By TIOL News Service

AHMEDABAD, MAY 12, 2018: PETITIONER is a proprietary concern engaged in the business of construction. The CPWD, Gandhinagar awarded a contract for construction of the building for I.I.T., Gandhinagar under an agreement dated 16th June 2014. The petitioner, in the course of execution of work, received agreed payment from the CPWD.

At the relevant time, service-tax was payable on such service, and therefore, borne by CPWD which service tax component, the petitioner also deposited with the Service Tax Department.

Incidentally, in the Union Budget 2016, the Parliament amended the Finance Act, 1994 by insertion of Section 102 on 14th May 2016, but with retrospective effect from 1st April 2015 granting exemption from payment of service tax in certain cases relating to construction of government buildings for the period between 1st November 2015 to 29th February 2016.

CPWD wrote to the petitioner on 18th May 2016 bringing to their notice the aforesaid largesse of the Government and urged the petitioner to apply for refund of the service tax and return it to CPWD.

Under such circumstances, the petitioner applied before the Asstt. Commr., Ajmer on 9th August 2016 and claimed refund of service tax amount of Rs. 66,68,294/-.

In a further letter dated 7 the November 2016, they informed the Asstt. Commr. that the refund be directly given to CPWD, IIT, Gandhinagar.

The Asstt. Commr. rejected the refund claim by an Order dated 25th November 2016 on the ground of unjust enrichment.

In the meantime, CPWD was of the opinion that the petitioner must refund the said amount of service tax since the Legislature has exempted the same. However, since the petitioner was unable to claim refund from the Service-tax Department and return the amount to CPWD, the CPWD started coercive recoveries. The petitioner's final bill and the security deposit in relation to the execution of the work for IIT, Gandhinagar were utilized for such purpose. The short-fall, the CPWD proposed to recover from the petitioner's other on-going works with the Department.

The Petitioner is aggrieved with this action of CPWD and is before the Gujarat High Court.

The High Court observed -

++ For multiple reasons, both - CPWD as well as the Assistant Commissioner of Central Excise & Service Tax, Ajmer committed serious legal errors. Firstly, as is well-known, for recovery and refund of service tax, provision of the Central Excise Act, 1944 are applied. Under Section 11B of the Central Excise Act, it is well settled that the refund claim can as well be made by the ultimate consumer who may have borne the burden of tax. [Oswal Chemicals & Fertilizers Limited - 2015-TIOL-65-SC-CX , Addison & Company Limited - 2016-TIOL-146-SC-CX-LB relied upon]

++ It was, therefore, upto the CPWD to apply for refund of the service tax which was paid as per the law prevailing at the relevant time, but which became refundable on account of retrospective amendment in the law. The CPWD instead of applying for refund, itself insisted that the petitioner must apply and when the petitioner's application for refund was rejected by the Assistant Commissioner of Service Tax, Ajmer, CPWD found a novel way to recover the same from the petitioner by utilizing the petitioner's security deposit, unpaid amounts of final bill and the petitioner's running bills of other contracts. These are wholly impermissible means of recovery.

++ The petitioner as a service provider was basically not even required to bear the service tax burden, as duty was to be collected from the service recipient and to be deposited with the Government revenue, if the service tax was payable. If the amount was refunded by the Service-tax Department, it was the duty of the petitioner to ensure that the same reaches the service recipient.

++ If, however, for whatever reason, the refund is not granted, surely the petitioner cannot be asked to bear the burden thereof. Strangely, the service tax department holds that if the refund is granted, the petitioner would retain it and therefore benefit unjustly, and therefore, does not granted refund, citing it a case of unjust enrichment. The CPWD holds a belief that whatever be the reason for the petitioner not being able to retrieve such amount from the service tax department, the CPWD must get it back; even if it is from the petitioner personally. In the process, if we allow this situation to prevail, the petitioner would end up losing the service tax component from his profit which in the first place was not the liability of the petitioner. Instead of a case of unjust enrichment, it would be a case of unjust impoverishment.

++ The respondent no. 4 was also not correct in his approach while dealing with the petitioner's refund application. In the communication dated 7th November 2016, the petitioner had made it abundantly clear that the service tax refund is being claimed for and on behalf of the CPWD and the petitioner would have no objection, if the amount is directly paid to the said organization. Ignoring such representation of the petitioner, the Assistant Commissioner of Service Tax, Ajmer held that this was a case of unjust enrichment. If he was of the opinion that the petitioner was not the correct person who can ask for refund, he could have stated so in the order. This would have enabled the petitioner to point out to the CPWD the correct reason for not being able to claim refund of the service tax. Instead, the Assistant Commissioner wrongly applied the principle of unjust enrichment and ordered that the service tax shall be deposited with the Consumer Welfare Fund.

++ The petitioner is squeezed between two government departments. The Service Tax authority does not return the service tax to the petitioner apprehending that the petitioner will not return it to CPWD and will, therefore, be enriched unjustly. The CPWD recovered such amount from the petitioner since the petitioner could not retrieve it from the service tax department. In the process, the petitioner ended up bearing the burden of service tax which was not its liability.

++ When the substantial, or in fact, the larger part of the cause of action can be said to have arisen within the State, we see no hesitation in exercising the jurisdiction even against the order passed by the Assistant Commissioner of Central Excise & Service Tax, Ajmer.

The petition was disposed of thus -

+ The order (of Asstt. Commr., Ajmer) is quashed, however, without disturbing the findings and observations on the allowability of the refund claim. The proceedings are placed back before the Assistant Commissioner of Central Excise & Service Tax, Central Excise & Service Tax Division, Ajmer [Rajasthan]. It would be open for the CPWD to join in the said application as a co-applicant. If so done by 30th June 2018, the competent authority shall decide such application on merits. We also hold that not the petitioner, but the CPWD can pursue the refund claim.

+ CPWD shall release the amounts already adjusted from the petitioner's running bills of the present contract and the security deposit with simple interest @ 7.5% per annum commencing from, after three months of the completion of the execution of the contract till actual payment. It is further directed that the CPWD shall not seek any recovery from the petitioner in respect of service tax component from the petitioner's bills of other contracts.

(See 2018-TIOL-887-HC-AHM-ST)