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Service Tax Refund to buyers of individual flats - CESTAT Orders Refund

TIOL-DDT 2437
15.09.2014
Monday DDT in Limca Book of Records - Third Time in a row

IN a recent landmark order, the Bangalore Bench of the Tribunal held that builders were not liable to pay Service Tax on individual flats sold to individual buyers prior to 1.7.2010. The Tribunal disposed of 121 appeals, mostly from individual buyers who had paid Service Tax to the builders. The Tribunal allowed the refund claims. Tribunal held that prior to 1.7.2010, only residential complex service was taxable and not a residential flat. Construction of residential flats for an individual entered into the taxability area only after the introduction of explanation toclause (zzzh). In the explanation, complex as well as part of the complex have been covered.

Tribunal emphatically held that this explanation had no retrospective effect.

Is the limitation under Section 11B applicable for such refunds? It was vehemently argued that when the levy itself was illegal, there was no question of applying the provisions of Section 11B but Tribunal was not impressed. As held by a High Court, if assessee wants to make a claim under Limitation Act, the forum is not the concerned authority empowered to sanction refund under Section 11B of the Act, but some other forum. The remedy lies in approaching the Civil Court or the High Court under writ jurisdiction rather than approaching department for refund claim. The Tribunal observed, "central excise officers cannot sanction any refund under any provision of any other law. The question of not applying the provisions of Section 11B for refunds even if filed not under Section 11 B but under other enactment, would not arise at all in view of this provision. When the statutory provision bars a person from sanctioning refund, he cannot exercise such authority."

The Tribunal held, "even if the claim was made under Limitation Act or even if there are decisions of the High Court or Supreme Court taking a view that the levy is illegal and refund has to be paid, a Central Excise officer exercising the powers under Section 11B of the Act, could not have and cannot have and should not have sanctioned the refund."

What is the relevant date for claiming refund by the buyer of the flat? The Tribunal held, "as and when the purchaser made the payment for the service received and submits bill/invoice/other document received by him which shows the service tax element separately and he has discharged the same, that was the relevant date and that has to be treated as date of purchase for the purpose of calculating limitation under Section 11B of the Act."

Will the Service Tax collected by the builders come under the purview of Section 73A (Service Tax collected from any person to be deposited with Central Government) ? No precedent decisions were cited by either side. Therefore, the presumption is that this is the first time that this Section is coming up for consideration in a case of refund claim filed under Section 11B of the Act or otherwise. The Tribunal noted that Section 73A is corresponding to Section 11D of Central Excise Act, 1944. The provisions of Section 11D was brought into the statute to ensure that amount collected as tax is paid to the Government. This is another way of ensuring that nobody gets unjustly enriched by collecting amount as tax and not pay to Government on the ground that such tax is not payable. It is difficult to accept the fact that this would apply to all cases where tax is not payable or tax is collected in excess by an assessee. In these cases, the service providers have collected the tax after doing an assessment in accordance with law. In the normal course, there is no revised assessment at all. There is no reassessment also. The practice of departmental officers assessing returns and finding out whether the tax has been paid correctly has been discontinued from 1997 (probably) altogether. Therefore, it is totally self-assessment in the case of Central Excise and Service Tax. Therefore, it cannot be said that when the tax was paid by the service provider, he had collected the amount from the customers or buyers in these cases in excess of amounts payable or the amount was not at all payable to Government.

The Tribunal held: Therefore the provisions for refund in section 73A of 1994 Act cannot be applicable to the situation where a service tax is collected in a legal manner in accordance with law and paid to the Government in accordance with law under a wrong assumption that service tax was liable to be paid.

We bring you this judgement today.

Please see Breaking News

Serious problems due to indifferent and uncooperative attitude of the Chairperson CBEC

THINGS have turned so bad in the CBEC that the President of the IRS Association has written to the Finance Minister about serious problems faced by the IRS cadre due to indifferent and uncooperative attitude of the CBEC Chairperson.

His problems include:

1. Transfers: New Transfer Policy was not framed and the Chairperson's assurance that only request transfers will be taken up till a new policy is made was not kept up. Officers have been transferred from sensitive to sensitive posts in violation of CVC Guidelines.

2. NACEN is grossly neglected and understaffed and she has appointed an Additional Director of NACEN as her OSD. There is no IRS officer in NACEN, Patna.

3. Though she promised not to deny officers deputation opportunities, several applications were not forwarded and officers lost the opportunity of working in other organisations.

4. The Chairperson agreed to order audit of the HRM process to ensure that posts are filled on time, promotions happen routinely and placements take place to include all officers in the decision making processes.

The Associations wants:

a. A new Transfer Policy;

b. All representations against transfers to be considered by a Committee headed by somebody other than the present Chairperson;

c. Rotation of all officers between sensitive and non sensitive posts;

d. A lady officer willing to stay in the campus to be posted to NACEN, Faridabad;

e. The AD, NACEN posted as Chairperson's OSD to be relieved immediately.

As mentioned by DDT on Friday, nobody seems to be happy in the Department. A Commissioner told me that he doesn't want to go to CAT against his transfer order because it will not look good for a senior officer to be complaining against the Government in CAT, but obviously there is a wide gap between the Board and the senior officers.

When the entire workforce is unhappy with the administration, there must be something terribly wrong. And what these people are asking for is not the moon or something beyond the realms of the Board - Timely promotion, reasonable transfers, fair administration and perhaps a little courtesy and respect. Are these difficult propositions? Couples working in the Department with children studying in crucial classes are cruelly transferred out during the middle of the academic year - for no obvious reason. Every day we get stories of gross injustice meted out to usually good officers. Just now we are informed about an honest and hardworking officer who had booked several good cases being transferred out even though he had not completed his tenure, his wife is working and he has small children. He has approached the CAT which gave some temporary relief. But why is the administration so blind to the needs of its valuable tools - the staff?

Assault on the rule of law by Revenue - Continues

Before jumping into such controversial games, Assessing Officer ought to have taken advice from his seniors

IN an Order passed in 2010, the ITAT Observed,

"We are very much astonished to observe that the Assessing Officer has passed a revised assessment order even after knowing that the revision order passed by the CIT has been set aside by the Tribunal. The action of the Assessing Officer could be treated as assault on the rule of law. His action amounts to contempt of court as well. The Revenue could have preferred to file an appeal before the Jurisdictional High Court against the order of the Tribunal setting aside the revision order passed by the CIT. If such an appeal has been already filed, well and good. Otherwise, Revenue has no remedy when the Tribunal has set aside the revision order of the CIT. The said order no more exists and the Assessing Officer has no substratum to build a second round of revised assessment. We do not think that all these matters are unknown to the Assessing Authority.

But giving due consideration to the explanations offered by the learned senior officers appearing for the Revenue and also for the reason that the Assessing Officer might have prompted to act in a haste, only in public interest, we do not proceed further in this matter. But we wish that before jumping into such controversial games, the Assessing Officer ought to have taken advice from his seniors. "

You know what the Revenue did on getting this Order - they filed an appeal in the High Court!

Though the High Court did not mention about 'assault on rule of law', it observed, "When the Assessing Officer passed the revised assessment order, it was known that the revision order itself has been quashed by the Tribunal and there was no said order surviving. The Assessing Officer had nothing before him to revise the assessment. But, still the said legal causality was made out by the Assessing Officer."

Central Excise - Appeal to High Court or Supreme Court?

THIS is a major dilemma faced by many Central Excise/Customs/Service Tax Commissioners when they don't accept an order of the Tribunal and decide to appeal.

Should they go to the High Court or Supreme Court?

If they decide to go to the Supreme Court, they have to send detailed reports to the Board within 15 days and ensure that the appeal is filed within two months. If they want to go to the High Court, they are free to do so and they have six months time. So normally they choose this easy route.

But there is a law for this:

Section 35G of the Central Excise Act states:

SECTION 35G. Appeal to High Court. -

(1) An appeal shall lie to the High Court from every order passed in appeal by the Appellate Tribunal on or after the 1st day of July, 2003 (not being an order relating, among other things, to the determination of any question having a relation to the rate of duty of excise or to the value of goods for purposes of assessment), if the High Court is satisfied that the case involves a substantial question of law.

So if Classification or Valuation is one of the issues in an order, the appeal is not maintainable in the High Court; it has to go to the Supreme Court.Routinely appeals get filed in the High Courts and routinely they get dismissed. In a recent judgement, the Delhi High Court ruled that jurisdiction of the High Court as an appellate forum would depend upon the issues adjudicated and decided in the order in original. The High Court dismissed two revenue appeals as one of the issues was 'classification'.

CBEC had in Circular F.No.390/Misc./100/2010-JC dated 22nd September, 2011 observed,

" It has come to the notice of the Board that field formations have filed appeals in the jurisdictional High Courts in matters relating either to determination of rate of duty or value of the goods which ought to have been filed in the Supreme Court. Such appeals get dismissed by the High Courts on the ground of jurisdiction alone, invariably after pending for a long time. Civil Appeals filed in the Supreme Court in such cases have frequently been dismissed on the ground of limitation. It may also be noted that the time period for filing Civil Appeal is 60 days from the date of receipt of the Tribunal order in the Commissionerate.

The Commissioners are, therefore, directed to examine the issue involved in the dispute very carefully for deciding the appellate forum. The jurisdictional Chief Commissioners, while giving concurrence to the proposal for filing appeal, are expected to ensure that appeal is being filed in the correct forum in order to avoid needless litigation being pursued in the wrong forum and consequent loss of revenue."

And these appeals were filed long after the Circular was issued!

Please see 2014-TIOL-1580-HC-DEL-CX and 2014-TIOL-1581-HC-DEL-CX

Jurisprudentiol - Tuesday's cases

Legal Corner IconCentral Excise

Aluminium dross and skimmings which arise as a by-product in the process of manufacture of aluminiumproducts are "manufactured"goods and hence excisable w.e.f. 10/05/2008 in view of the Explanation added to Section 2(d) of the CEA, 1944: CESTATLB

ALUMINIUM dross and skimmings that arise during the process of manufacture of various aluminium products are cleared by the appellant without payment of duty.

The department viewed that aluminium dross and skimmings are classifiable under CETH 26204010 of the CETA, 1985 and the appellant is liable to discharge the duty liability thereon for the period after 10.05.2008 pursuant to insertion of Explanation in section 2(d) of the CEA, 1944 by the Finance Act, 2008. SCNs were issued and the demands were confirmed by the lower authorities with penalty and interest.

Income Tax

Whether when assessee makes investments to pick up controlling stake in a company after FIPB approval, entire expenditure related to such investment is to be attributed to earning of dividend, and warrants disallowance u/s 14A - NO: High Court

THE assessee company is a subsidiary of Holderind Investments Ltd., Mauritius which was formed for making downstream investments in cement manufacturing ventures in India. While filing its return, the assessee had declared cummulative losses for both the A.Ys 2007-08 and 2008-09. The assessee had also declared revenue receipts, including interest from FDRs and profit from sale of fixed assets, and claimed administrative and miscellaneous expenses expenditure written off over such receipts. For A.Y 2008-09, the assessee had declared revenue receipts in the form of foreign currency fluctuation difference gain and other expenses including personal expenses, operating expenses, depreciation and financial expenses. The AO however held that the assessee had neither commenced business activities, nor made any downstream investments. The expenditure claimed by assessee for earning dividend income was also disallowed by holding that mere approval of Foreign Investment Promotion Board (FIPB) showing permission to acquire share capital, was not sufficient to indicate or hold that the assessee had started their business. He accordingly disallowed the entire expenditure u/s 14A.

The issue before the Bench is - Whether when the assessee makes investments in shares to pick up controlling stake in an Indian company after taking approval of FIPB, the entire expenditure related to such investment is to be attributed to investments made for earning dividend, and is to be disallowed u/s 14A. And the answer is NO.

Service Tax

Construction of Mall & renting of Shops - CENVAT Credit of service tax paid on input services used in the construction of immovable property would be available if such immovable property is used for rendering other taxable services - Prima facie case in favour - Stay granted: CESTAT

THE appellants are engaged in rendering the taxable service of 'renting of immovable property' and they discharge service tax liability. They availed CENVAT credit of various input services used for construction of the said mall and utilized the credit for payment of service tax on renting of immovable property services.

The CBEC vide Circular No. 96/7/2007-ST dated 23/08/2007 as amended by Circular No 98/1/2007-S.T ., dated 04/01/2008 inter alia clarified that Input credit of service tax can be taken only if the output is a 'service' liable to service tax or are 'goods' liable to excise duty and that since immovable property is neither 'service' or 'goods' input credit cannot be taken.

See our Columns Tomorrow for the judgements

Until Tomorrow with more DDT

Have a nice day.

Mail your comments to vijaywrite@tiol.in


 RECENT DISCUSSION(S) POST YOUR COMMENTS
   
 
Sub: There may be a bigger problem

I recall that couple of months back, the same Chairperson made a public statement that the Government has not consulted her regarding GST implementation. Now, her own flock is complaining against the same chairperson. None of us know, if the chairperson is becoming a road block in proper administration of revenue also. Renowned management expert Laurence Peter had written a book titled "Peter's principle". In this book, he puts forth a theory that in every organisation and hierarchy, a person reaches his level of incompetence. That is, the person reaches a post or position where he or she ca no longer function competently. They have to indulge in various games to safeguard themselves from being exposed. CBEC Chairperson's case seems to fit the bill of Peter Principle.

Posted by Gururaj B N
 

AR not Afar by SK Rahman

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