Book Entry showing Service Tax as Expense does not Prove Unjust Enrichment: CESTAT sets aside Refund Credited to Consumer Welfare Fund [Read Order]

The Customs, Excise, Service Tax Appellate Tribunal (CESTAT), New Delhi held that service tax deducted on the expense side in the book entry of a university does not result in unjust enrichment. The Tribunal accordingly held that Mahatma Gandhi University is entitled to receive the entire refund under Reverse Charge Mechanism (RCM) and set aside the commissioner’s order diverting the refund to the Consumer Welfare Fund.

Mahatma Gandhi University of Medical Science and Technology, the appellant, had filed a refund claim of ₹1,47,62,737 under Section 11B of the Central Excise Act, 1944, in respect of service tax deposited by the university.

The commissioner allowed the partial refund of ₹70,04,231 out of the total amount and the sanctioned amount was ordered to be credited to the Consumer welfare fund on the reasoning that the service tax was deducted on the expense side leading to unjust enrichment.

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The appellant counsel, Priyanka Goel, contended that the service tax filed on the expense side of the financial account does not warrant that the service tax be passed on to the Consumer Welfare Fund. The appellant counsel also submits that the appellant has revised the entry in the financial account and showed it as a receivable current asset in the Balance sheet of the university.

The Respondent Counsel, S. K. Meena, contended that the university is a ‘body corporate’ and is liable to pay service tax. The deduction of service tax on “Legal Services, Security Service, Manpower Service and Works Contract Services” on the expense side of the book entry proves that the university was unjustly enriched and therefore, the refund claimed by the university should be credited to the Consumer Welfare Fund.

The Judicial member Rachana Gupta and Technical member A. K. Jyotishi decided that the university is not a “Body Corporate” and is eligible to receive the refund under the Mega Exemption Notification. The tribunal noted that the mere book entry is insufficient to conclude that the burden of tax has been passed to some other persons.

The tribunal relied on the decision made by the Supreme Court of India in the case of Chandrapur Magnet Wires Private Limited vs. Collector of Central Excise, Nagpur 1996 (81) ELT 3 (S.C.) and held that the Service tax paid under RCM does not result in unjust enrichment.

Accordingly, the tribunal allowed the appeal filed by the university and consequentially the appeal filed by the department was dismissed.

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