Refund of Service Tax on foreign agency commission.

Case Title: Uniroyal Marine Exports Ltd. v. Commissioner of Central Excise

Court: High Court of Kerala

Petition No.: C.E. Appeal No. 16 of 2019

Category of Dispute: Refund – Service Tax paid on foreign agency commission

Date of Judgment: November 17, 2020

Relevant Sections: Section 66A of the Finance Act, 1994; Section 11B of the Central Excise Act, 1944; Article 265 of the Constitution of India

Facts of the Case [¶1–2]

1. The appellant, Uniroyal Marine Exports Ltd., engaged in processing and exporting seafood, had paid service tax on foreign agency commission for services rendered prior to 18-4-2006.
2. The Bombay High Court in Indian National Shipowners Association v. Union of India held that service tax liability on import of services could arise only after the enactment of Section 66A on 18-4-2006, which was affirmed by the Supreme Court.
3. Based on this, the appellant filed a refund application within eight months of the Supreme Court’s judgment.
4. The original authority sanctioned the refund, which was later challenged and set aside by the Commissioner (Appeals) and CESTAT, resulting in the present appeal.

Questions in Consideration [¶3]

(a) Whether the Tribunal erred in setting aside the refund granted by the Deputy Commissioner?

(b) Whether the Tribunal wrongly applied limitation under Section 11B to deny refund when the levy itself was illegal?

(c) Whether an amount collected illegally (i.e., without authority of law) attracts the bar of limitation under Section 11B?

(d) Whether such refund denial violates Article 265 of the Constitution, which prohibits tax without legal authority?

Observations of the Court [¶4–7]

1. The Court acknowledged the appellant’s argument that the tax was paid under a mistake of law and relied on V.P. Khader v. CCE, which permitted refund in such scenarios despite limitation.
2. The Revenue cited Mafatlal Industries Ltd. v. Union of India, which emphasized that all refund claims must follow statutory provisions.
3. Following Southern Surface Finishers v. Asstt. CCE, the High Court reaffirmed that even in cases of mistake in law, if the tax was not illegally collected by the department, the statutory route under Section 11B is to be followed.
4. However, since the refund had already been disbursed by the original authority and the levy itself was illegal (pre-18-4-2006), the High Court held that although the questions of law were to be answered in favour of the Revenue, the refunded amount could not be recovered.

Judgment of the Court [¶7]

• The High Court answered the legal questions in favour of the Revenue, holding that statutory limitation under Section 11B applied.
• However, considering that the tax was not legally leviable and the refund had already been made, the Court restrained the Revenue from recovering the refund amount.
• Appeal disposed with no order as to costs.

Between Fine Lines (Simple Summary in 5 Lines)

Even though the refund claim was beyond the statutory limitation, the service tax was never lawfully due in the first place, as the levy on foreign agency commission arose only after 18-4-2006. The High Court ruled in favour of the Revenue on law but did not allow recovery of the refunded amount. It emphasized that unlawful tax cannot be legitimized by delay alone. Equity has no place in tax, but Article 265 protects taxpayers from illegal levies. Ultimately, the taxpayer retained the refund.

Summary of Referred Cases

Takeaway

“Limitation v. Legality: When Tax Without Authority Meets Refund Without Timeline”