Shree Balaji Warehouse Vs Commissioner of Central Excise and Service Tax (CESTAT Chandigarh)
Summary: The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Chandigarh, considered three connected appeals filed by Shree Balaji Warehouse, Satya Warehouse and Om Shree Sai Ram Warehouse against the rejection of their service tax refund claims. The appeals, numbered ST/60998, ST/60999 and ST/61000 of 2018, arose from a common Order-in-Appeal dated 27 March 2018 passed by the Commissioner of GST and Central Excise (Appeals), Panchkula. The appellants sought refunds of service tax paid on storage and warehousing services provided to the Food Corporation of India (FCI) through HAFED, Hisar. The central controversy concerned whether service tax paid through self-assessment could be refunded without first challenging or modifying the self-assessed liability through appellate proceedings. The Tribunal examined the statutory refund mechanism, judicial precedents and conflicting decisions of coordinate benches before referring the question to a Larger Bench through Interim Order Nos. 26–28/2022 dated 4 February 2022.
The three appellants were registered service tax assessees engaged in providing storage and warehousing facilities. Shree Balaji Warehouse claimed a refund of ₹36,91,475 for April 2014 to September 2016, having filed its application on 21 September 2017. Om Shree Sai Ram Warehouse sought ₹51,62,039 for June 2015 to July 2016, while Satya Warehouse claimed ₹1,06,60,581 for April 2014 to June 2016. The latter two refund applications were filed on 6 September 2017. The aggregate amount involved was ₹1,95,14,095. According to the appellants, they had collected service tax from the service recipient, deposited it with the department and disclosed the payments in their ST-3 returns. Subsequently, they claimed that the services were covered by the negative list under Section 66D(d)(v) of the Finance Act, 1994, effective from 1 July 2012, because they related to the storage and warehousing of agricultural produce.
The appellants maintained that the tax had been deposited under a genuine mistake regarding the applicable legal provisions. They relied upon a communication from FCI dated 29 May 2017 concerning legal advice on the taxability of the services. According to them, there had been uncertainty between the service providers and HAFED/FCI regarding whether the arrangements constituted taxable leasing services or non-taxable storage and warehousing services involving agricultural produce. They argued that service tax had been collected and deposited because of this misunderstanding and that the subsequent clarification established their entitlement to a refund. The appellants further submitted that the amount was not legally payable in the first instance and should not be retained merely because it had been deposited under the service tax accounting head. Their case therefore depended substantially on treating the payment as an amount mistakenly deposited rather than tax validly assessed and collected.
The adjudicating authority rejected all three refund claims on several grounds. First, the appellants had not produced conclusive evidence demonstrating that the incidence of service tax had not been passed on to another person, attracting the doctrine of unjust enrichment. Second, the authority found insufficient evidence establishing that the services actually involved storage or warehousing of agricultural produce and qualified for the claimed exemption or negative-list treatment. Third, the refund applications were considered time-barred under the one-year limitation prescribed by Section 11B of the Central Excise Act, 1944, made applicable to service tax through Section 83 of the Finance Act, 1994. The Commissioner (Appeals) upheld these findings. Consequently, the appellants approached CESTAT, challenging the rejection of their refund claims and maintaining that the authorities had incorrectly applied the statutory refund restrictions to amounts paid under a mistake of law.
Before the Tribunal, the appellants relied upon several judicial decisions, including Awla Infra v. Punjab, KVR Construction, 3E Infotech and Oriental Insurance Company Limited. They argued that Section 11B should not govern the return of amounts that were never legally payable as service tax. Particular emphasis was placed on the Punjab and Haryana High Court’s decision in Awla Infra, which concerned service tax deposited in connection with warehousing arrangements involving FCI and HAFED. The appellants also produced supporting documents, including stock registers indicating storage of wheat, bills relating to wooden crates, fumigation and manpower, insurance-related records, profit and loss accounts and audit reports. They referred to certificates from HAFED and a Chartered Accountant concerning the passing on of tax benefits. Shree Balaji Warehouse additionally relied upon a subsequent departmental order dated 27 November 2020 in support of its contention that unjust enrichment was not established.
The Revenue opposed the appeals and defended the rejection of the refund claims. It submitted that the appellants had collected the amounts specifically as service tax from their customers, deposited them under the appropriate tax head and reflected them in statutory returns. According to the Revenue, these were not deposits made under protest or amounts collected through an unconstitutional levy. The appellants had voluntarily assessed their liability and paid the tax, making the statutory refund procedure applicable. The Revenue relied upon Section 11B, the Supreme Court’s nine-Judge Bench decision in Mafatlal Industries Ltd. v. Union of India and the Larger Bench decision in Veer Overseas Ltd. It argued that the refund provisions governed claims involving excess or wrongly paid tax and could not be bypassed by describing the payment as a mistake of law. The Revenue also maintained that the subsequent recovery or adjustment of service tax by HAFED was a commercial matter between the contracting parties.
The Tribunal first examined whether the refund applications were maintainable without any challenge to the self-assessed service tax liability. It noted that the appellants had filed ST-3 returns declaring the tax as payable and had not sought modification of those assessments before the Commissioner (Appeals). Their refund applications were based on a subsequent legal opinion obtained by FCI rather than any appellate determination concerning their own assessments. The Tribunal considered the Supreme Court’s judgment in ITC Ltd., reported at 2019 (368) ELT 216 (SC), which held in the customs context that a self-assessment constitutes an assessment order and that a refund claim cannot ordinarily be used to reopen an assessment without first securing its modification. The Tribunal observed that the Supreme Court had also disagreed with the reasoning adopted by the Rajasthan High Court in Central Office Mewar Palace Organisation v. Union of India, a service tax matter.
Applying this reasoning, the Tribunal expressed the view that the principles laid down in ITC Ltd. were relevant to service tax refunds. It considered that the appellants had assessed and paid service tax themselves and had subsequently sought to obtain the benefit of the negative-list provision through refund proceedings. The Tribunal also examined Mafatlal Industries Ltd., particularly the principle that statutory refund provisions constitute an exclusive mechanism for recovering taxes paid because of an incorrect interpretation or application of law. The Supreme Court had distinguished ordinary claims arising from mistakes of law from cases involving taxes collected under unconstitutional provisions. The Tribunal noted that a favourable decision in another assessee’s case could not automatically reopen assessments that had attained finality. Accordingly, it expressed reservations about permitting the appellants to obtain refunds solely because a later legal opinion or judicial decision suggested that the underlying services were not taxable.
The Tribunal separately considered the limitation issue under Section 11B. The appellants relied upon decisions permitting refunds of amounts mistakenly paid as service tax without applying the ordinary statutory limitation period. However, the Tribunal examined Supreme Court authorities addressing the exclusivity of the refund mechanism and the circumstances in which limitation could be disregarded. It referred to Porcelain Electrical Manufacturing Co. and other decisions concerning the recovery of taxes paid under a mistake of law. The Tribunal distinguished the constitutional remedies available in appropriate cases from the jurisdiction exercised by departmental authorities and statutory appellate forums. It emphasised that the refund claims before it concerned amounts collected and deposited as service tax under self-assessment, rather than amounts paid under a levy declared unconstitutional. The Tribunal’s analysis therefore supported applying the statutory refund framework, subject to resolution of the threshold maintainability issue.
The doctrine of unjust enrichment constituted another significant aspect of the dispute. The Tribunal observed that the appellants had admittedly collected service tax from the recipients of their services before depositing it with the department. Although the appellants argued that HAFED subsequently deducted or recovered the tax component and that they had ultimately borne the burden, the Tribunal examined whether such subsequent adjustments established entitlement to receive the refunds. It considered the evidentiary requirements for demonstrating that the tax burden had not been passed on and referred to decisions including Allied Photographics India Ltd. and Addison & Co. Ltd. The Tribunal noted the distinction between the person who deposited the tax and the person who ultimately bore its economic burden. It also examined the effect of subsequent commercial adjustments and the relevance of documentary evidence in establishing whether a refund would result in unjust enrichment.
The Tribunal specifically distinguished the Punjab and Haryana High Court’s decision in Awla Infra, which the appellants had cited as supporting their claims. It observed that the refund arrangement in that matter concerned FCI rather than payment of the refund to the warehouse service provider. The High Court proceedings had resulted in an arrangement under which FCI could seek a refund upon demonstrating that the tax burden had not been passed on. The Tribunal noted that the Revenue had subsequently issued a refund cheque of ₹2,58,19,711 in favour of FCI, Hisar, while a separate disputed amount remained subject to proceedings. Consequently, the Tribunal did not accept that Awla Infra established an unconditional right for the present appellants to receive refunds. It considered the identity of the person bearing the tax burden and compliance with the applicable statutory procedure to be material considerations.
The Tribunal also examined conflicting approaches adopted by different CESTAT benches. While the Chandigarh Bench considered the Supreme Court’s decision in ITC Ltd. applicable to the maintainability of service tax refund claims, contrary views had been expressed by the Mumbai Bench in Karanjia Terminals and Logistics and the Ahmedabad Bench in Cadila Healthcare Ltd. The Tribunal noted that a similar issue had already been referred for consideration by a Larger Bench in Viavi Solutions India Pvt. Ltd., through Interim Order No. 111/2021 dated 8 October 2021. Given the conflicting interpretations and the importance of the issue to the statutory refund framework, the Tribunal considered it appropriate to seek authoritative resolution rather than finally decide the appeals on its own interpretation. The question was fundamental because it could determine whether the refund applications were maintainable before consideration of their remaining merits.
Accordingly, the Division Bench comprising Ashok Jindal, Member (Judicial), and Sanjiv Srivastava, Member (Technical), referred the matter to the President of CESTAT for consideration of reference to a Larger Bench. The question concerned whether a service tax refund claim could be maintained without challenging the relevant assessment or self-assessment in appeal. The order dated 4 February 2022 was an interim reference order and did not finally allow or dismiss the three refund appeals. The Tribunal’s discussion highlighted the interaction between self-assessment, statutory refund procedures, limitation, exemption claims and unjust enrichment. Its principal significance was the identification of a conflict in judicial interpretation concerning whether an assessee could use refund proceedings to obtain relief from a self-assessed tax liability without first securing modification of that assessment through the prescribed appellate mechanism.
Cases Discussed
- ITC Ltd., 2019 (368) ELT 216 (SC) — Requirement to challenge self-assessment before seeking refund.
- Mafatlal Industries Ltd. Vs Union of India, 1997 (89) ELT 247 (SC) — Statutory refund mechanism, limitation and unjust enrichment.
- Awla Infra Vs Punjab, 2019-TIOL-2933-HC-P&H-ST — Refund arrangements concerning warehousing and FCI.
- Veer Overseas Ltd., 2018 (15) GSTL 59 (Tri.-LB) — Statutory refund framework.
- Oriental Insurance Company Ltd., 2020-TIOL-293-CESTAT-DEL — Service tax paid under mistake of law.
- KVR Construction, 2012 (26) STR 195 (Kar.) — Mistaken payment of service tax.
- 3E Infotech, 2018-TIOL-1268-HC-MAD-ST — Refund claims following mistaken payment.
- Karanjia Terminals and Logistics, 2021-TIOL-76-CESTAT-MUM — Contrary Tribunal view on maintainability.
- Cadila Healthcare Ltd., 2021-TIOL-257-CESTAT-AHM — Contrary Tribunal view on maintainability.
- Viavi Solutions India Pvt. Ltd., Interim Order No. 111/2021 dated 8 October 2021 — Earlier larger-Bench reference.
