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No one can be taxed without any constitutional authority. If any tax or duty is collected by the department because of misinterpretation of the provisions of law, the same can be refunded if the taxpayer applies for a refund. Refund claims can be filed with the department under many other circumstances too, such as, when the service provider finally wins a legal battle wherein he had initially deposited some service tax under departments pressure or where the provisions of the act under which the said tax was levied has been ultimately held to be unconstitutional.

 

 

Nevertheless, certain conditions have to be followed. First and foremost is the time period prescribed, which is termed as the limitation. However, even if the said condition is fulfilled, the doctrine of unjust enrichment is also to be looked into. Surprisingly, the act and rules have not been very verbose on this principal of unjust enrichment.

 

 

However, the said doctrine is a result of the apex court decision in the case of Mafatlal Industries Ltd 1997 (89) E.L.T. 247 SC = CEO 1996 SC 2 and is based on the principles of equity and fairness. Section 11B of the Central Excise Act, 1944 as made applicable to service tax law deals with this principle. To put it simply 'Unjust Enrichment' means one party is unjustly benefited at the expense of another. Under indirect taxation, the underlying concept behind the doctrine of unjust enrichment is that the person who pays the tax to the government passes it on to his customers by including it in his sale price whether or not he mentions in invoices and so effectively, he loses nothing. Further Section 12B lays down the presumption that every person who has paid the tax, unless the contrary is proved by him, be deemed to have passed on the full incidence of such tax to the buyer. The aspect of unjust enrichment is also applicable to the tax paid under protest.

 

 

The theory of unjust enrichment is invoked based on justice preventing the assessee from retaining a benefit from the customer and at the same time claiming a refund of the amount from the Government. Such a theory would necessarily also invite the application of the countervailing theory of 'unjust impoverishment'. Which means a person should not be made liable for payment of taxes unjustly. However, department officers who are faced with targets of collection rarely observe the principal of unjust impoverishment which is counter argument of unjust enrichment.

 

 

This concept of "unjust enrichment" has been caught in legal puzzles and seems to have thoroughly lost the purpose behind its insertion. Board has the Modus operandi that the applicant should be granted a refund only after the claim is found admissible on merits as well as within time and the question of unjust enrichment is decided in his favour. A question may arise that how to decide whether the incidence has been passed on to the other person or not. The answer has to be complete on two aspects; burden of tax can be transferred directly or indirectly. If applicant includes tax in its invoices / debit notes then burden of tax is transferred directly. The indirect method is including the tax amount while arriving at pricing of services and it means that while deciding cost of service the tax portion is included and thus, burden is borne by consumers and not by the assessee.

 

 

If applicant is unable to prove that the incidence was not actually passed onto any other person then the refund amount is credited to Consumer Welfare Fund. In case the service recipient wants to claim refund of the tax burden transferred on him, which was proved to be collected without any authority, he is at liberty to do so. The overall objective of the Consumer Welfare Fund is to provide financial assistance to promote and protect the welfare of the consumers and strengthen the voluntary consumer movement particularly in the rural areas. However, it is not known to anyone out of crores of rupees of refund credited every year to the Fund, what portion, if any, is actually spent for welfare of consumers.

 

 

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Category Service Tax, Other Articles by - MONISH BHALLA 



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