REFUND OF SERVICE TAX

By: Dr. Sanjiv Agarwal

August 19, 2008

Section 11B of the Central Excise Act, 1944 deals with refund of tax. The refund applications
in prescribed Form 'R' are required to be filed within six months from the relevant date upto
the enactment of Finance Act, 2000 i.e., 12th May, 2000. Explanation to section 11B (defines
the relevant date to mean the date of payment of duty except under specific circumstances.
Section 101 of the Finance Act, 2000 has substituted 'six months' under section 11B) with the
words 'one year'. Refund applications can now be filed with the Department within a period
of one year from the relevant date.

If the tax ordered to be refunded is not refunded to the assessee within or period of three
months of the refund application, the Department shall be liable to pay simple interest @ 8
percent. For claiming of any refund, the assessee has to claim a refund and comply with
section 11B of the Central Excise Act, 1944. Section 83 of the Finance Act, 1994 makes
sections 11B and 11BB of Central Excise Act applicable to the service tax. Section 11B deals
with claim for refund of duty and section 11BB deals with interest on delayed refunds.
Finance Act, 2008 has amended section 11B (Vide clause 75) to provide for refund of interest
paid on any duty of excise. Accordingly, interest paid on duties can also be refunded now as
any person claiming refund of duty can also claim refund of interest paid, if any. It may,
however, be noted that the amendment only covers interest paid on duties and not refund of
excise rebates or refund of Cenvat credit. Since section 11B is also applicable to service tax,
the provisions would also cover refund of interest on service tax. The refund claim should be
backed by documentary, evidence.

Central Excise Rules on Refund

Rule 173S (Application for Refund of Duty)

(1) Any person claiming refund of any duty of excise shall make an application in duplicate,
for refund of such duty in the proper form to the Assistant Commissioner of Central Excise
having jurisdiction over the factory of manufacture.

(2) An application for refund shall be made in accordance with the provisions of
section 11B of Act.

Form for Refund

Form R is required to be used for claiming refund of service tax.

Refund can be obtained for or need for refund may arise due to:

(i) Excess payment of service tax by assessee.

(ii) As a result of adjustment or assessment.

(iii) Rectification of mistake.

(iv) Service tax paid in case of export of services.

(v) Refund of Cenvat credit in case of exports.

(vi) Refunds arising out of Appellate decisions.

Refund cannot be claimed/shall be denied in following situations:

(i) Refund of excess Cenvat credit lying unutilized.

(ii) Unjust enrichment.

When to claim refund:

Refund should be claimed within the stipulated period of one year from the relevant date
(date of payment of tax).

The time limit cannot be condoned.

Time taken in processing of refund:

Ordinarily three months from the date of receipt of refund applications.

Delay in refund carries interest @6% per annum.

Penalty for obtaining erroneous refund amount not less than but which shall not exceed
twice the amount of service tax so erroneously refund (Section 78).

Appeal against denial of refund (Section 85):

Allowed within a period of 3 months from the date of receipt of order.

In E. V. Mathai & Co. v CCE, Cochin 2005 -TMI - 104 - CESTAT, BANGLORE, it has been
held that the entitlement of refund claim depends upon the determination by the adjudicating
authority of the position with reference to unjust enrichment.

In Hari Shanker Ahmol v. CCE, 2005 -TMI - 80 - CEGAT, KOLKATA, it was held that refund
provisions of service tax are governed by section 11B of Central Excise Act and the relevant
date is the date on which final assessment and adjustment of excess or short payment is
ordered and not the date on which duty was paid pending finalisation of assessment. The
refund applied for within one and half months from the date of finalisation of assessment was
held not to be barred by limitation. In International Security Organisation v. CCE, New
Delhi, 2005 -TMI - 76 - CEGAT, NEW DELHI, it was held that claim filed beyond time limit
as stipulated in section 11B is not admissible. Application for refund could be entertained and
dealt with by Central Excise Authorities including Appellate Tribunal only in terms of section
11B of Central Excise Act. An appeal can be preferred under section 85 against any order
denying the refund.

In Re: Thyssen Krupp JBM Pvt. Ltd., 2005 (180) ELT 285 [CCE (Appeals), Chennai], it was
held that where the appellant was not expected to file a return prescribed under section 70,
the time limit if at all, if any, applicable is the period of one year from the relevant date, i.e.,
the date on which service tax was to be paid. The demand having been made beyond the
period of one year is barred by limitations.

In Central Office, Mewar Palace Organization Pvt. Ltd. v. CCE, Jaipur, (2005) 3 STJ 1003
(CESTAT, New Delhi), it was held that assessee was not entitled to refund without challenging
assessment made under service tax by way of statutory appeal against the assessment order.
The assessment order cannot be challenged in the refund claim on the ground that certain
services were not covered under scope of service tax.

In CCE v. Nilachal Concrete Products Pvt. Ltd. 2006 -TMI - 295 - CESTAT, KOLKATA,
where sale price of product remained unchanged during the period prior to imposition of
service tax and after imposition of service tax and incidence of tax was not being passed on to
the customers, it was held that refund was admissible under Section 11B of Central Excise
Act.

In Atul Ltd. v. CCE Surat-II (2006) 4 STJ 302 (Gujarat High Court), it was held that refund
of pre-deposit cannot be desired when assessee's appeal was allowed, merely on the ground
that further appeal has been filed by revenue (section 11B of Central Excise Act).

In Merigold Paints Pvt. Ltd. v. CCE 2008 -TMI - 3422 - CESTAT, BANGALORE, it was held
that appellant was entitled to claim refund of service tax which was paid by another person,
but was collected from the appellant who had not passed on the same to another person.

In Kerala Venture Capital Fund Pvt. Ltd. v. CCE 2008 -TMI - 2920 - CESTAT, BANGALORE,
where assessee had not passed on the benefit of service tax to their clients at the time of filing
of refund claim, it was held that no refund was allowable. If the assessee fails to produce
evidence to prove that the service tax burden has not been passed on to the buyer, issuance of
credit notes subsequent to the time of clearance will not help the assessee in overcoming the
unjust burden problem.

In Central Office, Mewar Palace Organization Pvt. Ltd. v. CCE, Jaipur, (2005) 3 STJ 1003
(CESTAT, New Delhi), it was held that assessee was not entitled to refund without challenging
assessment made under service tax by way of statutory appeal against the assessment order.
The assessment order cannot be challenged in the refund claim on the ground that certain
services were not covered under scope of service tax.

In CCE Gurgaon v. Alcatel Modi Network System Ltd. 2008 -TMI - 4337 - HIGH COURT OF
PUNJAB AND HARYANA, where duty was paid under protest, second proviso to section 11B
would come into play. Once it has been found that incidence of duty has not been passed on
to others and there is no unjust enrichment, it would be wholly unauthorized to withhold the
amount by virtue of article 265 Constitution of India.

In Overseas Engineers v. CCE, Rajkot (2007) 215 ELT 513 (Cestat, Ahmedabad), where
order sanctioning refund was not appealed against or reviewed by the department, it was held
that recovery of refund made from the appellant by issuing SCN under section 11A of Central
Excise Act, 1944 was not sustainable.

In CCE, Pune v. Ballarpur Industries Ltd. (2007) 215 ELT 380 (Cestat, Mumbai), it was held
that refund is to be sanctioned within three months from the date of filing of the refund
applications and not from the date of ordering of refund. While refund claims filed in 1997
were sanctioned in 2003, assessee was entitled to interest under section 11BB of Central
Excise Act, 1944.

Section 11B talks about duty only without expressly mentioning about interest payment.
Interest is only compensatory in character and its absence in the provision should not come
into way of providing relief [(Sandvik Asia Ltd. v. CIT (2006) 196 ELT 257 (SC)]

In CCE, Hyderabad IV v. Sunder Steels Ltd. (2008) 224 ELT 324 (Cestat, Bangalore), where
duty was paid in excess and cenvat credit equal to refund claim was taken and interest from
the date of filing of refund claim till date of taking cenvat credit was sought, it was held that
the assessee could not utilise the amount during the relevant period and was rightly entitled
for interest as provided in the explanation to section 11BB of Central Excise Act, 1944.

In CCE, Meerut-II, v. Polyplex Corporation Ltd. (2008) 222 ELT 529 (Cestat, New Delhi), it
was held that payment of interest on refund u/s 11BB of Central Excise Act, 1944 is after
expiry of three months from date of receipt of final order of Tribunal till the date of actual
payment. However, in Karnataka State Agro Corn Products Ltd. v. CCE, Bangalore), 2008
-TMI - 2528 - CESTAT, BANGALORE, it was held that interest is always with reference to
date of application for refund and not with reference to an order granting the refund.