Delhi High Court| Claim for refund of CENVAT credit cannot be negated in the absence of self-assessed return being questioned, reviewed or re-assessed

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Delhi High Court: A petition was filed challenging an order dated 04-10-2021 passed by the second respondent and in terms of which its applications for refund of unutilized CENVAT credit have come to be negatived, a division bench of Yashwant Varma and Dharmesh Sharma, JJ., quashed the impugned order and held that the respondents shall process the claim as submitted by the petitioner and effect refunds in accordance with law.

The refund claims were lodged in respect of the quarters pertaining to October 2014 to December 2014, January 2015 to March 2015 and April 2015 to June 2015. The applications were made on the ground of the input services having been utilized by the petitioner in connection with ‘export of services’. The services in question being Broadcasting, Business Support, IT Software and Management, Maintenance or Repair services. The petitioner submitted self-assessed returns for the quarters in question before the Service Tax Commissionerate in terms of Section 70 of the Act. As per records, although the applications had been made on 29-09-2015, 23-12-2015 and 29-03-2016, the respondents chose to issue a first deficiency memo on 05-11-2019 followed by three other communications dated 13-05-2020, 19-05-2020 and 01-06-2020.

In terms of the impugned order dated 04-10-2021, the second respondent has come to conclude that the services rendered by the petitioner would not fall within the ambit of the expression “export of services” as contemplated under Rule 6A of the Service Tax Rules, 1994. The second respondent holds that for Broadcasting services, even though the ordering company was an entity based out of Mauritius, the customer operation details as provided would indicate beneficiaries of service being present in India and that even the satellite services offered by the petitioner being in respect of channels broadcasted in India services relating to Management, Maintenance and Repair were concerned, the second respondent has held that those would not fall within the ambit of “export of service” since the petitioner had failed to submit any agreement or invoice for such services being provided to clients outside India. The second respondent went on to hold that the services rendered by the petitioner would fall and qualify as ‘intermediary services’ as defined under the Place of Provision of Services Rules, 2012, and for this reason also the applications for refund were liable to be rejected.

On the aspect of violation of the principles of natural justice, the Court noted the deficiency memos that were issued called upon the petitioner to furnish additional documentation and provide further details with respect to the various transactions that formed the subject matter of the claim for refund. These communications were more in the nature of interrogatories rather than a SCN. In order for the deficiency memos to qualify as notices which would be compliant with the requirements of the principles of natural justice, it was incumbent upon the respondents to have confronted the petitioner with the issue of “export of services” as well as whether it was an “intermediary”. For a notice to be recognized as being compliant with the principles of natural justice, it was incumbent upon the respondents to place the petitioners on due notice of the proposed action or the view that they were inclined to take. Thus, reading of the deficiency memos would indicate, they abjectly failed to either place the petitioner on notice of the view proposed to be taken nor did those communications confront the petitioner with the conclusion which ultimately formed the basis for the passing of the impugned order.

On the aspect of the nature and extent of the power that may be available to be exercised by the Adjudicating Authority while considering a claim for refund, the Court further noted that Section 27 of Customs Act enables a person to claim a refund of duty or interest which may have been either paid or borne by it. Section 27(2) of the Customs Act, in terms identical to Section 11B (2) of the Excise Act, speaks of refunds being effected upon the proper officer being satisfied that the whole or any part of the duty paid is refundable. Thus, Section 27(2) is a provision that is pari materia with Section 11B (2) of the Excise Act. Contextually, Section 11B (2) of Excise Act states that a refund is granted by the competent authority upon it being satisfied that the whole or any part of the duty paid is refundable.

The Supreme Court in ITC Limited v. Commissioner of Central Excise Bombay, (2019) 17 SCC 46, observed that notwithstanding Section 27(2) employing the expression “satisfied” held that unless a self-assessed return is revised or doubted in the exercise of powers of reassessment, best judgment assessment or where it be alleged that duty had been short levied, short paid or erroneously refunded, those powers would not be available to be exercised at the stage of considering an application for refund. The decision of the Supreme Court in ITC Limited (supra) assumes added significance, insofar as the present case is concerned, considering it having found that a self-assessment return, even in the absence of a formal order dealing with the same, would nonetheless amount to an assessment.

The Court observed that the petitioner had submitted self-assessment returns proceeding on the basis that the output services rendered by it would qualify as an “export of service” and thus it being not exigible to service tax. The aforesaid self-assessment returns remained untouched and had not been questioned by the respondents either in terms of Sections 72 or 73 of the Act. The application for refund of CENVAT credit was founded on the petitioner assessing that it was not liable to pay service tax on services so exported. The accumulation of CENVAT credit came about considering various input services received by the petitioner and it having availed credit of service tax paid in terms of Rule 3 of the CCR Rules. It was in respect of the accumulated CENVAT credit that the application for refund came to be made. Thus, unless the self-assessed return, as submitted had been questioned, re-opened or re-assessed and the assertion of the petitioner of the services rendered by it qualifying as an “export of service” questioned or negatived in accordance with the procedure prescribed under the Act, its claim for refund could not have been negated.

The Court remarked that “reliance which is placed on Clause 3(g) of the Notification dated 18 June 2012 also would not justify the denial of refund, since the expressions ‘determine’ and ‘satisfy’ as appearing in the parent Rule as also the Notification noted hereinabove would have to be construed bearing in mind the limited jurisdiction and authority which was available in the hands of the Adjudicating Authority and exercised by it while considering the application for refund. In any case, the mere usage of the expressions ‘determine’ or ‘satisfy’ would not amount to expanding the nature of the authority which the second respondent could have exercised while evaluating an application for refund.”

The Court concluded that in the absence of the self-assessed return having been questioned, reviewed or re-assessed, the claim for refund of CENVAT credit could not have been denied by the respondents. When confronted with the application for refund, all that the respondents could have possibly examined or evaluated was whether the provisions of Rule 5 read along with the various prescriptions contained in the notification dated 18 June 2012 had been complied with. The respondents, at this stage of the proceedings, could not have doubted, questioned or undertaken a merit review of the self-assessed return which had been submitted.

[BT India Private Limited v Union of India, 2023 SCC OnLine Del 7143, decided on 06-11-2023]

Advocates who appeared in this case :

Mr. Tarun Gulati, Sr. Adv. with Mr. Arjyadeep Roy, Advocate for petitioner

Mr. Ravi Prakash, CGSC with Mr. Yasharth Shukla, Adv. for R-1 Mr. Ashok Kumar Arya and Mr. Aman Rewaria, Advs. for R-2

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