Case Law Details
Way2wealth Brokers Pvt. Ltd Vs Commissioner of Central Tax (Karnataka High Court)
The circular dated 03.08.2011 issued by Central Board of Excise and Customs, New Delhi, clarifies that delayed payment charges received by stock brokers are not includible in taxable value as the same are not the charges for providing taxable services. Such charges are on account of delay in making payments by the service recipient to the service provider and are in the nature of a penal charge for not making payment within the stipulated time. Such amounts are not includible in the taxable value for charging service tax.
It has been thus observed that what one has to see is whether the amount paid by the assessee under a mistaken notion was refundable. Mere payment made by the assessee will neither validate the nature of leave petitions coming within the ambit of S. 11B of the Act,1944.
Indisputably, the exemption notification is not under consideration. If the payment made by a mistaken notion does not come within the realm of `duty’, Section 11B of the Act, 1944 would not be applicable. The arguments of the learned counsel for the Revenue that no material evidence was placed to show that in the account statement of invoice/bill, etc, it was shown that delayed payment charges was indicated separately, is wholly misconceived since the Commissioner of Service Tax (Appeals) has categorically held that the rejection of the claim by the adjudicating authority without considering the certification issued by the chartered accountant amounts to technical/procedural lapses which should not be a ground for rejection of refund.
The Tribunal also has dismissed the appeal solely on the ground that the claim is barred by limitation. Moreover, on analyzing the material evidence, refund has been granted for the period October 2010 to March 2011, relying on the Board Circular referred to above.
As we have discussed in the preceding paragraphs, the period of limitation would not be applicable in the present case.
FULL TEXT OF THE JUDGMENT/ORDER OF KARNATAKA HIGH COURT
This appeal is filed by the assessee under Section 35G of Central Excise Act, 1944 (hereinafter referred to as ‘The Act, 1944′) read with Section 83 of Finance Act, 1994, assailing the order dated 13.10.2017 passed by the Customs, Excise and Service Tax Appellate Tribunal, South Zonal Bench-II, Bengaluru (hereinafter referred to as the Tribunal’).
2. The appeal was admitted by this Court on 09.11.2018 to consider the fo*pwing substantial question of law:
“Whether the Tribunal committed an error in misreading Section 11B of the Central Excise Act to the facts and circumstances of the case?
3. The appellant-assessee is a private limited company registered under the provisions of Companies Act, 1956. The assessee is a holder of service tax registration and is engaged in rendering taxable services under the category of ‘Stock broker’ and ‘Banking and other Financial Services’. The assessee was collecting Late Payment Charges, (LPC) from the customers for any delay in payment of the amount beyond the stipulated time The assessee paid service tax on the LPC inadvertently for the period April 2009 to March 2011. However, as there was no mandate to pay service tax on LPC, the assessee stopped remitting service tax on this amount from 01.04.2011.
4. Pursuant to a clarificatory Circular issued by the Central Board of Excise and Customs, New Delhi (F. No.137/25/2011-Service Tax) dated 03.08.2011 clarifying that service tax need not be paid on LPC collected from stock brokers, the assessee filed a refund application for an amount of Rs.37,72,354/- being service tax inadvertently paid which was not due under the existing laws. A show-cause notice was issued by the Department alleging that no satisfactory grounds were urged with evidential factors for the claim made. Subsequently, an order was passed by the adjudicating authority dated 26.04.2012 (Order-in-Original No.7/2012-ST) rejecting the claim for refund of service tax.
5. Being aggrieved, the assessee filed an appeal before Commissioner of Service Tax (Appeals), Bengaluru, which came to be partly allowed, remanding the claim for the period October 2010 to March 2011 to the Assistant Commissioner of Service Tax and rejecting the claim for the period April 2009% September 2010 as hit by limitation. On further appeal to the Tribunal, the same came to be rejected upholding the order of the Commissioner of Service Tax (Appeals).
6. Pursuant to the remand order made for the period October 2010 to March 2011, after processing, the refund application was allowed. Being aggrieved by the order of the Tribunal in rejecting the claim for the period April 2009 to September 2010, this appeal is preferred by the assessee.
7. Learned counsel for the assessee, placing reliance on the judgment of a co-ordinate Bench of this Court in the case of Commissioner of Central Excise (Appeals), Bengaluru, .v. KVR Construction [2012 (26) STR 195 (Kan)), submitted that service tax paid on LPC was on a mistaken notion which was not liable to be paid. S.11B of the Act, 1944 relates to claims for refund of duty. He submitted that ‘duty’ means the duty payable under Section 3 of the said Act. As per the Central Excise Rules, 2002. The amount of service tax paid on LPC, not being the duty payable under Section 3 of the Act, 1944, S.11B of the Act, 1944 has no application to the present case. Therefore, he contended that the Central Government cannot withhold the amount paid as service tax without the authority of law in violation of Article 265 of the Constitution of India. The authorities having refunded the service tax paid under the mistaken notion for the period October 2010 to March 2011, ought to have refunded the same for the period in consideration also.
8. Referring to the judgment of the Hon’ble Apex Court in the case of Suchitra Components Ltd. . v. Commissioner of Central Excise, Guntur [2008 (11) S.T.R. 430 (S.C.)J), learned counsel for the assessee submitted that a beneficial circular has to be applied retrospectively. In the present case, the departmental clarification dated 03.08.2011 being beneficial to the assessee, the same having been applied for the part period from October 2010 to March 2011 ought not to have been rejected for the period, April 2009 to September 2010 as hit by limitation u/s 11B of the Act of 1944, which indeed is not applicable to the case on hand.
9. The learned counsel appearing for the Revenue placed reliance on the judgment of the Hon’ble High Court of M.P. in the case of MDP Infra (India) Pvt. Ltd. v. Commissioner of Customs, C.EX. & CGST [(2019 (29) G.S.T.L. 296 (M.P.)]) and submitted that the Hon’ble High Court of Madhya Pradesh, distinguishing the decision in the case of Commissioner of C.Ex. .v. KVR Construction (supra), has held that there was no dispute that the appellant therein was prevented from seeking refund within the period of limitation. The plea taken was that service tax having been paid mistakenly on construction services which were exempted during the relevant period was misconceived. The said judgment has been confirmed by the Hon’ble Apex Court.
10. Inviting the attention of the Court to the Circular issued by Central Board of Excise and Customs dated 03.08.2011, learned counsel submitted that in terms of paragraph 3 therein, service tax is chargeable on the taxable value which shall be the ‘gross amount’ charged by the service provider. Therefore, if in the account statement/invoice/bill, etc., issued by the service provider, only the gross amount is shown without indicating the delayed payment charges separately, the service tax would be payable on the entire amount. In the instant case, no evidence was placed by the assessee to overcome this rider contained in the Circular. Thus, it was argued that S.11B of the Act of 1944 being applicable as per the judgment of the Hon’ble Apex Court in the case onisst. Collector .v. Anam Electrical Manufacturing Co. (2002-TIOL-650-SC-CUS), the Tribunal has rightly followed the same while dismissing the appeal of the assessee. As such, no interference is warranted by this Court against the well-reasoned finding of the Tribunal.
11. We have carefully considered the rival submissions of the learned counsel appearing for the parties and perused the material on record.
12. The crux of the controversy mainly relates to the applicability of S.11B of the Act, 1944 to a refund claim made by the assessee relating to service tax paid on a mistaken notion on the LPC. S.11B of the Act of 1944 reads as under:
“11B. Claim for refund of duty:
(1) Any person claiming refund of any duty of excise may make an application for refund of 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 in relation to which such refund is claimed was collected from, or paid by him and the incidence of such duty had not been passed on by him to any other person.”
In terms of Rule 3 (e) of the Central Excise Rules, ‘duty’ means the duty paid under Section 3 of the Act of 1944. Section 3 of the Act of 1944 reads thus:
“3. Duty specified in the Fourth Schedule to be levied:
(1) There shall be levied and collected in such manner as may be prescribed a duty of excise to be called the Central Value Added Tax (CENVAT) on all excisable goods produced or manufactured in special economic zones) which are produced or manufactured I India as, and at the rates, set forth in the Fourth Schedule.*4-
13. The circular dated 03.08.2011 issued by Central Board of Excise and Customs, New Delhi, clarifies that delayed payment charges received by stock brokers are not includible in taxable value as the same are not the charges for providing taxable services. Such charges are on account of delay in making payments by the service recipient to the service provider and are in the nature of a penal charge for not making payment within the stipulated time. Such amounts are not includible in the taxable value for charging service tax.
14. Considering 11B of the Act, 1944, a coordinate Bench of this Court in the case of Commissioner of Central Excise .v. KVR Construction (supra), has held thus:
“18. From the reading of the above Section, it refers to claim for refund of duty of excise only, it does not refer to any other amounts collected without authority of law. In the case on hand, admittedlyy the amount sought for as refund was the amount paid under mistaken notion which even according to the department was not liable to be paid.”
It has been thus observed that what one has to see is whether the amount paid by the assessee under a mistaken notion was refundable. Mere payment made by the assessee will neither validate the nature of leave petitions coming within the ambit of S.11B of the Act,1944. In view of the decision in the case of KVR Constructions (supra), that Section 11-B is not applicable to the identical fact situation and the same being confirmed by the Hon’ble Apex Court dismissing the appeal filed by the Revenue, the judgment in the case of Assistant Collector .v. Anam Elec. Manufacturing Co. (supra) would be distinguishable, as the refund claimed is not with respect to illegal levy collected, but service tax paid by the assessee voluntarily through self-assessment under a mistaken notion.
15. The Tribunal placing reliance on the judgement of the Hon’ble Apex court in the case of Assistant Collector v. Anam Elec. Manufacturing Co. (supra) has held that the claim of refund was hit by limitation. In the said judgement, the Hon’ble Apex Court has laid down the guidelines for disposal of appeals and special leave petitions coming within the ambit of S.11B of the Act,1944. In view of the decision in the case of KVR Constructions (supra), that Section 11-B is not applicable to the identical fact situation and the same being confirmed by the Hon’ble Apex Court dismissing the appeal filed by the Revenue, the judgment in the case of Assistant Collector .v. Anam Elec. Manufacturing Co. (supra) would be distinguishable, as the refund claimed is not with respect to illegal levy collected, but service tax paid by the assessee voluntarily through self-assessment under a mistaken notion.
16. The judgement relied upon by the learned counsel for the Revenue in the case of MDP Infra (India) (supra) will also not come to the assistance of the Revenue to deny refund as the Hon’ble Apex Court was dealing with the exemption notification, exemption granted to the payment of service tax on construction services provided to Government authority during certain period was withdrawn which was later restored, with prospective effect.
17. Indisputably, the exemption notification is not under consideration. If the payment made by a mistaken notion does not come within the realm of `duty’, Section 11B of the Act, 1944 would not be applicable. The arguments of the learned counsel for the Revenue that no material evidence was placed to show that in the account statement of invoice/bill, etc, it was shown that delayed payment charges was indicated separately, is wholly misconceived since the Commissioner of Service Tax (Appeals) has categorically held that the rejection of the claim by the adjudicating authority without considering the certification issued by the chartered accountant amounts to technical/procedural lapses which should not be a ground for rejection of refund.
Therefore, placing reliance on the finding of the Tribunal in the case of CST, Delhi .v. Convergys India P td. [2009 (16) S.T.R. 198], the appellate authority has remanded the matter to a certain period while rejecting the petition for the periods under consideration. The Tribunal also has dismissed the appeal solely on the ground that the claim is barred by limitation. Moreover, on analyzing the material evidence, refund has been granted for the period October 2010 to March 2011, relying on the Board Circular referred to above.
18. As we have discussed in the preceding paragraphs, the period of limitation would not be applicable in the present case. Accordingly, the appeal deserves to be allowed setting aside the impugned order passed by the Tribunal and the authorities.
19. Hence, the following:
ORDER
(i) The appeal is allowed.
(ii) The substantial question of law is answered in favour of the assessee and against the Revenue.
(iii) The impugned order of the Tribunal dated 13.10.2017 passed in Final Order No.22441/2017 as well as order passed by the authorities insofar as rejecting the refund of service tax for the period April 2009 to September 20104re set aside.
(iv) The authorities are directed to refund the amount claimed by the appellant-assessee towards service tax paid on late payment charges (LPC) for the period April 2009 to September 2010 within a period of four weeks from the date of receipt of a certified copy of this order.
(v) It is clarified that the refund amount claimed shall not carry any interest.
