Refund of service tax already paid requires proof that its incidence was not passed on.

The appellant, engaged in manufacturing electrical transformers and providing taxable services, entered into a contract with AP TRANSCO for laying, jointing, terminating, testing and commissioning underground electrical cables.

Against the contract price of ₹77,57,44,809, it received a 10% advance of ₹7,75,74,481 in November 2009 and paid Service Tax of ₹65,10,617, along with interest of ₹2,50,436, under the category of “Erection, Commissioning or Installation Service”.

Relying on CBEC Circular No. 123/5/2010-TRU dated 24 May 2010 and Notification No. 45/2010-ST dated 20 July 2010, the appellant subsequently claimed refund of the tax and interest on the ground that the cable-laying activity was not taxable.

The refund claim was rejected on limitation, unjust enrichment and other grounds, and the rejection was affirmed by the Commissioner (Appeals).

Whether Notification No. 45/2010-ST and CBEC Circular No. 123/5/2010-TRU entitled the appellant to refund of Service Tax already collected and deposited with the Government

Whether the refund claim was barred by the doctrine of unjust enrichment, particularly where the contract price was stipulated to be inclusive of Service Tax

Whether any portion of the refund claim was barred by limitation under Section 11B of the Central Excise Act, 1944, as applicable to Service Tax

Whether the appellant was entitled to refund of the consequential interest amount

Refund claims relating to Service Tax are governed by Section 11B of the Central Excise Act, 1944, as made applicable to Service Tax, and remain subject to the doctrine of unjust enrichment.

Notification No. 45/2010-ST, issued under Section 11C, recognised the prevalent practice of non-levy of Service Tax on specified services relating to transmission and distribution of electricity, but did not create an unconditional right to refund tax already collected and paid.

The claimant bears the burden of proving that the incidence of tax was not passed on to another person.

In Mafatlal Industries Ltd. v. Union of India, 1997 (89) E.L.T. 247 (S.C.), the Supreme Court held that a person who has passed on the tax burden cannot obtain a refund and retain the amount.

The Tribunal also relied on Shoppers Stop Ltd. v. CC (Exports), 2017 (7) TMI 11 (Madras High Court), for the principle that statutory presumptions of passing on the tax burden cannot be rebutted by mere assertion and require primary documentary evidence.

The Tribunal also relied on M. Chadacharam v. CCE, Madurai, 2015 (37) S.T.R. 268 (Tri.-Chennai), concerning the effect of Notification No. 45/2010-ST.

The Tribunal accepted that the appellant’s activity was covered by the clarification concerning cable-laying and by the provisions relating to transmission and distribution of electricity; however, taxability alone did not determine entitlement to refund.

The contract expressly stated that the agreed erection prices were inclusive of Works Contract Tax and Service Tax, and the advance was received under that composite contractual arrangement.

Consequently, the appellant was required to produce invoices, ledgers, balance sheets, accounting records, evidence of a price reduction, credit notes, or proof that the tax component had been returned to AP TRANSCO.

No such evidence was produced.

The Tribunal therefore held that the appellant failed to rebut the statutory presumption that the Service Tax burden had been passed on to the recipient.

Although the appellant disputed the Department’s computation and correlation of payments for limitation purposes, no complete reconciliation was submitted; in any event, determination of limitation was unnecessary because the entire claim independently failed on unjust enrichment.

Since the principal refund was unavailable, the consequential claim for refund of interest also failed.

The appellant failed to establish that it had borne the tax burden and had not passed it on to AP TRANSCO; the refund claim was therefore barred by unjust enrichment.

The rejection of the refund of ₹65,10,617 and interest of ₹2,50,436 was upheld, the Commissioner (Appeals)’s order dated 30 April 2012 was affirmed, and the appeal was dismissed.