Claim for refund of duty

Print PDF

Section 11B - Claim for refund of duty

Sub-section (1) of Section 11B of the Central Excise Act, 1944 provides for the time-limit for the claim for refund of duty. Provisions of section 11B are applicable to service tax as per the section 83 of the Finance Act.

This column explains the provision of sub-section (1) of section 11B.

It has been noticed that several refund cases have been rejected by the department for not filing the same within the time-limit specified under sub section (1) of section 11B. The column provides a situation wherein the provisions of the said sub-section will not apply relying upon certain recent High Court and Tribunals Judgments in the matter.

Section 11B of Central Excise Act

Sub-section (1) of Section 11B of the Central Excise Act states:-

(1) Any person claiming refund of any duty of excise may make an application for refund of such duty to the [Assistant Commissioner of Central Excise or Deputy Commissioner of Central Excise] before the expiry of [one year] [from the relevant date] [[in such form and manner] as may be prescribed and the application shall be accompanied by such documentary or other evidence (including the documents referred to in section 12A) as the applicant may furnish to establish that the amount of duty of excise in relation to which such refund is claimed was collected from, or paid by, him and the incidence of such duty had not been passed on by him to any other person :

Provided that where an application for refund has been made before the commencement of the Central Excises and Customs Laws (Amendment) Act, 1991, such application shall be deemed to have been made under this sub-section as amended by the said Act and the same shall be dealt with in accordance with the provisions of sub-section (2) substituted by that Act :]

[Provided further that] the limitation of [one year] shall not apply where any duty has been paid under protest.

Thus, only refund claims made within the period of one year from the relevant date (as explained in the section) will be considered as valid claim and thus will be entitled to refund.

Situation under which the said sub-section will not be applicable
  • Time limit under section 11B applies to only duty/tax paid

Limitation under section 11B will not apply when no tax is payable at the outset, but is paid due to misunderstanding of law.

In the case of KVR construction Vs CCE, Bangalore, KVR construction (petitioner) [2010-TIOL-68-HC-KAR-ST] had paid over rupees one crore rupees as service tax on the activity of construction due to a misunderstanding of law.

The Assistant Commissioner in his Adjudication Order observed, “it is evident that if the building or the civil structure are for the use of organisations or institutions being established solely for educational, religious, charitable, health, sanitation or philanthropic purposes and not for the purposes of profit, the said services are not taxable, being non-commercial in nature. Since this clarification issued by the Board vide Circular No. 80/10/2004 dated 17-9-2004 is very clear on the issue, the construction services undertaken by M/s. K.V.R. Construction is not taxable in nature and the assessee is not liable to pay any service tax and he has paid it under the misunderstanding of law.”

However, Assistant Commissioner refused the refund on the ground of limitation as per the provision of sub-section (1) of section 11B of the Central Excise Act, 1944

Aggrieved by the said order the petitioner has filed the said writ in the matter before the High Court

After examining the matter under reference the Hon’ble High Court observed, “Section 11B provides for making a claim to refund duty. Admittedly, the sums deposited by the petitioner is held to be a deposit and not as a duty, therefore, there was no necessity for the petitioner to have made a claim invoking Section 11B of the Act for refund.

In the circumstances, the Asst. Commissioner of Central Excise by a misconception of law assumed that Section 11-B of the Act applied, so as to decline the petitioner's claim for refund of the amount in deposit, on the premise that the claim was beyond the period of limitation. The order impugned insofar as it relates to the denial of the claim for refund is unsustainable and is quashed.”

The High Court thus directed the Department to refund Rs. 1,23,96,948 /- to the petitioner within a period of two weeks.

Note: Please note that this order passed by the learned single judge has been stayed (Refer 2010-TIOL-89-KAR-ST)

Also in the case of Natraj And Venkat Associates Vs ACST [2010-TIOL-67-HC-MAD-ST], Natraj And Venkat Associates (petitioner) seeked for a Mandamus before the Hon’ble High Court, directing the respondent to refund the service tax paid by them under a mistake of law, on export of services.

The petitioner, a firm rendering architectural services had received payment from a client in Sri Lanka on 27-5-2005 in US Dollars and the petitioner paid a sum of Rs. 8,67,800/- on 4-7-2005 towards service tax. The petitioner on realising that the services rendered for the construction of a building in Sri Lanka, would not attract Service tax, filed for a claim for refund on 20-9-2006.

The respondent issued a show cause notice dated 5-10-2006 and after receiving a reply from the petitioner, the respondent issued an order-in-original dated 23-5-2007, rejecting the claim as time barred and also on the ground that the claim was not in the proper format. The petitioner filed an appeal, to the Commissioner of Central Excise (Appeals), but the same was also rejected by an order dated 21-11-2008 on the ground that even if the tax was collected without the authority of law, a claim for refund cannot be entertained beyond the period specified in Section 11B of the Central Excise Act, 1944.

Aggrieved by the same the petitioner filed a writ before the Hon’ble High Court.

The Hon’ble High Court observed:-

Two questions arise for consideration in this writ petition viz.,

  1. as to whether the claim was liable for rejection on the ground of limitation and
  2. as to whether the petitioner had collected service tax from the customer, so as to become disentitled to claim refund.

On the first question, the Hon’ble Court observed that there was is no dispute that Section 11B of the Central Excise Act, 1944, prescribes a period of limitation for filing a claim for refund. But the period of limitation would start running only from "the relevant date". The phrase "relevant date" is defined in Clause (B) of the Explanation to Section 11B. The definition is not rigid or fixed, but varies from situation to situation. While sub-clauses (a) to (e) of Explanation (B) deal with the definition of the phrase "relevant date", in relation to the goods exported, goods returned, the goods manufactured or the goods purchased, sub clause (f) states that the phrase "relevant date" would mean the date of payment of duty, in any other case.

Unfortunately, the date of payment, in this case, was admittedly 4-7-2005. The date on which a claim for refund was made, was 20-9-2006, which was obviously beyond the period of limitation. Therefore, at the outset, the rejection of the claim appears to be in tune with the statutory provisions.

However, after hearing detailed arguments and going through decided cases, the Hon’ble High Court held,

“Therefore, it is clear that if what was paid cannot be taken to be duty of excise, the bar of limitation under section 11B(1) cannot be applied. This is on account of the fact that the bar of limitation prescribed under Section 11B(1) applies only to "any person claiming refund of any duty of excise and interest". Therefore, the claim of the petitioner for refund can be entertained by this Court, since there is no dispute about the fact that no service tax was payable by the petitioner and as a corollary, what was paid by them was not service tax.”

The Hon’ble High Court after verifying the detailed facts of the case also decided the second question in favour of the petitioner by concluding that the petitioner was not attempting to make an unjust enrichment for themselves, by seeking refund of service tax which they had already collected from their customers.

The writ petition was thus allowed and the respondent was directed to make a refund of the amount payable to the petitioner within 8 weeks from the date of receipt of a copy of the order.

Other relevant clarification in the matter
  • The relevant date for computing the limitation is the date of filing the original claim

In the case of Shri K S Nagarajan,M D, M/s Siddanatha Textiles Pvt. Ltd. Vs Commissioner of Central Excise, Salem [2010-TIOL-136-CESTAT-MAD], the claim for refund of service tax on the ground that abatement was admissible, had been rejected by the adjudicating authority both on the ground of time-bar as well as on merits.

The impugned order passed by the Commissioner (Appeals) upheld the rejection of the claim only on the ground of time-bar but did not record any finding on the merits of the claim.

Aggrieved by the said order Shri K S Nagarajan,M D, M/s Siddanatha Textiles Pvt. Ltd. (appellant) filed the said appeal before the Hon’ble Tribunal

The service tax was paid by the appellant on Goods Transport Agency service during the period 15.11.05 to 3.2.06 and a letter dated 28.6.06 was filed by the appellant with the Range Officer for refund of service tax amount on the ground that benefit of abatement was available since the transport agency had neither taken credit on inputs or capital goods used for providing service in relation to transport of goods by road nor availed the benefit of Notification No.12/2003-ST dated 20.6.2003. The letter was returned to the appellant advising them to file the claim in proper format with proper evidence for payment of service tax. The appellant subsequently filed the claim in the proper format on 5.9.07. This date was considered as the date of filing the claim for refund and since it was filed beyond the period of one year from the payment of the tax, the claim was rejected as barred by limitation.

The Hon’ble Tribunal however  agreed with the appellant that staking claim for refund on 28.6.06 was sufficient to hold that claim has been filed within time, in the light of Tribunal's decision in Wood Working Centre Vs Collector of Central Excise, Indore [1996 (86) ELT 201]. The Tribunal thus cancelled the impugned order of rejection of claim on the ground of time-bar and in absence of any finding on the merits of the claim by the Commissioner (Appeals), remitted the case for fresh decision on merits to the lower appellate authority.

Keeping the above points in mind will greatly increase the success rate of refund claims filed by the assessee in situations similar to those explained above.