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ST – Unjust enrichment – No evidence, whatsoever, is presented on behalf of department to show that CA certificate is incorrect or doubtful, hence has to be accepted: CESTAT

2019-TIOL-2218-CESTAT-HYD

IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
REGIONAL BENCH, HYDERABAD
DIVISION BENCH
COURT NO. I

Appeal No. ST/30443/2018

Arising out of Order-in-Appeal No. HYD-SVTAX-HYC-APP-086-17-18 APP I, Dated: 27.12.2017
Passed by CC&CT (Appeals-I), Hyderabad

Date of Hearing: 08.03.2019
Date of Decision: 08.03.2019

CCT, HYDERABAD GST

Vs

UPL LTD

Appellant Rep by: Shri V R Pavan Kumar, Superintendent AR
Respondent Rep by: Shri Taraka Srinivasa Rao, Adv.

CORAM: M V Ravindran, Member (J)
P V Subba Rao, Member (T)

ST – M/s Advanta Limited was a supplier to the respondent and they have merged with the respondent vide the order of High Court of Gujarat, with effect from 01.04.2015 – The order of the High Court came much after the effective date and as a result, during the interim period, M/s Advanta Limited, who were supplying services to the respondent, were paying service tax on the same – After merger, the respondent filed a refund claim for the service tax paid during the period 01.04.2015 to 23.06.2016 on the ground that since they are effectively the same organisation in terms of the order of High Court of Gujarat, the services rendered by M/s Advanta Limited to them during that period was self service and not the service rendered by one person to the other one, therefore no service tax is payable – lower authority held that the refund was filed within the time limit under section 83 of the Finance Act, 1994 and allowed refund but held that the refund claim is hit by unjust enrichment as the respondent failed to prove that the burden of service tax has not been passed on to their customers either directly or indirectly – Commissioner(A) reversing this order and, therefore, Revenue in appeal.

Held: In the present case, there is no dispute about the eligibility of the refund or the time limit – Chartered Accountant certificate is comprehensive as to how he has arrived at the conclusion that the amount shown as service tax receivable in the books of accounts of the respondent included the disputed amount – On the other hand, no evidence whatsoever, is presented on behalf of the department to show that this certificate is incorrect or doubtful – In this factual matrix, Bench is satisfied that the burden of service tax has not been passed on by the respondents to their customers and, therefore, the appeal needs to be rejected – Revenue appeal rejected: CESTAT [para 8 to 10]

Appeal rejected

Case laws cited:

Solar Pesticides Pvt. Ltd – 2002-TIOL-57-SC-CX-LB… Para 3

M/s Mafatala Industries Limited – 2002-TIOL-54-SC-CX-CB… Para 4

M/s Solar Pesticides Pvt.Ltd. – 2002-TIOL-57-SC-CX-LB… Para 4

Allied Photographics India Limited – 2004-TIOL-27-SC-CX… Para 4

BPL Limited [2010 (259) E.L.T. 526 (Mad.)]… Para 5

Shoppers Stop Limited [2018(8) GSTL 47 (Mad.)]… Para 5

Usha International Limited – 2016-TIOL-629-CESTAT-DEL… Para 6

Cadila Healthcare Ltd. [2013(61) VST 274 (Guj.)… Para 6

ITC Hotel Limited – 2011-TIOL-1453-CESTAT-DEL… Para 6

SKOL Beverages Ltd. [2014(35)str 804 (Tri.-Mum.)]… Para 6

FINAL ORDER NO. A/30338/2019

Per: P Venkata Subba Rao:

1. This appeal is filed by Revenue against Order-in-Appeal No. HYDSVTAX- HYC-APP-086-17-18 APP I, dated 27.12.2017.

2. Heard both sides and perused the records.

3. The brief facts of the case is that M/s Advanta Limited was a supplier to the respondent and they have merged with the respondent vide the order of Hon’ble High Court of Gujarat, with effect from 01.04.2015. The order of the Hon’ble High Court came much after the effective date and as a result, during the interim period, M/s Advanta Limited, who were supplying services to the respondent, were paying service tax on the same. After merger, the respondent filed a refund claim for the service tax paid during the period 01.04.2015 to 23.06.2016 on the ground that since they are effectively the same organisation in terms of the order of Hon’ble High Court of Gujarat, the services rendered by M/s Advanta Limited to them during that period was self service and not the service rendered by one person to the other one, therefore no service tax is payable. The service tax already paid by M/s Advanta Limited needs to be refunded to them. After following due process, the Learned lower authority held that the refund was filed within the time limit under section 83 of the Finance Act, 1994. He also held that in view of the order of Hon’ble High Court of Gujarat, the refund claim is admissible on merits. However, he held that the refund claim is hit by unjust enrichment as the respondent failed to prove that the burden of service tax has not been passed on to their customers either directly or indirectly. He relied upon the judgment of Hon’ble Supreme Court in the case of Solar Pesticides Pvt. Ltd. [2000(116)ELT 401 (SC)] = 2002-TIOL-57-SC-CX-LB in which Hon’ble Apex Court held that the principle of unjust enrichment is required to be satisfied even in cases of refund where the inputs or input services are used by the claimant because this burden could have been passed on indirectly to the customers as a part of the cost of production. Aggrieved, the appellant preferred an appeal to the first appellate authority who set aside the order in original and allowed the appeal of the respondent herein with consequential relief. The relevant portions of the order of the first appellate authority are in paras 6 & 7 as below:

“6. The original authority denied the refund of service tax claimed on the ground that the appellants had not produced evidence in accordance with Section 11B read with Section 12© of the Central Excise Act, 1944 to prove that the burden of tax paid had not been passed on by them to any other person. It was noted, in particular, by the original authority that the appellants had not shown the disputed amount of tax as ‘receivable’ in the books of accounts. The appellants claim is that the amount claimed as refund had been shown in the books of accounts as ‘receivable’ under the heading ‘current assets.’ They have also, in these proceedings, submitted a chartered accountant certificate stating that the appellants have shown separately the amount of service tax claimed as refund amounting to Rs. 4,08,72,439/- as ‘service tax receivable’ in their books of accounts.

7. It is noted that there is dispute raised by original authority as regards the fact that in terms of the order passed by the Hon’ble High Court the appellants would have been eligible for refund of tax paid on the transactions of taxable services between the parties but for the failure to prove that they would not be unjustly enriched. In terms of section 12 © of the Central Excise Act, 1944 every person who paid duty on goods shall, unless contrary is provided by him, be deemed to have passed on the full incidence of such duty to the buyer of such goods. This law has been made applicable to claims of service tax. The original authority has decided to reject the claim of refund of service tax paid earlier on such transactions based on the said presumption in law. However, on perusal of the CA certificate submitted, I find that the same could reasonably be taken as the premise to consider that the said presumption would not have applied in the case of the appellants, because the C.A. has certified that accounts of the appellant had been verified by him found that the disputed amount had been shown separately as ‘service tax receivable’ in the books of accounts of the appellants and that the appellant would not benefit by way of unjust enrichment. The said CA certificate is found to have not been submitted before the original authority since the original authority came to pass the instant order without issue of a notice or giving an opportunity to the appellants to be heard in person. In the light of such evidence the original authority was required, before denying the claim, to prove with counter evidence that service tax amount claimed as refund had, in fact, been recovered by the appellants directly or indirectly from others. The original authority has, impliedly, referred to the burden of such tax paid to Government by appellants being passed on, in an indirect way, basing on his finding that no evidence, such as C.A. certificate or self declaration, had been submitted before him by the appellants to rebut the presumption in law that the incidence of duty has been passed on. This view of the original authority, in my view, is unilateral and made without challenging the appellants on facts. Therefore, it is bad in law. Just because no proof came to be submitted by the appellants, it cannot be said that the burden of duty had been passed on indirectly. Even assuming that they had so passed on the duty, the question to be answered would be to whom did they transfer such burden of duty? In this case, it is clear in terms of the merger order passed by the Hon’ble High Court that the transactions w.e.f. 01.04.2015 were intra-party transactions. If they had passed on such burden to a customer or third party, the original authority has not brought on record any evidence to provide such indirect transfer. Such facts are relevant to decide the case and could not have been left to presumptions. The option was with the original authority to further examine and prove his case which he has chosen not to; instead he appears to have hastily concluded with a generalised view that the burden of tax had been transferred by appellants. There is no factual basis for the finding made by the original authority to the effect that the appellant had passed on the burden of duty. As pointed out by appellants, the Hon’ble Tribunal has, in the case of Usha International Limited vs. CST, New Delhi (2016(67) Taxman. Com 360 (new Delhi CESTAT) = 2016-TIOL-629-CESTAT-DEL held that “it is pertinent to note that the refund in this case is arising on account of the fact that the effective date of merger/amalgamation is to be treated as 01.04.2007 making service rendered during the relevant period for which royalty was paid as service to self. As service was rendered to self and service tax was paid thereon, burden can only be passed on to self and passing on the burden to self is not tantamount to passing it to any other person.” Further, the Hon’ble Gujarat High Court in the case of Cadilla Healthcare Limited & others vs. Dy. Commissioner of Sales Tax and others [(2013) 61 VST 274 (Guj.)] has, after discussing the aspect of unjust enrichment with reference to sub section (2) & (3) Section 11B of Central Excise Act, 1944, held that “if the transaction was purely between the transferor and transferee companies with no further repercussions, such a transaction would not come within the principle of unjust enrichment”. In the instant appeal, the provision/receipt of services and payment/collection of service tax were between the transferor and transferee companies where no third parties were involved. Therefore, it is reasonable to presume that the tax paid had not been passed on to a third party. The CA certificate proves this fact. Thus, the initial presumption under section 12© against the claimant had been overcome by the appellants. The original authority has not brought on any evidences on record to establish that it was not so or that the burden had, in fact, been passed on in some manner verifiable. Such exercise has not been attempted by the original authority presumably for lack of evidence. In such factual position, the appellants would be rightly entitled to refund of the tax claimed by them. Accordingly, I hold that the order passed by the original authority is liable to be set aside with consequential benefit of refund to the appellants as per law.”

4. Revenue is aggrieved by this order of the first appellate authority and appealed on the following grounds:

(a) The first appellate authority has erred in accepting the Chartered Accountant’s certificate produced before him stating that he had verified the books of accounts and other records of the assessee and based on the verification certified that the service tax component has been shown as service tax receivables in the books of accounts and has not been added to their profit & loss account.

(b) The respondent was duty bound to prove through their books of accounts that they had not collected the service tax from their customers which the respondent had failed to do.

(c) The Chartered Accountant certificate produced by the respondent is not supported by any work sheet or documents to show how the service tax amount of Rs. 4,08,72,439/- claimed as refund has been shown in their books of accounts.

(d) The balance sheet of the respondent during the relevant period shows an amount of Rs. 150.00 crores as statutory receivables but no break up was given.

(e) The Hon’ble High Court of Gujarat in the case of M/s Kone Elevators India Private Limited and M/s Mafatala Industries Limited {1997(89)E.L.T. 247(S.C)} = 2002-TIOL-54-SC-CX-CB and M/s Solar Pesticides Pvt.Ltd. [2000(116)E.L.T. 401 (S.C)] = 2002-TIOL-57-SC-CX-LB and Allied Photographics India Limited [2004(166)E.L.T. 3 (S.C)] 2004-TIOL-27-SC-CX categorically held that no refund should be made unless the claimant establishes that he has not passed on burden of duty to others and no exception can be made in this matter.

(f) The Ld. First appellate authority has erred in relying solely on the certificate of the Chartered Accountant without verifying the books of accounts to satisfy himself as to how the amount of refund claim was not passed on to their customers.

5. Ld. Departmental Representative vehemently argued that the order of the fist appellate authority is incorrect in view of the above. The certificate by a Chartered Accountant in itself is not a conclusive proof that the burden of the duty/service tax has not been passed on to the customers, as has been held by Hon’ble High Court of Madras in the case of BPL Limited [2010 (259) E.L.T. 526 (Mad.)] and Shoppers Stop Limited [2018(8) GSTL 47 (Mad.)]. He vehemently argued that the refund granted by the first appellate authority to the respondent herein is incorrect and this order needs to be set aside. Alternatively, the matter may be remanded to the first appellate authority with a direction to verify the books of accounts of the respondent and satisfy himself and record the reasons for the satisfaction for sanctioning the refund.

6. Ld. Counsel for the appellant asserts that the first appellate authority was correct in sanctioning the refund since when two units are merged, the concept of unjust enrichment should not apply because they themselves had rendered the services to the other unit and as a result the service tax so paid is liable to be refunded to them. He relied on the following case laws:

a) Usha International Limited [2016(43)STR 552 (Tri.-Delhi)] = 2016-TIOL-629-CESTAT-DEL

b) Cadila Healthcare Ltd. [2013(61) VST 274 (Guj.)

c) ITC Hotel Limited [2012(27)STR 145 (Tri.-Del.)] = 2011-TIOL-1453-CESTAT-DEL

d) SKOL Beverages Ltd. [2014(35)str 804 (Tri.-Mum.)]

7. We have considered the arguments on both sides and perused the records. There are three aspects with respect to each refund (a) time bar (b) merits and (c) unjust enrichment. If the refund is eligible on merits and is filed within the time limit, unless the unjust enrichment aspect has been provided by the claimant, the refund should be sanctioned and credited to the Consumer Welfare Fund. If the claimant proves that burden of the duty/service tax has not been passed on to their customers, the same needs to be refunded. The question is how to verify whether the claimant could have passed on the incidence of duty/service tax indirectly to their customers by adding the same as their cost of production of goods or cost of rendering the services. If so, whether the claimant can still get the refund of the duty/service tax. This issue has been settled by Hon’ble Apex Court in the case of Solar Pesticides Pvt.Ltd. (supra) in which it has been categorically held that even if the appellant passes on the incidence of duty/service tax to their customers indirectly, the concept of unjust enrichment applies. In other words, once the refund is claimed, the concept of unjust enrichment must necessarily be examined. The question is how to ascertain whether the incidence of duty/service tax has or has not been passed on to the customers as cost of product/services. The only way this can be done is by examining the books of accounts. If the same has been passed on as the cost of material, the amount will be debited from their cash account and credited to their expenses of materials account in their Profit & Loss statement. On the other hand, if the claimant has borne the burden of duty, expecting it to be refunded, he would debit the amount in their cash account and credit it to their receivables account. In other words, they would be accounting for it as the amount which they expect to be refunded from the department and have not added as the cost of the production/cost of rendering services. Once this issue is settled, the concept of unjust enrichment gets satisfied.

8. In the present case, there is no dispute about the eligibility of the refund or the time limit. The lower authority rejected the refund claim on the ground of unjust enrichment which is, prima-facie, not in accordance with the law. If he had found that unjust enrichment applies, he should have sanctioned the refund and credited the same to the Consumer Welfare Fund. The first appellate authority, on the other hand, considered all the facts and came to the conclusion that the refund claim has been accounted for in the books of accounts of the appellant as service tax receivable. The contention of the department is the first appellate authority has wrongly came to this conclusion without himself verifying the books of accounts and merely relying on the Chartered Accountant certificate which is not a conclusive proof. We agree with the contention of Ld. Departmental Representative that mere production of Chartered Accountant certificate does not amount to discharging the onus of proving that the burden of the service tax/duty has been passed on to the customers. This satisfaction has to be arrived at by the sanctioning authority/appellate authority/Tribunal based on the documents produced before them. Section 11B does not specify that Chartered Accountant’s certificate is the conclusive for the officer to satisfy himself regarding unjust enrichment. On the other hand, Section 11B also has no specific mode of satisfying oneself that the burden of duty/service tax has not been passed on. Therefore, in each and every case, the Officer/adjudicating authority/appellate authority will have to examine the facts and the documents available including the chartered accountant’s certificate, if any, to arrive at a conclusion as to whether the burden has been passed on to their customers or not. There are several cases where the Chartered Accountant certificate is not categorical and comprehensive as required to satisfy the authorities and in such cases they may have to call for more information and satisfy themselves. In this particular case, the Chartered Accountant certificate reads as follows:

“TO WHOMSOEVER IT MAY CONCERN

This is to certify that, we have verified the books of accounts and other records of UPL Limited having its registered office at 3/11, GIDC, Vapi -396 195 Gujarat for the period April 2015 to June 2016 and based on verification, we certify that the company have shown separately the amount of service tax of Rs. 4,08,72,439/- as “service tax receivable” in their books of accounts and therefore, not collected the said amount from any party as part of cost of goods sold. We further certify that the company credited the said service tax amount to the Profit & Loss account and debited the “Service Tax Receivable” and has not passed on or collected the said amount of Rs.4,08,72,439/- from any other party. We further certify that by getting refund of Rs. 4,08,72,439/- of service tax, the company will not benefit by way of unjust enrichment.”

9. We find this certificate by Chartered Accountant is comprehensive as to how he has arrived at the conclusion that the amount shown as service tax receivable in the books of accounts of the respondent as receivables included the disputed amount. On the other hand, we do not find any evidence, whatsoever, presented on behalf of the department to show that this certificate is incorrect or doubtful. In this factual matrix, we are satisfied that the burden of service tax has not been passed on by the respondents to their customers and therefore the appeal needs to be rejected and we do so.

10. The impugned order is upheld and the appeal is rejected.

(Operative portion of the order pronounced in open court on conclusion of hearing)

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