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ST – Unjust enrichment is not applicable even when refund amount is claimed as expenses in the P&L Account: CESTAT

2019-TIOL-2005-CESTAT-BANG

IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
SOUTH ZONAL BENCH, BANGALORE

Appeal No. ST/20133/2019-SM

Arising out of No. CAL-EXCUS-000-APP-842-2018 dated 23.10.2018
Passed by Commissioner of Central Tax (Appeals), Cochin.

Date of Hearing: 06.05.2019
Date of Decision: 09.05.2019

M/s V M G R HOTELS AND RESORTS PVT LTD
BYEPASS ROAD, VALLANGHY, NEMMARA
PALAKKAD-678508, KERALA

Vs

COMMISSIONER OF CENTRAL TAX AND CENTRAL EXCISE
COCHIN C R BUILDINGS, I S PRESS ROAD
COCHIN-682018, KERALA

Appellant Rep by: Shri Sarvanam, Consultant
Respondent Rep by:
 Mr Mathrup Sharan, AR

CORAM: S S Garg, Member (J)

ST – The assessee is holder of Service Tax registration under Section 69 of FA, 1994 under category of ‘Restaurant Service’ and ‘Accommodation Service’ – The only question to be decided is whether the refund amount which is claimed by assessee is hit by Doctrine of Unjust Enrichment or not – Further, assessee filed the refund claim after the decision of Kerala High Court where the High Court has held that levy of service tax on ‘Restaurant Services’ and ‘Short-term Accommodation Services’ was beyond the legislative competence of the Parliament as transaction is covered by Entry 54 of List 2 of Seventh Schedule to the Constitution of India – Refund claim filed by assessee was sanctioned by adjudicating authority but the same was credited to Consumer Welfare Fund as per Section 11B(2) of Central Excise Act as made applicable to Service Tax as per Section 83 of Finance Act, on the ground of unjust enrichment – The Doctrine of Unjust Enrichment is not applicable because the Range Officer after verifying the records of assessee has filed a report wherein he has categorically stated that the assessee has not collected the service tax from service recipient and the aspect of unjust enrichment is absent – The original authority as well as the appellate authority has come to the conclusion that since the assessee has shown the amount of refund as expenses in Profit and Loss Account and thereby they have passed on to its customers – This issue has been considered by Madras High Court in the case of Flow Tec Power and it has come to the conclusion that the unjust enrichment is not applicable even when the refund amount is claimed as expenses in the Profit and Loss Account – The impugned order is not sustainable in law in view of the decision of the Madras High Court and therefore, same is set aside: CESTAT

Appeal allowed

Case laws cited:

Mafatlal Industries vs. UOI – 2002-TIOL-54-SC-CX-CB…Para 2

CCE, Coimbatore vs. Flow Tec Power: 2006 (202) ELT 404…Para 4

Interplex India Pvt. Ltd. vs. CCE – 2013-TIOL-657-CESTAT-AHM…Para 4

CCE, Pune-III vs. Cummins India – 2007-TIOL-1959-CESTAT-MUM…Para 4

CCE, Pune-II vs. VED Textiles Pvt. Ltd – 2007-TIOL-2398-CESTAT-BANG…Para 4

Kesoram Cement vs. CCE, Hyderabad-I: 2005 (183) ELT 302…Para 4

UOI vs. Kerala Bar Hotels Association: 2018 (16) GSTL J170 (SC)…Para 5

ITC Ltd. vs. CST reported in 2019 (22) GSTL 218 (Tri.-Del.)…Para 5

FINAL ORDER NO. 20403/2019

Per: S S Garg:

The present appeal is directed against the impugned order dated 23.10.2018 passed by the Commissioner (A), whereby the Commissioner (A) has rejected the appeal of the appellant.

2. Briefly the facts of the present case are that the appellant is holder of Service Tax registration under Section 69 of the Finance Act, 1994 under the category of ‘Restaurant Service’ and ‘Accommodation Service’. The appellant had been paying service tax for the two services for the period from May 2011 to June 2012. They stopped paying the tax from July 2012 onwards on the basis of order dated 3/7/2013 of the Hon’ble High Court of Kerala in WP(C) No.14045 of 2011 (E) wherein it was held that (i) sub clauses (zzzzv) and (zzzzw) of Clause 105 of Section 65 of the Finance Act, 1994 as amended by Finance Act, 2011 was beyond the legislative competence fo the Parliament as the sub clauses were covered by Entry 54 and Entry 62 respectively of List II of the Seventh Schedule and (ii) that if any payments had been made by the petitioners on the basis of the impugned clauses, they were entitled to seek refund of the same. Accordingly, the appellant filed a refund claim of Rs.16,43,224/- being the service tax paid for the services rendered during May 2011 to June 2012. The appeal filed by the Department against this was dismissed by the Division Bench of the Hon’ble High Court of Kerala on 21/10/2014. Thereafter, the Department issued a show-cause notice dated 8.1.2014 to show-cause as to why refund claim should not be rejected. After following the due process, the Assistant Commissioner, Palakkad Division, sanctioned the refund claim but credited the same to the consumer welfare fund as provided under Section 11B(2) of the Central Excise Act, 1944 as made applicable to Service Tax as per Section 83 of the Finance Act, 1994 on the ground that the financial records of the appellant for the period 2012-2013 and 2013-14 show that the amount under claim of refund has been treated as expense and thereby passed on the effect of the amount of service tax to their customers. Further, the Assistant Commissioner also relied upon the decision of the apex court in the case of Mafatlal Industries vs. UOI: 1997 (89) ELT 247 = 2002-TIOL-54-SC-CX-CB . Aggrieved by the said order, appellant filed appeal before the Commissioner (A), who rejected the same.

3. Heard both the parties and perused the records.

4. Learned counsel for the appellant submitted that the impugned order is not sustainable in law as the same has been passed without properly appreciating the facts and the law. He further submitted that after the decision of the Hon’ble Kerala High Court wherein it was held that levy of service tax on both of the services is beyond the legislative competence of Parliament. The appellant filed refund and the learned adjudicating authority though sanctioned the refund but credited the amount to Consumer Welfare Fund on the ground of unjust enrichment. He further submitted that the adjudicating authority though admitted the fact that appellant had not charged service tax in the invoices raised by them to the customers but still held that on verification of financial records for the financial year 2012-13 and 2013-14, the amount claimed as refund was not reflected as assets and has been shown as expenses in the Profit and Loss Account, whereas it should have been treated as amounts receivables in the balance sheet. He further submitted that the Range Officer has verified the records and has submitted its report to the adjudicating authority and has categorically stated that the appellant have not collected the service tax from the service recipient and the aspect of unjust enrichment is absent. He further submitted that identical issue has been examined by the Hon’ble High Court of Madras in the case of CCE, Coimbatore vs. Flow Tec Power: 2006 (202) ELT 404 and has held that unjust enrichment is not applicable even when the refund amount is shown as expenses in the Profit and Loss Account as the assessee has suffered the duty and not passed on to the customers. The assessee has also relied upon the following decisions on this issue:

– Interplex India Pvt. Ltd. vs. CCE, Ahmedabad: 2013 (290) ELT 386 = 2013-TIOL-657-CESTAT-AHM

– CCE, Pune-III vs. Cummins India: 2008 (221) ELT 525 = 2007-TIOL-1959-CESTAT-MUM

– CCE, Pune-II vs. VED Textiles Pvt. Ltd.: 2007 (220) ELT 281 = 2007-TIOL-2398-CESTAT-BANG

– Kesoram Cement vs. CCE, Hyderabad-I: 2005 (183) ELT 302

He also submitted that the apex court decision in the case of Mafatlal Industries vs. UOI: 1997 (87) ELT 247 (SC) = 2002-TIOL-54-SC-CX-CB relied upon by the adjudicating authority is not applicable in the facts and circumstances of this case and has been wrongly relied upon by the adjudicating authority.

5. On the other hand, the learned AR defended the impugned order and submitted that against the decision of the Kerala High Court, the Department has already filed appeal before the Hon’ble Apex Court and the same is pending, which is reported in UOI vs. Kerala Bar Hotels Association: 2018 (16) GSTL J170 (SC). He further submitted that on merit also the appellant has shown the amount of refund as expense in the Profit and Loss Account and therefore, both the authorities have rightly come to the conclusion that the Doctrine of Unjust Enrichment is applicable as the appellant has passed on to its customers. The learned AR further relied upon the decision rendered in the case of ITC Ltd. vs. CST reported in 2019 (22) GSTL 218 (Tri.-Del.).

6. After considering the submissions of both the parties and perusal of the material on record, I find that in the present case the only question to the decided is whether the refund amount which is claimed by the appellant is hit by Doctrine of Unjust Enrichment or not. Further, I find that the appellant filed the refund claim after the decision of the Kerala High Court where the Hon’ble Kerala High Court has held that levy of service tax on ‘Restaurant Services’ and ‘Short-term Accommodation Services’ was beyond the legislative competence of the Parliament as transaction is covered by Entry 54 of List 2 of Seventh Schedule to the Constitution of India. Further, I find that refund claim filed by the appellant was sanctioned by the adjudicating authority but the same was credited to Consumer Welfare Fund as per Section 11B(2) of the Central Excise Act as made applicable to Service Tax as per Section 83 of the Finance Act, on the ground of unjust enrichment. Further, I find that in the present case, the Doctrine of Unjust Enrichment is not applicable because the Range Officer after verifying the records of the appellant has filed a report wherein he has categorically stated that the appellant has not collected the service tax from the service recipient and the aspect of unjust enrichment is absent in the present case. Further, I find that the original authority as well as the appellate authority has come to the conclusion that since the appellant has shown the amount of refund as expenses in the Profit and Loss Account and thereby they have passed on to its customers. This issue has been considered by the Madras High Court in the case of Flow Tec Power cited supra, and it has come to the conclusion that the unjust enrichment is not applicable even when the refund amount is claimed as expenses in the Profit and Loss Account. The same view was taken by other decisions of the Tribunal cited supra. Further, the decision relied upon by the Revenue in the case of ITC Ltd. is not applicable in the facts and circumstances of the case because in that case, the appellant failed to prove that it has suffered incidence of duty and not passed on to any other person. In view of my discussion above, I am of the view that the impugned order is not sustainable in law in view of the decision of the Madras High Court cited supra and therefore, by following the ratio of the said decision, I set aside the impugned order by allowing the appeal of the appellant with consequential relief, if any.

(Order was pronounced in Open Court on 09.05.2019)

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