Relief to SBI, Refund u/s 11B of Excise Act can be Claimed within One Year from Date of Payment: Karnataka HC [Read Order]
The respondent-revenue is directed to consider the claim of the appellant-Bank for refund, taking relevant date as the date of surrender of the Bank Guarantee i.e., 24.08.2009 and also on appellant-Bank establishing that it has not passed on the service tax to its customer HAL
The High Court of Karnataka in ruling in favour of SBI has held that the refund under section 11B of Excise Act can be claimed within one year from date of payment. The respondent-revenue is directed to consider the claim of the appellant-Bank for refund, taking relevant date as the date of surrender of the Bank Guarantee and also on appellant-Bank establishing that it has not passed on the service tax to its customer HAL.
The appellant-State Bank of India (‘SBI’) filed appeal under Section 35G of the Central Excise Act, 1944 ( ‘1944 Act’) praying to set aside the final order bearing No.22877/2017 dated 22.11.20178 passed by the Customs, Excise and Service Tax Appellate Tribunal, Bengaluru (‘CESTAT’) in Appeal No.ST/23183/2014 and to refund an amount of Rs.19,85,4638/- being the excess of amount paid by the appellant towards service tax along with interest.
The appellant is a banking institution constituted under the State Bank of India Act, 1955. The appellant carries on banking business and for the purpose of service tax falls under the category of banking and financial services. The appellant holds the service tax registration No.AAACS8577KST158. The appellant/SBI issued performance bank guarantee on behalf of its customer – Hindustan Aeronautics Limited (‘HAL’) for a period of 31 months commencing from the date of issuance i.e., 19.07.2008. The appellant/SBI charged upfront commission of Rs.3,10,84,531/- towards the bank guarantee issued for the entire tenure of 31 months and on the said amount of commission, the appellant/SBI paid a sum of Rs.41,12,567/- as service tax.
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The CESTAT vide judgment dated 22.11.2017 dismissed the appeal holding that the relevant date for the purpose of refund under Section 11B of the 1944 Act is the date of payment of service tax and claim made subsequent to stipulated time of one year, is barred by time. Aggrieved by the orders passed by the CESTAT as well as the Appellate order, the appellant/SBI is before the court in this appeal.
The appellant-Bank at the request of HAL issued Performance Bank Guarantee on 19.07.2008 for a period of 31 months. On issuing Bank Guarantee, the appellantBank charged upfront commission of Rs.3,10,84,531/-, covering 31 months and remitted a sum of Rs.41,12,567/- as service tax. Though the Bank Guarantee was valid for a period of 31 months, on fulfilling its obligation, the HAL surrendered Bank Guarantee on 24.08.2009 immediately after 14 months and claimed refund of commission paid for the remainder period i.e., 17 months.
The appellant Bank refunded a sum of Rs.1,80,49,083/- towards commission proportionate to the remainder period as no service was provided for the said period. However, the appellant-Bank had remitted service tax for the entire period of 31 months. When the Bank Guarantee was surrendered immediately on completion of 14 months and when the appellant refunded the proportionate commission to the HAL, the appellant-Bank filed refund claim on 11.09.2009 before the respondent-Revenue, claiming refund of Rs.19,85,463/- towards service tax for the remainder period, for which, no service is provided by the Bank.
The respondent-Revenue rejected the claim of the appellant-Bank solely on the ground that refund claimed is not within the period of one year from the date of payment of service tax which is confirmed by the Appellate Authority/ Commissioner of Excise as well as CESTAT.
The respondent-Revenue has not disputed the entitlement for refund as claimed by the appellant-Bank. However, it is the contention of the respondent-Revenue that refund claimed is not in terms of Section 11B of 1944 Act. In terms of Section 11B of 1944 Act, the refund could be claimed by making an application for refund of such duty or tax or interest paid and such application shall be made before the expiry of one year from the ‘relevant date’ and ‘relevant date’ is defined under Explanation (B) to Section 11B of 1944 Act.
The facts of the present case would fall under sub-clause (f) of Clause (B) to Explanation to Section 11B of 1944 Act and Explanation at (B) would prima facie indicate that the refund claim shall be made within one year from the date of payment of duty. In the case on hand, service tax was paid on 05.08.2008 covering 31 months of contract period. However, on 24.08.2009, the HAL surrendered the Bank Guarantee after 14 months, reducing the contract period by 17 months.
On reduction of contract period, the appellant-Bank is said to have refunded the commission collected in a sum of Rs.1,80,49,083/- towards the remainder period of 17 months as no service is rendered for the said period. The cause of action for the appellant-Bank to claim refund of service tax arose only on HAL surrendering Bank Guarantee after 14 months and on refunding the commission towards the remainder period of 17 months i.e., on 24.08.2009.
The Apex Court in Mafatlal Industries Limited And Others v/s Union Of India And Others (1997) has categorically held that no claim of refund is maintainable except in accordance with Section 11B of 1944 Act. After declaring as above, the Apex Court has made an exception that claim for refund of equitable consideration depends on facts of each case. It is also observed that jurisdiction of the High Court cannot bar or curtail the remedy under Article 226 of the Constitution of India in a given case. But the same shall be exercised taking note of the legislative intent and to be exercised consistent to the provisions of enactment.
A division bench of Justice S.G.Pandit and Justice K. V. Aravind observed that “It is not in dispute that the claim for refund shall be in accordance with Section 11B of 1944 Act. The refund also shall be claimed within one year from the date of payment which would be the relevant date. If the right to claim refund arises after expiry of one year from the date of payment, the same is not contemplated under Section 11B of the Act. “
It was held that the relevant date in the present fact situation would be the date on which the HAL surrendered Performance Bank Guarantee i.e., 24.08.2009. The intention of the Legislature in prescribing one year to claim refund is to curtail the belated refund or to avoid time barred refunds.
The revenue has not disputed the payment of service tax for the entire 31 months and it has also not denied the claim for refund of service tax by the appellant Bank on curtailing the contract period from 31 months to 14 months. Moreover, retaining service tax for the remainder period would amount to retaining service tax for the period during which, no service was provided by the appellant-Bank to HAL, which is impermissible under Article 265 of the Constitution of India.
The respondent-revenue is directed to consider the claim of the appellant-Bank for refund, taking relevant date as the date of surrender of the Bank Guarantee i.e., 24.08.2009 and also on appellant-Bank establishing that it has not passed on the service tax to its customer HAL. Consequently, the substantial questions of law are answered in favour of the appellant and against the revenue. Final order bearing No.22877/2017 dated 22.11.2017 passed by the CESTAT in Appeal No.ST/23183/2014 is set aside, with a direction as stated above. Accordingly, the appeal is allowed.
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