Refund Cannot Be Recovered Without Statutory Provision Under Section 11B of Excise Act

Amarnath Sharma Vs Commissioner CGST (Appeals) (CESTAT Delhi)

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Delhi, partly allowed the appeal concerning refund of service tax paid on services rendered to the Military Engineering Services (MES). The appellant had provided services during the period April 2015 to February 2016, which were ultimately exempted through retrospective notifications. There was no dispute between the parties that the appellant was entitled to refund on merits. However, it was also undisputed that the appellant had passed on the burden of service tax to MES.

The refund claim was filed by the appellant along with a No Objection Certificate (NOC) from MES. The Department rejected the claim on the ground that, under Section 11B of the Central Excise Act, 1944 (as applicable to service tax), the refund should be claimed by the person who bore the tax burden, i.e., MES, and not by the appellant. The authorities also held that the NOC had no legal validity. Initially, part of the refund had been sanctioned and paid, but subsequently, the same was rejected and recovery was ordered, which was upheld in appeal.

The Tribunal examined whether unjust enrichment under Section 11B would apply in such cases. It rejected the appellant’s argument that unjust enrichment does not apply where tax was not payable. The Tribunal clarified that Section 11B applies precisely to situations where tax was paid but not payable, and thus unjust enrichment principles remain applicable. Since the burden of tax had been passed on, the appellant was not entitled to receive the refund amount.

The Tribunal further held that the NOC issued by MES could not override statutory provisions or binding Supreme Court precedent in Mafatlal Industries. It also found that earlier Tribunal decisions cited by the appellant were per incuriam as they did not consider binding precedent.

On the issue of rejection of refund, the Tribunal ruled that refund cannot be denied solely on the ground of unjust enrichment. Instead, where unjust enrichment applies, the sanctioned refund should be credited to the Consumer Welfare Fund rather than being paid to the claimant.

Regarding recovery of the amount already refunded, the Tribunal held that Section 11B contains no provision for recovery of erroneously sanctioned refunds. Such recovery can only be initiated under Section 73 of the Finance Act, 1994 by issuing a proper show cause notice. Therefore, the direction to recover the already paid refund amount was held to be unsustainable.

Accordingly, the Tribunal partly allowed the appeal by setting aside the direction to recover ₹2,50,131 already paid to the appellant and directing that the remaining refundable amount be credited to the Consumer Welfare Fund. The decision clarifies the interplay between refund entitlement, unjust enrichment, and statutory recovery mechanisms.

FULL TEXT OF THE CESTAT DELHI ORDER

Shri Amarnath Sharma¹, filed this appeal to assail the order-in-appeal dated 23.7.2020² passed by the Commissioner (Appeals) in which he rejected the appellant‘s appeal and upheld the order-in-original dated 11.11.2019³ passed by the Assistant Commissioner rejecting refund of Rs.2,73,649/- to the appellant and directing him to deposit Rs. 2,50,131/-which was already paid to him with interest.

2. The appellant had, during the relevant period (1.4.2015 to 29.2.2016), rendered services to the Military Engineering Services (MES). The undisputed legal position is that these services were exempted from service by Notification No. 25/2012-ST dated 20.6.2012 (entry no. 12A) up to 1.4.2015 when this exemption was withdrawn. Again, by Notification No. 6/2015-ST dated 1.3.2015, the services were exempted retrospectively. The case of the appellant is that the services rendered by the appellant to MES during the relevant period were also exempted and the amount needs to be refunded.

3. There is no dispute between the Revenue and the appellant that the appellant was entitled to the refund on merits. There is also no dispute that the appellant had passed on the burden of the service tax to MES.

4. What was held in the impugned order and which is the case of the department is that as the one who has borne the burden of service tax, MES could have applied for refund and not the appellant. The appellant applied for refund, which, it had passed on to the MES, with a No Objection Certificate (NOC) from the MES. According to the Revenue, the NOC from MES has no legal validity and therefore, refund cannot be sanctioned to the appellant, who had paid the duty and passed on the burden to the MES, instead of to MES, who had borne the duty.

5. It must be pointed out that the Assistant Commissioner had, initially sanctioned refund of Rs. 2,50,131/- to the appellant and the amount was also paid to him. Revenue assailed the sanction of refund and the Commissioner (Appeals) remanded the matter to the Assistant Commissioner, who, by the OIO, rejected the refund and also directed the appellant to deposit the amount already paid to it. This decision was upheld by the Commissioner (Appeals) through the impugned order.

6. Learned counsel for the appellant argued vehemently that the appellant was entitled to refund on merits. He also argued that what is not payable as service tax cannot be retained by the department and therefore, the concept of unjust enrichment under section 11B of the Central Excise Act, 1944⁴ as made applicable to the Service Tax by section 83 of the Finance Act, 1994⁵ will not apply where an amount is paid as tax which is not payable. He relied on the following orders of this Tribunal:

a. Khanna Constructions versus Commissioner of Customs, CGST &Central Excise, Jodhpur⁶

b. M/s. Ravindra Kumar Gupta & Sons versus Commissioner of Central Goods & Services Tax, Dehradun⁷

7. Learned counsel also placed on record a letter dated March 2017 from Garrison Engineer, MES, Roorkee which reads as follows:

“M/s Amar Nath Sharma
Village – Bhangeri,
Post Office – Roorkee
Haridwar (U.K.) – 247 667

REFUND CLIM IN RESPECT OF CONTRACTOR M/S AMAR NATH SHARMA

Dear Sir,

Reference to your letter No. Nil dated 21^st Feb 2017.

2. It is confirmed that Rs. 93,007.38 has been recovered by this office vide RAR No. CV/215/B&R-I dated 13 Jan 2017 (CA No. CWE (Hills)/DDN/RKE/31 of 2016-2017 against the said amount made to you as service tax.

3. Above is for your info please.

Yours sincerely,

(A K Acharya)
Lt. Col.
Garrison Engineer‖

8. Learned authorised representative for the Revenue vehemently supported the impugned order and asserted that it calls for no interference. He submitted that as per section 11B, unjust enrichment would apply to all cases of refund and there is a rebuttable presumption that the burden has been passed on to the customer or client. In this case, there is no dispute that the appellant had collected the service tax from MES.

9. The appellant applied for refund with an NOC from the MES. This NOC has no legal standing. He further submitted that the question of unjust enrichment has been discussed at length by a nine- member Constitutional bench of Hon‘ble Supreme Court in Mafatlal Industries Ltd. versus UOI⁸. He submits that in this judgment, it was decided that all claims for refund except where levy is held to be unconstitutional, to be preferred and adjudicated upon under section 11B of Central Excise Act, 1944 or under section 27 of the Customs Act, 1962 and subject to claimant establishing that burden of duty has not been passed on to third party.He, therefore, submitted that the appeal may be dismissed and the impugned order may be upheld.

10. I have considered the submissions advanced by both sides and perused the records. The facts are not in dispute. The appellant was entitled to refund on merits but it had already collected the amount paid as service tax from MES. Instead of claiming refund as the one who had borne the burden, MES issued an NOC to the appellant to claim the refund. The question is whether in such a case, refund can be sanctioned ignoring the provisions of unjust enrichment under section 11B of the Excise Act.

11. Learned counsel‘s submission is that if something was not payable at all, the provisions of unjust enrichment under section 11B would not apply. This submission deserves to be rejected. If section 11B applies, it will apply in full force. Section 11B (as made applicable to the Service Tax) will only apply to those cases where the service tax was not payable but was paid. If it was payable, the question of refund would not arise at all. Every case of refund under section 11B is one where something was not payable as Service tax but was paid. If it was payable and paid, the question of refund would not arise.

12. The next is the question of validity of the NOC issued by MES in the law. The NOC issued by MES is a document issued by an Engineer of the MES authorising the appellant to claim refund contrary to the provisions of section 11B. On the one hand, we have the law passed by the Parliament whose validity has been upheld by the Supreme Court in Mafatlal Industries. On the other hand, is the decision of an engineer of MES that instead of it applying for refund as the one which had borne the burden of the service tax, he issued an NOC and asked the appellant to file a refund claim. Needless to say, the document issued by the Engineer in MES, being contrary to the law and to the judgment of the Supreme Court in Mafatlal Industries, cannot be accepted.

13. Learned counsel for the appellant placed reliance on the decisions of this Tribunal in Khanna Constructions and Ravindra Kumar Gupta & Sons. From these decisions, it is clear that the binding decision of the Supreme Court in Mafatlal Industries was not brought to the attention of the bench in these two decisions. For this reason, I find both these decisions are per incuriam and will not bind me.

14. Learned counsel for the appellant also emphasised the letter from MES cited above. From the letter, it is not clear if the amount recovered from the appellant pertains to the amount of refund in dispute or otherwise. This document does not also carry the case of the appellant any further.

15. Two more issues relevant to the case also need to be examined- (a) Can the refund be rejected under section 11B on the ground of unjust enrichment? and (b) Can the appellant be directed to deposit refund of Rs. 2,50, 131 which was already paid to him?

16. A plain reading of section 11B of the Excise Act shows that there is a rebuttable presumption that the burden of duty (or service tax) has been passed on to the customer/client and therefore, the mandate is to credit to the Consumer Welfare Fund any amount that is sanctioned as refund. If and only if the claimant can establish that the burden has not been passed, will the refund be given to the claimant instead of crediting it to the consumer welfare fund. Refund can be rejected only if it is not payable on merits or on limitation but not on grounds of unjust enrichment. Section 11B of the Excise Act 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 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, 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 sub-section (2) 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 sub-section 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 sub­section (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 re-assembly, 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 sub­section (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”.

17. Therefore, the impugned order cannot be sustained insofar as the rejection of refund is concerned. The amount should instead have been ordered to be credited to the Consumer Welfare Fund.

18. Next is the question of order directing the appellant to pay back the amount already paid to him in the first round of litigation by the Assistant Commissioner. Undoubtedly, in view of the order of the Commissioner (Appeals) in the first round of litigation, the refund sanctioned and given to the appellant was erroneous. However, there is no provision in section 11B to recover erroneously sanctioned refund. If any refund of service tax is made erroneously, it can be recovered by issuing a notice under section 73 of the Finance Act, 1994 which reads as follows:

“73. Recovery of Service tax not levied or paid or short levied or short paid or erroneously refunded –

(1) Where any service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded, the Central Excise Officer may, within ‗eighteen months‘ from the relevant date, serve notice on the person chargeable with the service tax which has not been levied or paid or which has been short-levied or short-paid or the person to whom such tax refund has erroneously been made, requiring him to show cause why he should not pay the amount specified in the notice :

Provided that where any service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded by reason of —

a. fraud; or

b. collusion; or

c. wilful mis-statement; or

d. suppression of facts; or

e. contravention of any of the provisions of this Chapter or of the rules made there under with intent to evade payment of service tax,

by the person chargeable with the service tax or his agent, the provisions of this sub-section shall have effect, as if, for the words ―eighteen months”, the words ―five years” had been substituted.

Explanation. — Where the service of the notice is stayed by an order of a court, the period of such stay shall be excluded in computing the aforesaid period of “eighteen months” or five years, as the case may be.

(1A) Notwithstanding anything contained in sub-section (1), the Central Excise Officer may serve, subsequent to any notice or notices served under that sub-section, a statement, containing the details of service tax not levied or paid or short levied or short paid or erroneously refunded for the subsequent period, on the person chargeable to service tax, then, service of such statement shall be deemed to be service of notice on such person, subject to the condition that the grounds relied upon for the subsequent period are same as are mentioned in the earlier notices.”;

2) The Central Excise Officer shall, after considering the representation, if any, made by the person on whom notice is served under sub-section (1), determine the amount of service tax due from, or erroneously refunded to, such person (not being in excess of the amount specified in the notice) and thereupon such person shall pay the amount so determined.

XXX

(2A) Where any appellate authority or tribunal or court concludes that the notice issued under the proviso to sub-section (1) is not sustainable for the reason that the charge of,—

a. fraud; or

b. collusion; or

c. wilful misstatement; or

d. suppression of facts; or

e. contravention of any of the provisions of this Chapter or the rules made thereunder with intent to evade payment of service tax, has not been established against the person chargeable with the service tax, to whom the notice was issued, the Central Excise Officer shall determine the service tax payable by such person for the period of eighteen months, as if the notice was issued for the offences for which limitation of eighteen months applies under sub-section (1).”;

(3) Where any service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded, the person chargeable with the service tax, or the person to whom such tax refund has erroneously been made, may pay the amount of such service tax, chargeable or erroneously refunded, on the basis of his own ascertainment thereof, or on the basis of tax ascertained by a Central Excise Officer before service of notice on him under sub-section (1) in respect of such service tax, and inform the Central Excise Officer of such payment in writing, who, on receipt of such information shall not serve any notice under sub-section (1) in respect of the amount so paid :

Provided that the Central Excise Officer may determine the amount of short payment of service tax or erroneously refunded service tax, if any, which in his opinion has not been paid by such person and, then, the Central Excise Officer shall proceed to recover such amount in the manner specified in this section, and the period of ―one year” referred to in sub-section (1) shall be counted from the date of receipt of such information of payment.

Explanation. —2 : For the removal of doubts, it is hereby declared that the interest under section 75 shall be payable on the amount paid by the person under this sub-section and also on the amount of short payment of service tax or erroneously refunded service tax, if any, as may be determined by the Central Excise Officer, but for this sub-section.

Explanation (2)—For the removal of doubts, it is hereby declared that no penalty under any of the provisions of this Act or the rules made there under shall be imposed in respect of payment of service-tax under this sub-section and interest thereon.

(4) Nothing contained in sub-section (3) shall apply to a case where any service tax has not been levied or paid or has been short-levied or short- paid or erroneously refunded by reason of—

a. fraud; or

b. collusion; or

c. wilful mis-statement; or

d. suppression of facts; or

e. contravention of any of the provisions of this Chapter or of the rules made there under with intent to evade payment of service tax.

{4A) Notwithstanding anything contained in sub-section (4), where during the course of any audit, investigation or verification, it is found that any service tax has not been levied or paid or has been short levied or short-paid or erroneously refunded, but the true and complete details of transactions are available in the specified records, the person chargeable to service tax or to whom erroneous refund has been made, may pay the service tax in full or in part, as he may accept to be the amount of tax chargeable or erroneously refunded along with interest payable thereon under section 75 and penalty equal to one per cent. of such tax, for each month, for the period during which the default continues, up to a maximum of twenty-five per cent. of the tax amount, before service of notice on him and inform the Central Excise Officer of such payment in writing, who, on receipt of such information, shall not serve any notice under sub-section (1) in respect of the amount so paid and proceedings in respect of the said amount of service tax shall be deemed to have been concluded:

Provided that the Central Excise Officer may determine the amount of service tax, if any, due from such person, which in his opinion remains to be paid by such person and shall proceed to recover such amount in the manner specified in sub-section (1).

Explanation.— For the purposes of this sub-section and section 78, ―specified records” means records including computerised data as are required to be maintained by an assessee in accordance with any law for the time being in force or where there is no such requirement, the invoices recorded by the assessee in the books of account shall be considered as the specified records.

(5) The provisions of sub-section (3) shall not apply to any case where the service tax had become payable or ought to have been paid before the 14th day of May, 2003.

(6) For the purposes of this section, ―relevant date” means, —

(i) in the case of taxable service in respect of which service tax has not been levied or paid or has been short-levied or short-paid —

a) where under the rules made under this Chapter, a periodical return, showing particulars of service tax paid during the period to which the said return relates, is to be filed by an assessee, the date on which such return is so filed;

b. where no periodical return as aforesaid is filed, the last date on which such return is to be filed under the said rules;

c. in any other case, the date on which the service tax is to be paid under this Chapter or the rules made there under;

(ii) in a case where the service tax is provisionally assessed under this Chapter or the rules made there under, the date of adjustment of the service tax after the final assessment thereof;

(iii) in a case where any sum, relating to service tax, has erroneously been refunded, the date of such refund.‘;

19. The OIO passed by the Assistant Commissioner and upheld in the impugned order is not correct insofar as the direction to repay the erroneous refund in concerned.

20. In view of the above, the appeal is partly allowed and the impugned order is modified by setting aside the direction to the appellant to repay Rs. 2,50,131/- which was already paid to him and by crediting the remaining amount of refund to the consumer welfare fund.

21. The appeal is partly allowed to the extent indicated above. The appellant consequently, does not have to repay the amount of Rs.2,50,131/-.

(order pronounced in open court on 12/03/2026.)

Notes:

¹ The appellant

² Impugned order

³ OIO

⁴ Excise Act

⁵ Finance Act

⁶ 2020(33) GSTL 111(Tri-Del.)

⁷ Final Order no. 52011/2021 dated 14.12.2021 in Service Tax Appeal No. 50261 of 2021

⁸ 1997 (89) E.L.T. 247 (S.C.)