No Violation of Section 11B: CESTAT Upholds Service Tax Refund

Principal Commissioner Vs Mobinteco Ltd. (CESTAT Delhi)

In a recent case before the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) Delhi, the issue revolved around the admissibility of a service tax refund claimed by M/s. Mobinteco Ltd. The Revenue appealed against the order of the Commissioner of Central Tax (Appeals II) Delhi, which had set aside the original order and sanctioned the refund. The primary contention was related to the applicability of Section 11B of the Central Excise Act, 1944, to service tax and the associated time limitation for claiming a refund.

Background:

• M/s. Mobinteco Ltd availed the services of M/s. Oak Pacific Holding, Japan, and paid service tax under the reverse charge mechanism for the invoices issued during September and October 2012.
• The service provider, Oak Pacific Holding, could not deliver the services and, in March 2014, waived its service charges.
• Mobinteco Ltd filed a refund claim on September 8, 2014, for the service tax paid on the services.

Claim Rejected on Limitation Grounds:

• The Assistant Commissioner sanctioned the refund on merits but rejected it on the grounds of limitation, citing Section 11B of the Central Excise Act, 1944, made applicable to service tax by Section 83 of the Finance Act, 1994.
• Section 11B imposes a limitation of one year from the relevant date for claiming a refund.

Appeal and Commissioner’s Order:

• On appeal, the Commissioner (Appeals) allowed the refund, holding that the relevant date for the limitation period in the case of a refund claim by a person other than the service provider is the date of purchase of the service, as per Explanation B(e) to Section 11B.
• The Commissioner concluded that since no service was rendered due to the waiver of charges, the relevant date had not yet begun when the refund application was filed.

Revenue’s Arguments:

• The Revenue contended that the Commissioner (Appeals) erred in holding that the service was not provided by Oak Pacific Holding.
• The Revenue challenged the reliance on a Supreme Court judgment, Oswal Chemicals & Fertilisers Ltd. vs CCE, arguing that it pertained to central excise and did not apply to service tax.
• Lack of evidence regarding the date of issuance of the waiver letter was raised as a concern.
• The Revenue pointed out that Mobinteco Ltd expressed reservations about the service quality and timing in September 2012 but claimed a refund after two years.

Decision of CESTAT:

• CESTAT emphasized that the provisions of the Central Excise Act, including Section 11B, apply to service tax matters, so far as may be.
• The term ‘manufacturer’ in central excise corresponds to ‘service provider’ in service tax, and ‘goods’ in central excise corresponds to ‘services’ in service tax.
• The relevant date for claiming a refund in the case of a person other than the service provider is the date of purchase of the service, as per Explanation B(e) to Section 11B.
• Since Oak Pacific Holding waived its charges, no service was rendered, and the purchase was not complete. Therefore, the relevant date had not yet begun when the refund application was filed.
• The Revenue’s attempt to distinguish the case from Oswal Chemicals & Fertilisers Ltd. was rejected, emphasizing the applicability of Section 11B to service tax matters.

Conclusion:

• The CESTAT upheld the order of the Commissioner (Appeals), stating that the claim for a refund was not time-barred under Section 11B.
• The appeal filed by the Revenue was dismissed, providing consequential relief to Mobinteco Ltd.

FULL TEXT OF THE CESTAT DELHI ORDER

1. Revenue has filed this appeal to assail the Order in Appeal¹ dated 19.6.2018 passed by the Commissioner of Central Tax (Appeals II) Delhi whereby he set aside the order in original² dated 26.12.2017 passed by the Assistant Commissioner and sanctioned refund. The facts which lead up to this appeal are as follows:

2. M/s. Mobinteco Ltd ³ sought the services of M/s Oak Pacific Holding, Japan ⁴ who issued invoices for its services during September and October 2012. Since the OPHJ, the service provider, was located outside India, the respondent paid service tax on these invoices under reverse charge mechanism through three challans dated 6 November 2012, 10 May 2013 and 14 June 2013.

3. OPHJ could not deliver the services for which it issued invoices and hence, by a letter issued in March 2014, it waived its service charges. On 8 September 2014, the respondent filed a refund claim for the service tax which it had paid on these services. The Assistant Commissioner found that the refund was admissible on merits but rejected it on the ground that it was filed after one year from the date of payment of the service tax and hence it was hit by limitation under section 11B of the Central Excise Act, 1944⁵ as made applicable to the service tax by section 83 of the Finance Act, 1994⁶.

4. On appeal by the respondent, the Commissioner (Appeals) passed the impugned order allowing the refund holding that one year under section 11B must be reckoned from the relevant date which, in case of refund claim by persons other than the manufacturer, is the date of purchase of the goods as per Explanation B (e) to section 11B. When section 11B is applied to service tax provisions, this clause would mean if the claim of refund of service tax is made by a person other than the service provider, the relevant date is the date of purchase of the service. In this case, no service was rendered by the service provider OPHJ and the refund is claimed by the respondent who is not the service provider. Therefore, the limitation of one year from the date of payment of service tax does not apply in this case.

5. On behalf of the Revenue, learned authorised representative made the following submissions:

(a) The Commissioner (Appeals) erred in holding that the service had not been provided by OPHJ;

(b) The Commissioner (Appeals) wrongly relied on the judgment of the Supreme Court in Oswal Chemicals & Fertilisers Ltd. vs CCE7 as it pertained to central excise and it will not apply to service tax;

(c) The respondent had not submitted any evidence to establish the date of issuance of the waiver letter and the Commissioner (Appeals) has not examined this vital fact;

(d) The respondent had expressed reservation about the quality and timing of the service in September 2012 itself and withheld payments to OPHJ but thereafter deposited service tax in the the months of November 2012 and May and June 2013. It claimed refund after two years and hence it is time barred.

(e) The impugned order may be set aside and the appeal may be allowed.

6. Learned counsel for the respondent supports the impugned order.

7. We have considered the submissions on both sides and perused the records.

8. As per section 83 of the Finance Act, some provisions of the Excise Act including section 11B which deals with refunds, shall apply, so far as may be, to service tax. This section reads as follows:

“ SECTION 83. Application of certain provisions of Act 1 of 1944.— The provisions of the following sections of the Central Excise Act, 1944, as in force from time to time, shall apply, so far as may be, in relation to service tax as they apply in relation to a duty of excise :- sub-section (2A) of section 5A, sub-section(2) of section 9A, 9AA, 9B, 9C, 9D, 9E, 11B, 11BB, 11C, 12, 12A, 12B, 12C, 12D, 12E, 14, 15, 15A, 15B, 31, 32, 32A to 32P, 33A, 35EE, 34A, 35F, 35FF, to 35O (both inclusive), 35Q, 35R, 36, 36A, 36B, 37A, 37B, 37C, 37D, 38A and 40.”

9. It is important to note that these provisions apply to service tax, so far as may be. These provisions must be applied to service tax keeping this in mind. For instance, the expression ‘manufacturer’ in Section 11B will, when applied to service tax, will be the ‘service provider’ and ‘payment of duty’ will be ‘payment of service tax’.

10. Both the lower authorities have held in favour of the respondent on merits in this case. The only dispute is with respect to the limitation. The period of one year under section 11B has to be reckoned from the relevant date, which is defined in the Explanation B to that section. It reads as follows:

Section 11B. Claim for refund of duty and interest, if any, paid on such duty . –

1. Any person claiming refund of any duty of excise and interest, if any, paid on such duty may make an application for refund of such [duty and interest, if any, paid on such duty to the Assistant Commissioner of Central Excise or Deputy Commissioner of Central Excise before the expiry of one year from the relevant date in such form and manner as may be prescribed *******

(2) ****

(3) *****

(4) ******

(5) ****

Explanation. – For the purposes of this section, –

(A) “refund” includes rebate of duty of excise on excisable goods exported out of India or on excisable materials used in the manufacture of goods which are exported out of India;

(B) “relevant date” means, –

(C) *****

(D) *****

(E) *****

(d)*****;

(e) in the case of a person, other than the manufacturer, the date of purchase of the goods by such person;

(ea) ****

(eb) ****

(ec) *****

(f) in any other case, the date of payment of duty.”

11. According to the respondent, the Commissioner (Appeals) has correctly held that clause (e) of Explanation B applies to this case and the refund claim is not time barred. According to the Revenue, this submission does not fall under clause (e) but falls under clause (f) as ‘any other case’. It is also the Revenue’s submission that Oswal Chemicals & Fertilisers Ltd. does not apply to this case because that judgment was delivered in respect of excise while this is a service tax refund.

12. We find that Section 11B applies to service tax matters, so far as may be. In other words, wherever necessary, the references to excise duty, manufacture, manufacturer, etc. must be read as corresponding terms with reference to service tax. Otherwise, application of section 11B to service tax itself becomes absurd and impossible. The term ‘manufacturer’ in central excise corresponds to ‘service provider’ in service tax, i.e., the one carrying out the taxable event which is manufacture in the case of excise and the provision of service in case of service tax. Similarly, the term ‘goods’ in the central excise must be read as ‘services’ when section 11B is applied to service tax. Now if we replace these two words in clause (e) of Explanation B to section 11B, the irresistible conclusion is that the relevant date for reckoning one year in the case of a person, other than the service provider is, the date of purchase of the service by such person. In case of goods, the sale and purchase is complete when the property in the goods is transferred, i.e., the goods are delivered. Services are intangible and therefore, the purchase will be complete once the services are rendered. If the services are unsatisfactory and the parties agree and therefore, waive the bills, evidently, no service is rendered and no payment for it has been made. In this case, since the services rendered by OPHJ to the respondent were unsatisfactory, it waived the invoices in March 2014. In other words, the sale and purchase of services had not taken place at all. Therefore, the relevant date had not yet begun when the appellant filed the refund application on 8 September 2014. The Commissioner (Appeals) has correctly held that the claim of refund is not hit by limitation.

13. Revenue sought to distinguish this case from Oswal Chemicals & Fertilizers Ltd. on the ground that this is a service tax matter. This submission cannot be accepted. If section 11B applies to service tax matters, as far as may be, there is no reason why the ratio of this judgment does not apply.

14. In view of the above, the impugned order is upheld and Revenue’s appeal is dismissed with consequential relief, if any, to the respondent.

[Order pronounced on 30/10/2023]

Notes

1 Impugned order

2 OIO

3 Respondent

4 OPHJ

5 the Excise Act

6 the Finance Act

7 2015(318) ELT 617(SC)