Case Law Details
State Bank of India Vs Principal Commissioner of Central GST North Commissionerate (Karnataka High Court)
Karnataka High Court held that date of surrender of bank guarantee to be considered as relevant date for the purpose of claiming refund under section 11B of the Central Excise Act, 1944. Accordingly, appeal allowed.
Facts- The appellant-State Bank of India is in appeal under Section 35G of the Central Excise Act, 1944 praying to set aside the final order bearing No.22877/2017 dated 22.11.20178 passed by the Customs, Excise and Service Tax Appellate Tribunal, Bengaluru and to refund an amount of Rs.19,85,4638/- being the excess of amount paid by the appellant towards service tax along with interest.
Conclusion- It is not in dispute that the claim for refund shall be in accordance with Section 11B of 1944 Act. The refund also shall be claimed within one year from the date of payment which would be relevant date. If the right to claim refund arises after expiry of one year from the date of payment, the same is not contemplated under Section 11B of the Act. Therefore, in the said circumstances and in the peculiarity of the present case, we have to hold that the relevant date in the present fact situation would be the date on which, the HAL surrendered Performance Bank Guarantee i.e., 24.08.2009. The intention of the Legislature in prescribing one year to claim refund is to curtail the belated refund or to avoid time barred refunds.
Held the respondent-revenue is directed to consider the claim of the appellant-Bank for refund, taking relevant date as the date of surrender of the Bank Guarantee i.e., 24.08.2009 and also on appellant-Bank establishing that it has not passed on the service tax to its customer HAL. Consequently, the substantial questions of law are answered in favour of the appellant and against the revenue. Final order bearing No.22877/2017 dated 22.11.2017 passed by the CESTAT in Appeal No.ST/23183/2014 (Annexure-D) is set aside, with a direction as stated above. Accordingly, the appeal is allowed.
FULL TEXT OF THE JUDGMENT/ORDER OF KARNATAKA HIGH COURT
The appellant-State Bank of India (for short, ‘SBI’) is in appeal under Section 35G of the Central Excise Act, 1944 (for short, ‘1944 Act’) praying to set aside the final order bearing No.22877/2017 dated 22.11.20178 passed by the Customs, Excise and Service Tax Appellate Tribunal, Bengaluru (for short, ‘CESTAT’) in Appeal No.ST/23183/2014 (Annexure-d) and to refund an amount of Rs.19,85,4638/- being the excess of amount paid by the appellant towards service tax along with interest.
2. The appeal was admitted on 22.06.2022 to examine the following substantial questions of law:
1. In the facts and circumstances of the case whether Section 11B of the Central Excise Act, 1944 is applicable to the refund claim of the Appellant?
2. Whether the Appellate Tribunal has erred in law by considering the claim for refund under Section 11B of the Central Excise Act, 1944 when the claim for the refund arose only after the period stipulated under Section 11B of the Central Excise Act, 1944?
3. Whether the Appellate Tribunal has erred in law by not determining the question whether Section 11B of the Central Excise Act, 1944 is applicable to the facts and circumstances of the case?
4. Whether the Appellate Tribunal erred in law by applying the law laid down by the Hon’ble Supreme Court in Mafatlal Industries Ltd. V/S Union of India (1997 (89) EL 247) to the present case?
3. Brief facts of the case are that, the appellant is a banking institution constituted under the State Bank of India Act, 1955. The appellant carries on banking business and for the purpose of service tax falls under the category of banking and financial services. The appellant holds the service tax registration No.AAACS8577KST158. The appellant/SBI issued performance bank guarantee on behalf of its customer – Hindustan Aeronautics Limited (for short, ‘HAL’) for a period of 31 months commencing from the date of issuance i.e., 19.07.2008. The appellant/SBI charged upfront commission of Rs.3,10,84,531/- towards the bank guarantee issued for the entire tenure of 31 months and on the said amount of commission, the appellant/SBI paid a sum of Rs.41,12,567/- as service tax.
4. It is submitted that HAL surrendered the bank guarantee upon fulfillment of its export obligations after 14 months of issuance of bank guarantee i.e., on 24.08.2009. On HAL surrendering the bank guarantee prematurely, it claimed refund of commission for the residual period of 17 months from the appellant/SBI. Accordingly, the appellant/SBI is said to have refunded a sum of Rs.1,80,49,083/- towards the commission collected for the remaining surrendered period. Thereafter on 04.11.2009, the appellant/SBI filed refund claim before the second respondent for a sum of Rs.19,85,463/- stating that it is the excess service tax paid towards the banking service and commission collected.
5. The second respondent by order dated 26.02.2010 rejected the claim of the appellant/SBI for refund stating that the claim is barred by limitation, as the claim is filed after lapse of more than one year. Aggrieved by the same, the appellant/SBI filed appeal on 07.05.2010 before the first respondent in Appeal No.507/2014 which was dismissed on 01.07.2014. Aggrieved by the order of Original Authority as well as the Appellate Order, the appellant/SBI filed appeal before the CESTAT under Section 86(1) of the Finance Act, 1994. The CESTAT vide judgment dated 22.11.2017 dismissed the appeal holding that the relevant date for the purpose of refund under Section 11B of the 1944 Act is the date of payment of service tax and claim made subsequent to stipulated time of one year, is barred by time. Aggrieved by the orders passed by the CESTAT as well as Appellate order, the appellant/SBI is before this court in this appeal.
6. Heard learned counsel Sri.P.L.Vijaya Kumar for appellant/SBI and learned counsel Sri.Jeevan J. Neeralgi for respondents-Revenue. Perused the entire appeal papers.
7. Learned counsel for the appellant/SBI would contend that the CESTAT as well as first and second respondents failed to properly appreciate the facts and it is submitted that taking note of the peculiar facts of the present case, the Authorities as well as CESTAT ought to have determined the relevant date. Further, learned counsel would submit that the appellant/SBI is liable to pay service tax to the extent of service rendered and on the amount of commission actually received and not on the commission amount which has been refunded to the HAL. Learned counsel would submit that initially, the appellant/SBI issued bank guarantee on behalf of the HAL for a period of 31 months which was prematurely surrendered on completion of 14 months. He submits that at the initial stage while issuing bank guarantee for 31 months, the appellant/SBI has collected commission for 31 months and accordingly remitted service tax for the entire 31 months. When the bank guarantee was surrendered immediately after 14 months by the HAL, the commission received for remaining months was refunded. On refund of the commission, the appellant/SBI sought for refund of service tax, paid for the surrendered the bank guarantee for the remaining period of 17 months. In the above facts, learned counsel would submit that the relevant date for the appellant/SBI to claim refund would be one year from the date of surrendering the bank guarantee and not one year from the date of payment as determined by the Authorities as well as the CESTAT. Learned counsel would further submit that non-refund of the service tax collected by the Authorities for the period for which service is not rendered would amount to collecting service tax for not rendering service. Thus, learned counsel would submit that the relevant date in terms of Section 11B of 1944 Act in the facts and circumstances of the present case shall be the date on which the bank guarantee was surrendered by the HAL. Thus, learned counsel would pray for allowing the appeal.
8. Per contra, learned counsel Sri.Jeevan J. Neeralgi for respondents would support the orders passed by the Authorities as well as CESTAT. It is submitted that in terms of Section 11B of 1944 Act, relevant date is defined and to the facts of the present case, Section 11B(5) Explanation (B)(f) would apply. As such, the date of payment of service tax would be the relevant date for determining the one year period for refund.
9. Having heard the learned counsel for the parties and having perused the entire appeal papers, the only question that would come up for consideration before this Court is as to whether the ‘relevant date’ as provided under Section 11B of 1944 Act in the present facts of the case is to be construed as the date on which duty was paid or the date on which the bank guarantee came to be surrendered.
10. In the instant case, the facts are not in dispute. The appellant-Bank at the request of HAL issued Performance Bank Guarantee on 19.07.2008 for a period of 31 months. On issuing Bank Guarantee, the appellant-Bank charged upfront commission of Rs.3,10,84,531/-, covering 31 months and remitted a sum of Rs.41,12,567/-as service tax. Though the Bank Guarantee was valid for a period of 31 months, on fulfilling its obligation, the HAL surrendered Bank Guarantee on 24.08.2009 immediately after 14 months and claimed refund of commission paid for the remainder period i.e., 17 months. The appellant-Bank refunded a sum of Rs.1,80,49,083/- towards commission proportionate to the remainder period as no service was provided for the said period. However, the appellant-Bank had remitted service tax for the entire period of 31 months. When the Bank Guarantee was surrendered immediately on completion of 14 months and when the appellant refunded the proportionate commission to the HAL, the appellant-Bank filed refund claim on 11.09.2009 before the respondent-Revenue, claiming refund of Rs.19,85,463/- towards service tax for the remainder period, for which, no service is provided by the Bank. The respondent-Revenue rejected the claim of the appellant-Bank solely on the ground that refund claimed is not within the period of one year from the date of payment of service tax which is confirmed by the Appellate Authority/ Commissioner of Excise as well as CESTAT.
11. The question would be as to what is the relevant date in terms of Section 11B of 1944 Act to claim refund. Section 11B of 1944 Act reads as follows:
“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 and the application shall be accompanied by such documentary or other evidence including the documents referred to in section 12A as the applicant may furnish to establish that the amount of duty of excise and interest, if any, paid on such duty in relation to which such refund is claimed was collected from or paid by him and the incidence of such duty and interest if, any, paid on such duty had not been passed on by him to any other person:
Provided that where an application for refund has been made before the commencement of the Central Excises and Customs Laws (Amendment) Act, 1991 (40 of 1991), such application shall be deemed to have been made under this sub-section as amended by the said Act and the same shall be dealt with in accordance with the provisions of subsection (2) as substituted by that Act:
Provided further that the limitation of one year shall not apply where any duty and interest, if any, paid on such duty has been paid under protest.
(2) If, on receipt of any such application, the Assistant Commissioner of Central Excise or Deputy Commissioner of Central Excise is satisfied that the whole or any part of the duty of excise and interest, if any, paid on such duty paid by the applicant is refundable, he may make an order accordingly and the amount so determined shall be credited to the Fund:
Provided that the amount of duty of excise and interest, if any, paid on such duty as determined by the Assistant Commissioner of Central Excise or Deputy Commissioner of Central Excise under the foregoing provisions of this subsection shall, instead of being credited to the Fund, be paid to the applicant, if such amount is relatable to—
(a) 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) unspent advance deposits lying in balance in the applicant’s account current maintained with the Principal Commissioner of Central Excise or Commissioner of Central Excise;
(c) refund of credit of duty paid on excisable goods used as inputs in accordance with the rules made, or any notification issued, under this Act;
(d) the duty of excise and interest, if any paid on such duty paid by the manufacturer, if he had not passed on the incidence of such[duty and interest, if any, paid on such duty to any other person;
(e) the duty of excise and interest, if any paid on such duty borne by the buyer, if he had not passed on the incidence of such duty and interest, if any, paid on such duty to any other person;
(f) the duty of excise and interest, if any paid on such duty borne by any other such class of applicants as the Central Government may, by notification in the Official Gazette, specify:
Provided further that no notification under clause (f) of the first proviso shall be issued unless in the opinion of the Central Government the incidence of duty and interest, if any, paid on such duty has not been passed on by the persons concerned to any other person.
(3) Notwithstanding anything to the contrary contained in any judgment, decree, order or direction of the Appellate Tribunal or any Court or in any other provision of this Act or the rules made thereunder or any other law for the time being in force, no refund shall be made except as provided in sub-section (2).
(4) Every notification under clause (f) of the first proviso to sub-section (2) shall be laid before each House of Parliament, if it is sitting, as soon as may be after the issue of the notification, and, if it is not sitting, within seven days of its reassembly, and the Central Government shall seek the approval of Parliament to the notification by a resolution moved within a period of fifteen days beginning with the day on which the notification is so laid before the House of the People and if Parliament makes any modification in the notification or directs that the notification should cease to have effect, the notification shall thereafter have effect only in such modified form or be of no effect, as the case may be, but without prejudice to the validity of anything previously done thereunder.
(5) For the removal of doubts, it is hereby declared that any notification issued under clause (f) of the first proviso to sub-section (2), including any such notification approved or modified under sub-section (4), may be rescinded by the Central Government at any time by notification in the Official Gazette.
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,-
(a) in the case of goods exported out of India where a refund of excise duty paid is available in respect of the goods themselves or, as the case may be, the excisable materials used in the manufacture of such goods,-
(i) if the goods are exported by sea or air, the date on which the ship or the aircraft in which such goods are loaded, leaves India, or
(ii) if the goods are exported by land, the date on which such goods pass the frontier, or
iii) if the goods are exported by post, the date of despatch of goods by the Post Office concerned to a place outside India;
(b) in the case of goods returned for being remade, refined, reconditioned, or subjected to any other similar process, in any factory, the date of entry into the factory for the purposes aforesaid;
(c) in the case of goods to which banderols are required to be affixed if removed for home consumption but not so required when exported outside India, if returned to a factory after having been removed from such factory for export out of India, the date of entry into the factory;
(d) in a case where a manufacturer is required to pay a sum, for a certain period, on the basis of the rate fixed by the Central Government by notification in the Official Gazette in full discharge of his liability for the duty leviable on his production of certain goods, if after the manufacturer has made the payment on the basis of such rate for any period but before the expiry of that period such rate is reduced, the date of such reduction;
(e) in the case of a person, other than the manufacturer, the date of purchase of the goods by such person;
(ea) in the case of goods which are exempt from payment of duty by a special order issued under sub-section (2) of section 5A, the date of issue of such order;
(eb) in case where duty of excise is paid provisionally under this Act or the rules made thereunder, the date of adjustment of duty after the final assessment thereof;
(ec) in case where the duty becomes refundable as a consequence of judgment, decree, order or direction of appellate authority, Appellate Tribunal or any court, the date of such judgment, decree, order or direction;
(f) in any other case, the date of payment of duty.”
12. Section 66 of the Finance Act, 1994 is the charging section which authorizes the Service Tax Authorities to levy service tax on the value of taxable service. Clause (105) of Section 65 of the Finance Act, 1994 defines “taxable service”. Both provisions read as under:
“66. Charge of service tax–
There shall be levied a tax (hereinafter referred to as the service tax) at the rate of twelve per cent of the value of taxable services referred to in sub-clauses (a), (d), (e), (f), (g) xxxxxxxxxxxxx and (zzzzw) of clause (105) of section 65 and collected in such manner as may be prescribed.
Clause (105) “taxable service” means any service provided or to be provided-
(zm) to any person, by a banking company or a financial institution including a non-banking financial company, or any other body corporate for commercial concern, in relation to banking and other financial services.”
13. In terms of Section 66 of the Finance Act, 1994, every person providing taxable service to any person shall pay service tax. The emphasis would be tax payable on the service rendered. In the instant case, there is no dispute with regard to service rendered by the appellant-State Bank of India to HAL by issuing Performance Bank Guarantee for a period of 31 months which was curtailed to 14 months in view of surrender of the Bank Guarantee at the end of 14 months, though it was issued for 31 months, which would mean that the appellant-Bank rendered service only for a period of 14 months and the HAL has not availed service for the remainder period of 17 months for which period also, the service tax was paid.
14. The respondent-Revenue has not disputed the entitlement for refund as claimed by the appellant-Bank. However, it is the contention of the respondent-Revenue that refund claimed is not in terms of Section 11B of 1944 Act. In terms of Section 11B of 1944 Act, the refund could be claimed by making an application for refund of such duty or tax or interest paid and such application shall be made before the expiry of one year from the ‘relevant date’ and ‘relevant date’ is defined under Explanation (B) to Section 11B of 1944 Act.
15. The facts of the present case would fall under sub-clause (f) of Clause (B) to Explanation to Section 11B of 1944 Act and Explanation at (B) would prima facie indicate that the refund claim shall be made within one year from the date of payment of duty. In the case on hand, service tax was paid on 05.08.2008 covering 31 months of contract period. However, on 24.08.2009, the HAL surrendered the Bank Guarantee after 14 months, reducing the contract period by 17 months. On reduction of contract period, the appellant-Bank is said to have refunded the commission collected in a sum of Rs.1,80,49,083/- towards remainder period of 17 months as no service is rendered for the said period. The cause of action for the appellant-Bank to claim refund of service tax arose only on HAL surrendering Bank Guarantee after 14 months and on refunding the commission towards remainder period of 17 months i.e., on 24.08.2009.
16. Article 265 of the Constitution of India mandates that no tax shall be levied or collected except by authority of law. The State shall not collect the tax without authority of law, in as much as, the State shall also refund the excess duty or tax paid or wherever it is established that the State could not have collected duty or taxes on such particular transaction or event. In the case on hand, in terms of Section 66 of the Finance Act, 1994, the revenue or State is empowered to collect service tax for the services rendered by any person. In the case on hand, service tax could be retained for the period for which, the appellant-Bank rendered services to the HAL i.e., for 14 months and the revenue cannot retain the service tax paid or collected for the remainder period of 17 months during which period, the appellant-Bank has not rendered any service to HAL which surrendered the Performance Bank Guarantee immediately after 14 months.
17. The Hon’ble Apex Court in MAFATLAL INDUSTRIES LIMITED AND OTHERS v/s UNION OF INDIA AND OTHERS reported in (1997) 5 SCC 536 has categorically held that no claim of refund is maintainable except in accordance with Section 11B of 1944 Act. After declaring as above, the Hon’ble Apex Court has made an exception that claim for refund of equitable consideration depends on facts of each case. It is also observed that jurisdiction of the High Court cannot bar or curtail the remedy under Article 226 of the Constitution of India in a given case. But the same shall be exercised taking note of the legislative intent and to be exercised consistent to the provisions of enactment.
18. It is not in dispute that the claim for refund shall be in accordance with Section 11B of 1944 Act. The refund also shall be claimed within one year from the date of payment which would be relevant date. If the right to claim refund arises after expiry of one year from the date of payment, the same is not contemplated under Section 11B of the Act. Therefore, in the said circumstances and in the peculiarity of the present case, we have to hold that the relevant date in the present fact situation would be the date on which, the HAL surrendered Performance Bank Guarantee i.e., 24.08.2009. The intention of the Legislature in prescribing one year to claim refund is to curtail the belated refund or to avoid time barred refunds.
19. The revenue has not disputed the payment of service tax for the entire 31 months and it has also not denied the claim for refund of service tax by appellant-Bank on curtailing the contract period from 31 months to 14 months. Moreover, retaining service tax for the remainder period would amount to retaining service tax for the period during which, no service was provided by the appellant-Bank to HAL, which is impermissible under Article 265 of the Constitution of India.
20. The Madras High Court in 3E INFOTECH v/s CESTAT, CHENNAI reported in 2018 SCC OnLine Mad 13637 while considering the case of refund, placing reliance on the decision of the Hon’ble Apex Court at paragraphs 7 and 8 has held as follows:
“7. … The Supreme Court of India, in the case of Union of India v. ITC Ltd. reported in 1993 Supp (4) SCC 326 : (1993) 67 ELT 3 (S.C.) while dealing with the question of refund of excess excise paid held
“8. In Shri Vallabh Glass Works Ltd. v. Union of India, this Court, while examining the question as to what is the point of time from which the limitation should be deemed to commence observed that relief in respect of payments made beyond the period of three years may not be granted from the date of filing of the petition, taking into consideration the date when the mistake came to be known to the party concerned. Just as an assessee cannot be permitted to evade payment of rightful tax, the authority which recovers tax without any authority of law cannot be permitted to retain the amount, merely because the tax payer was not aware at that time that the recovery being made was without any authority of law. In such cases, there is an obligation on the part of the authority to refund the excess tax recovered to the party, subject of course to the statutory provisions dealing with the refund.
9. We are, therefore, of the opinion that the High Court, while disposing of the writ petition under Article 226 of the Constitution of India, was perfectly justified in holding that the bar of limitation which had been put against the respondent by the Collector of Central Excise (Appeals) to deny them the refund for the period September 1,1970 to May 28,1971, and June 1, 1971 to February 19, 1972 was not proper as admittedly the respondent had approached the Assistant Collector Excise soon after coming to know of the judgment in Voltas case and the assessee was not guilty of any laches to claim refund.”
8. In the above cited case, the Supreme Court stated that the Assessee’s claim to refund would not be disallowed solely because it seemed barred by limitation. Since the Assessee in that case made the claim for refund shortly after learning about their entitlement for the same, it would not be just to hold that such claim is hit by laches.”
(emphasis supplied)
21. In the peculiar facts of the present case, the respondent-revenue is directed to consider the claim of the appellant-Bank for refund, taking relevant date as the date of surrender of the Bank Guarantee i.e., 24.08.2009 and also on appellant-Bank establishing that it has not passed on the service tax to its customer HAL. Consequently, the substantial questions of law are answered in favour of the appellant and against the revenue. Final order bearing No.22877/2017 dated 22.11.2017 passed by the CESTAT in Appeal No.ST/23183/2014 (Annexure-D) is set aside, with a direction as stated above. Accordingly, the appeal is allowed.
Time for compliance: three months from the date of receipt of a copy of this order.
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