Projects Pvt. Ltd., subsequently upheld by the Karnataka High Court in Alliance Infrastructure Projects Pvt. Ltd., 2022 (56) GSTL 3 (Kar.), where refund of service tax paid under a misunderstanding of law was permitted without applying the statutory limitation under Section 11B. The Revenue supported the impugned appellate order.
After considering the rival submissions, CESTAT held that service tax deposited under a mistake of law or on incorrect professional advice, when no tax was legally payable, constituted a revenue deposit rather than tax collected under the applicable charging provisions. Accordingly, the limitation prescribed under Section 11B of the Central Excise Act, 1944, was not attracted to the refund claim. The Tribunal further held that the doctrine of unjust enrichment was inapplicable because the appellant had borne the service tax liability from its own funds and had not recovered the amount from the Rajasthan Housing Board or any other person. The contractual terms and surrounding circumstances supported the appellant’s contention that the tax burden had not been passed on. Consequently, the Tribunal held that the appellant was entitled to a refund of the entire amount of Rs. 11,42,999, including the portion previously rejected as time-barred. The impugned order was modified, and the adjudicating authority was directed to grant the refund within 60 days from receipt of the Tribunal’s order, together with interest under Section 11BB as applicable. The appeal was accordingly allowed.
Cases Discussed
- Macro Marvel Projects Ltd. v. Commissioner of Service Tax, Chennai, 2008 (12) STR 603 (Tri.-Chennai) – Relied upon for the position that individual residential units do not constitute a taxable residential complex.
- Alliance Infrastructure Projects Pvt. Ltd., Appeal No. ST/507/2008 – Relied upon regarding refund of service tax paid under a misunderstanding of law and non-applicability of unjust enrichment.
- Alliance Infrastructure Projects Pvt. Ltd., 2022 (56) GSTL 3 (Kar.) – Karnataka High Court decision upholding the Tribunal’s ruling relied upon by the appellant.
FULL TEXT OF THE ORDER OF CESTAT NEW DELHI
1. The issue in this appeal is whether the appellant is entitled to refund of service tax deposited under the head, “Construction of Residential Complex Service”. The Commissioner (Appeals) have held that the appellant is not liable to tax as the appellant have constructed the individual houses single/duplex, which do not qualify as residential complex.
2. The brief facts are that the appellant is holding Service Tax Registration No.AABFR3294AST001 under Section 69 of the Finance Act, 1994 for ‘Construction of Residential Complex Service”, Construction Service in respect of “Commercial or Industrial Buildings, have filed a claim on 30.03.2009 for refund of service tax amounting to Rs.11,42,999/-paid by them on the services provided by them under “Works Contract Services” during Apri1,2007 to September , 2008. Refund claim has been filed on the ground that as the services provided by them do not classify under ‘Construction of Complex Services’, and therefore, non-taxable. Further, the services provided by them prior to 1.6.2007 were not covered under the category of ‘Works Contract Services’. The claim was rejected by the Assistant Commissioner, Service Tax Division, Jaipur vide Order-in-Original No.31/ST/Ref/09 dated 26.10.2009. Being aggrieved with the Order-in-Original, the appellant filed an appeal before the Commissioner (Appeals), Jaipur, who rejected the appeal on account of some discrepancies noticed and on account of unjust enrichment. Further, an amount of Rs.3,99,607/- , which was deposited vide Challan dated 29.12.2007 and 29.03.2008 was also rejected on account of time barred.
3. The appellant has, inter a/ia, contested that they have constructed single independent residential units, awarded by the Rajasthan Housing Board, which was outside the ambit of service tax as per the CESTAT’s Final Order No.2008(12) STR 603 (Tribunal-Chennai),where it has been held that individual residential units are not considered as residential complex or part thereof. They have also cited definitions of ‘Construction of Complex’ & ‘Works Contract Services’. Further, they have also relied upon Macro Marvel Projects Ltd. — 2008 12 STR 603 (Tribunal-Chennai).
4. Commissioner (Appeals) has recorded the following findings:-
“5.9 I observe that the Hon’ble Supreme Court in the case of Macro Marvel Projects Ltd. Vs. Commissioner of Service Tax, Chennai — 2008 12 STR 603 (Tribunal-Chennai) has held that Individual Residential units are not covered as Residential Complexe or part thereof. Further, I also observe that the Commissioner (Appeals-I), Jaipur vide Order-in-Appeal No.163(SLM)ST/JPR/2015 & 164(SLM)ST/JPR/2015 both date 14.05.2015 have allowed the appeal of the appellant in the same issue of the appellant for different periods and set aside the order-in-original. Relying on the above referred decision of the Apex Court, I find that no service tax is leviable on the construction of houses/duplexes by the appellant.
5.10 I find that out of Rs.11,42,999/- claimed as refund, an amount of Rs.3,99,607/- (176660 + 222947) deposited vide challan dated 29.12.2007 and 29.03.2008 is time barred as the said amount has been deposited beyond the period of one year from the date of filing the refund claim as is evident from the above, therefore, hit by limitation under Section 116(2) of the CEA, 1944 as made applicable to service tax matters vide Section 83 of the FA, 1994. Further, I find that the remaining amount i.e. Rs.7,43,392/- (11,42,999-3,99,607) is refundable subject to unjust enrichment.
5.11 Now, I take up the matter of unjust enrichment. I find that the appellant has constructed houses for Rajasthan Housing Board (RHB) with reference to their Work Order No.4486 dated 5.3.2008, 1193 dated 16.01.08, 793 dated 17.09.2007 & 683 dated 4.8.2007. I observe that the appellant have submitted copy of letter no.1370 dated 29.12.2008, 1106 dated 24.12.2008, 2067 dated 29.12.2008 & 315 dated 14.08.2017 issued by the RHB wherein it has been mentioned that P.F., Service Tax and other taxes, levied by the State/Central Government shall be borne by the Contractor himself. RHB will not have any liabilities towards such type of taxes. Further, RHB have not paid any service tax to the contractor regarding this project.
5.12 I find that the appellant has deposited the disputed tax amount, but this fact is not enough to establish that the incidence of the amount deposited as tax for that particular period, has not been passed on by the appellant to another person. On examination of balance sheets submitted by the appellant for the relevant period, it has been noticed that the appellant has booked the said amount of tax as expenditure in their Profit and Loss Account. I am of the considered opinion that once the amount is booked in the expenditure/profit and loss account, it entails passing of the incidence of duty to the customers.”
5. Being aggrieved, the appellant is before this Tribunal.
6. Counsel for the appellant states that once it has been held that no service tax was leviable on the construction of houses/duplexes constructed by the appellant for Housing Board, whatever tax they deposited under the wrong advice, no longer remains tax, but it is lying with the Department as Revenue deposit. For such amount of Revenue deposit, there is no limitation applicable as defined under Section 11 B of the Central Excise Act. So far unjust enrichment is concerned, it is evident that Rajasthan Housing Board has not paid any amount towards the service tax to the appellant contractor. Rather they have clarified in the contract/work order that whatever service tax, if any, is payable, the same shall be borne by the appellant contractor.
7. Thus, under such facts and circumstances, the appellant has paid the service tax from their own pocket and cannot pass it on to any other person. It is evident from the Profit & Loss Account, of the service tax paid, that the tax burden has not been passed on to any third party.
8. Counsel further relied upon the ruling of this Tribunal in the case of Alliance Infrastructure Projects Pvt. Ltd. in Appeal No.ST/507/2008, under the similar facts and circumstances, where the assessee has constructed single residential houses for sale under the agreement with the purchasers of villas stipulating that 40% of the works contract tax under Karnataka Value Added Tax Act shall be collected and there was no stipulation towards payment of collecting of service tax. This Tribunal held that under the facts and circumstances of the case, admittedly, no case of unjust enrichment is attracted. Where the tax has been paid under misunderstanding of law. Thus, limitation under Section 11 B is also not attracted. Accordingly, it is held that the limitation under Section 11 B is not applicable, and the assessee is entitled to refund of service tax so paid.
9. In the matter of appeal filed by the Revenue before the High Court in the case of Alliance Infrastructure Projects Pvt. Ltd. — 2022 (56) GSTL 3 (Karnataka), the appeal has been dismissed, upholding the order of this Tribunal. Accordingly, Id. Counsel for the appellant prays for allowing their appeal with consequential benefits.
10. Authorised Representative for Revenue relies upon the impugned order.
11. Having considered the rival contentions, I hold that for service tax paid under mistake of law or under wrong advice, the amount so paid, is in the nature of revenue deposit. For such refund, limitation under Section 11 B is not attracted. Further, it is held that under the facts and circumstances as the appellant have deposited the service tax from their own pocket, I hold that the doctrine of unjust enrichment is not attracted. Thus, I hold that the appellant is entitled to refund of service tax so deposited of Rs.11,42,999/-.
12. Accordingly, the impugned order is modified and the appeal is allowed. I further direct the Adjudicating Authority to grant refund within a period of 60 days from the date of receipt of copy of this order along with interest under Section 11 BB as per Rules.
13. Accordingly, the appeal is allowed.
(Order dictated & pronounced in open court)
