REFUNDS IN SERVICE TAX / EXCISE

Dr. Sanjiv Agarwal

FCA, FCS

 

Section 11B of the Central Excise Act, 1944 deals with refund of tax. The refund applications in prescribed Form ‘R’ in duplicate required to be filed within one year from the relevant date up to the enactment of the Finance Act, 2000 i.e., 12th May, 2000 (earlier six months). 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 therefore, 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 a period of three months of the refund application, the Department shall be liable to pay simple interest @ 6 per cent per annum. Any person or assessee aggrieved by denial of refund or short refund can appeal under section 85 to the Commissioner of Central Excise (Appeals) within a period of three months from the date of receipt of order.

Refund Provisions

The claim for refund may also arise due to rectification of mistake under Section 74, upon finalization of provisional assessment resulting in a refund under Rule 6(6) or excess payment of service tax by assessee entitling him to claim refund or under Rule 6(3) in case of self adjustment.

Form R of Central Excise Rules, 1944 is used for claiming refund under Rule 173S of Central Excise Rules, 1944. It should be submitted to the Assistant or Deputy Commissioner of Central Excise, as the case may be. The assessee should prove that the incidence of duty has not been passed on to the buyer or any other person. This restriction of ‘unjust enrichment’ is applicable to Service Tax also. Assessees should comply with the following requirements —

(a) Claim for refund must be in prescribed Form-R of Central Excise Rules in duplicate.

(b) It should be signed and pre-receipted with a revenue stamp.

(c) It should be filed within the limitation period of one year from the date of payment of tax.

(d) Proof should be submitted that refund will not result in unjust enrichment.

(e) Appeal can be preferred against order denying the refund.

The refund claim should be backed by adequate documentary evidence(s) of payment of Service Tax, excess payment, refund due etc.

The claim should be filed along with all requisite papers and documents and if the same is incomplete, it may not be taken as filed properly. The refund can be granted only if the incidence of tax has not been passed on to any other person because being an indirect tax, it is assumed that the assessee who has paid the tax on a service has passed it on to the recipient of service. The onus of proof that the burden of tax was not passed to any other person lies on the claimant of such refund. All the refunds are issued by cheques are delivered to the claimant or his representative either personally against a proper acknowledgement or dispatched by registered post acknowledgement due.

Circumstances in which refund could be claimed

  • On finalization of provisional assessment [Rule 6(4) of Service Tax Rules, 1994]
  • On making excess payment of Service Tax
  • On rectification of mistake
  • On payment of Service Tax on advance receipts against which service is not provided later [Rule 6(3) of Service Tax Rules, 1994]
  • On payment of service tax under section 73A (surplus amount collected from customer and is refunded to customer after adjustment)
  • In case of exemption notification
  • Where manufacture or service provider is not in a position to utilise the credit on input or input service under Cenvat Credit Rules, 2004 (Rule 5)
  • Refund of Cenvat Credit to service providers providing services taxed on reverse charge basis (Rule 5B of Cenvat Credit Rules, 2004)
  • Refund by merchant/manufacturer exporters (exemption by way of refund)
  • Under Export of Service Rules, 2005/Rule 6A of Service Tax Rules, 1994 w.e.f. 1-7-2012.
  • Refund of Service Tax to SEZ developers/units to SEZ.

Relevant date for computing limitation period of one year

Relevant date for ascertaining time limit of one year is as under –

Circumstances

Relevant date

Under normal circumstances

Date on which payment of Service Tax was made

In case of provisional assessment

Date on which adjustment of Service Tax after final assessment was made i.e. date of final assessment

In case of person who is not service provider

Date on which taxable service was purchased

In case of rectification of mistake (exempting a particular service)

Date on which exemption notification was issued

 

The “relevant date” for the purpose of refund as per section 11B of the Central Excise Act, 1944 which is applicable to Service Tax also, is the date payment of Service Tax. Thus, the limitation period of one year is to be calculated from the date of payment of the Service Tax.

Procedure for Claiming Refund

Any assessee, manufacturer/exporter, who is entitled for refund of any duty of excise due paid on account of excess paid, erroneously duty paid or double excise duty paid. The assessee can submit refund claim with prescribed form to their jurisdictional Deputy Commissioner / Assistant Commissioner of Central Excise with a copy to the Range officer of Central Excise. The assessee has an option to file refund claim electronically through ACES online and submit the hard copies along with necessary documents to the Department for verification. The claim is to be submitted in duplicate duly signed by the authorized person on behalf of the claimant and shall affix revenue stamp in space provided for pre-receipted in the application form.

The refund claim shall be submitted along with all requisite documents and proof of excise duty paid by the assessee and enclosing a disclaimer certificate about non-availment of Cenvat credit or any other benefits as buyer of the excisable goods. If the burden of duty has been passed on, the refund can be claimed by the person who actually paid the duty otherwise the amount is liable to be deposited in the Consumer Welfare Fund. The refund claim of less than Rs. 100 shall not be admissible in respect of all excisable goods

Assessee’s should note the following:—

(i)            Application in the prescribed form (Form-R) should be filed in duplicate with the jurisdictional Asst./Deputy Commissioner of Central Excise/Service Tax.

(ii)           The application should be filed within one year from the relevant date as prescribed in Section 11B of the Central Excise Act, 1944 which has been made applicable to Service Tax refund matters also.

(iii)          Application should be accompanied by documentary evidence to the effect that the amount claimed as refund is the amount actually paid by him in excess of the Service Tax due and the incidence of such tax claimed as refund has not been passed on to any other person.

Anybody can file refund claim

In CCE, Allahabad v. Azam Rubber Products Ltd. (2011) 23 STR 263 (Cestat, Delhi), it was held that u/s 11B of Central Excise Act, 1944, it is not necessary that person paying Service Tax

has to make claim for refund. Any person is authorised to claim the refund, if the applicant is able to furnish documents to establish that amount of duty in relation to which such refund is claimed was collected from or paid by him and such incidence of duty has not been passed on by him to any other person.

Scrutiny and Admissibility of Refund Claim

The primary scrutiny of refund claim starts from the Range Officer/Superintendent who may complete the same within 2 weeks from the date of submission, in case of any deficiency of documents for verification intimated to claimant for re-submission. The Range Officer of Central Excise after final verification of refund claim in all respects forwards the same to the Divisional Office for final processing along with his findings/verification report. On receipt of verification report from the Range officer, Deputy/Assistant Commissioner re-scrutinizes the refund claim. Deputy/Assistant Commissioner should take into consideration the provision of unjust enrichment and accordingly claimant should be asked to submit the evidence to establish his claim that incidence of duties whose refund is claimed has been borne by him and that the same has not been passed on to the buyer, where the claimant is unable to furnish this evidence or otherwise is not entitled to refund, will be sanctioned but may be ordered to be credited to the Consumer Welfare Fund.

Disposal of Refund Claim

Once refund claim scrutiny is completed at Divisional Office, Deputy/Assistant Commissioner may give an opportunity to the claimant for personal hearing to present additional documents, if any, in support of their refund claim. The officers may sanction refund claim or reject it. If the refund claim is admitted, the payment may be release to the claimant within 3 days of the order sanctioned after due pre-audit. The post-audit of refund claim may be completed in time. If the refund claim is rejected then the reason of rejection duly has to be intimated to the claimant in the form of adjudication order. SCN can also be issued in case of proposal of rejection of refund claim.

Documents Required

According to CBEC, following documents should be filed with refund claim of service tax under section 11B of Central Excise Act, 1944 read with section 83 of Finance Act, 1994 —

1. Application in prescribed Form-R.

2. Copy of TR-6/GAR-7/PLA/copy of return evidencing payment of duty.

3 Copy of invoices (in original)

4. Documents evidencing that duty has not been passed on to the buyer.

5. Any other document in support of the refund claim.

6. Any other document prescribed by the Central Excise Officer.

Interest on Delayed Refund

If any duty/tax ordered to be refunded under section 11B(2) of Central Excise Act, 1944, to any applicant is not refunded within three months from the date of receipt of application, interest at the applicable rate shall be paid, subject to conditions laid down under section 11BB of the Central Excise Act, 1944.

The language of Section 11BB of the Act is clear and admits of no ambiguity, inasmuch as the revenue becomes liable to pay interest at the prescribed rate on refunds on the expiry of three months from the date of receipt of application under section 11B(1) of the Act and such liability continues till the refund of duty. According to deeming fiction of explanation in section 11BB that where refund order is made by appellate authority, such order shall be deemed to be order u/s 11B(2), it does not postpone the date from which interest becomes payable u/s 11BB. The court held that “Section 11B of the Act comes into play only an order for refund has been made under Section 11B of the Act. Section 11BB of the Act lays down that in case only duty paid is found refundable and if the duty is not refunded within a period of three months from the date of receipt of the application to be submitted under sub-section (1) of Section11B of the Act, then the applicant shall be paid interest at such rate, as may be fixed by Central Government, on expiry of a period of three months from the date of receipt of the application.

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