Refund of Tax collected under an Unconstitutional Levy not Governed under Central Excise Act: CESTAT [Read Order]

The Mumbai bench of the Central Excise, Customs, and Services Tax Appellate Tribunal (CESTAT) has held that the refund of the tax collected under an unconstitutional levy under the Central Excise Act was rightly rejected by the authorities.

The appellant had filed the refund application before the Jurisdictional Service Tax authorities on 19.09.2016 on the ground that the service provided by the club to its members cannot be considered as taxable service by one legal entity to another and hence, not liable to service tax, on the principles of mutuality. The refund application filed by the appellant was rejected by the original authority on the ground that the same was filed beyond the prescribed time limit provided under Section 11B of the Central Excise Act, 1944.

The appellants contended that the limitation prescribed under Section 11B of the Central Excise Act, 1944 does not apply and in such cases, the general rule of limitation prescribed under the Limitation Act, 1963 alone will be applicable. It was submitted that the refund claim having been filed within the limitation period prescribed under the Limitation Act, 1963, the benefit cannot be denied on the ground of limitation.

Section 11B mandates that the refund application has to be filed before the expiry of one year from the relevant date. The appellants filed the refund application beyond the statutory time limit prescribed under the statute.

Also Read: Non-Technical Errors of GST Returns can soon be Rectified

It was further noticed that the Supreme Court in the case of Anam Electrical Manufacturing has also held that the period prescribed by the Central Excise Act / Customs Act for the filing of refund application in the case of “illegal levy” cannot be extended by any authority or Court.

In another case, the Supreme Court in the case of Mafatlal Industries, it was held that when any provision in the statute has been held to be unconstitutional, refund of tax under such statute will be outside the scope and purview of such enactment and under such circumstances, refund can be claimed by way of a suit or by way of a writ petition.

“The Hon’ble Apex Court has ruled that where the tax levy is struck down as unconstitutional for transgressing the constitutional limitations, a refund claim in such a situation, cannot be governed under such taxing statute; and such claim is maintainable both by virtue of the declaration contained in Article 265 of the Constitution of India and also by virtue of Section 72 of the Contract Act. It was further held that in such cases, the period of limitation would be calculated as per the provisions contained in clause (c) of sub-section (1) of Section 17 of the Limitation Act, 1963. In the case in hand, since the refund applications were filed by the appellant under Section 11B ibid and entertained by the authorities under the said provisions, as per the ratio laid down by the Hon’ble Supreme Court, the refund claim in such cases (unconstitutional levy) will fall outside the scope and purview of the Central Excise Act, 1944. Hence, rejection of refund benefit cannot be faulted with. Therefore, the judgment relied upon by the appellant squarely covers the case in favor of Revenue for rejection of the refund application,” the Tribunal said.