CESTAT Remands Electricity Contractor’s ₹20.8 Lakh Service-Tax Refund Claim To Check Whether Customers Bore The Tax

The appellant provided erection, commissioning and installation services relating to electricity distribution for government undertakings.

It sought a refund of ₹20,80,816 in service tax paid for April–August 2014, claiming exemption under Notification No. 25/2012-ST.

The Commissioner (Appeals) accepted the appellant’s eligibility for the exemption but upheld rejection of the refund on the ground of unjust enrichment, based on a finding that the appellant had collected service tax from its clients.

The appellant said it had paid the disputed tax and interest as a precaution, had not separately charged service tax to its clients, and relied on contract and billing documents.

The Tribunal found that the documents had not been before the original authority and could not establish whether they related to the transactions covered by the refund claim.

1. Whether the refund claim could be rejected on the ground of unjust enrichment merely on the basis that the appellant had collected service tax from its clients.

2. Whether the record was sufficient for the Tribunal to determine whether the incidence of tax had been passed on, or whether that question required verification by the original authority.

Section 11B of the Central Excise Act, 1944, as applied to service tax through Section 83 of the Finance Act, 1994, requires refund claims to be examined for unjust enrichment; a refund is not payable to the claimant where the incidence of duty or tax has been passed on to another person.

The Tribunal also stated that, as settled by the Supreme Court, all refund claims must be scrutinised for unjust enrichment.

A finding that the tax incidence was passed on must be assessed against the evidence; payment of tax alone does not establish that the claimant collected it from the recipient.

The Tribunal rejected the appellant’s contention that unjust enrichment could not be considered because it was not raised in the show-cause notice: refund claims must be examined under Section 11B for that issue.

However, it found that the appellant’s payment of tax as a precaution, after the exemption was accepted, did not by itself justify a presumption that service tax had been collected from the clients.

The appellant’s work-award and other documents were potentially relevant, but had not been considered by the original authority and the Tribunal could not confirm that they related to the transactions in the refund claim.

Further verification, including consideration of a CA certificate, was therefore required.

The original authority was directed to verify the question of unjust enrichment only, in accordance with law, after the appellant produced the necessary documents, including a CA certificate for the relevant period.