Refund of wrongly collected tax should be made voluntarily and honestly by the Government-excess and wrong collection should be treated as money held in trust - a point of view.

[C.A. DEV KUMAR KOTHARI]

Wrongly paid tax:

Many times tax payer /assessee pay tax under mistake of law or with a view of abundant caution. Some time levy of tax itself is struck down by courts and therefore, tax paid by tax payer or collected from taxpayers becomes excessive tax collection, when such levy is held illegal or invalid. Many times in due course of appeal proceedings it is revealed that the taxpayer has paid excessive tax or that excessive tax collection has been made in the process of recovering disputed dues.

Excessive tax paid and assessed as per return:

In some circumstances the assessee pay tax as per his understanding of law and file return. The return is accepted, therefore, there is no case of filing an appeal or revision petition  because there is no order passed by the A.O. In such cases, the assessee, at best can make application for refund of excessive tax paid. Therefore, in such circumstances, if it is found that the tax has been paid/ collected, and it was not really payable by the tax payer, then the revenue authorities should grant refund based on application for refund. In fact if revenue works honestly, then the refund should be allowed even without making an application for refund by the assessee.   

Excessive collection is like money held in trust:

It is well known that tax cannot be collected without authority of law. Therefore, excessive tax collected should not be allowed to remain with government, because if such excess collection is not refunded, the tax payer will be deprived of his own money. An amount of tax which is collected beyond the permissible charge of tax, is a sum of money lying with the government on account and on behalf of tax payer. It cannot be considered as money of the government, collected s tax.

Courts have also held that in case of wrongly collected tax, refund should be allowed with interest. In relation to refund under Income-tax Act, the courts have held that even interest on interest can be allowed, if the revenue has delayed in grant and actual payment of interest. This is because interest is payable as a compensation for wrongly holding tax payers money.

Revenue authorities should not take advantage of ignorance of tax payer:

It is well known administrative policy that  the revenue authorities should not take advantages of ignorance or negligence of taxpayer, when it comes to refund of taxes paid in excess of lawfully tax collected. However, voluntary refund from tax authorities is very rare. In fact attempts are made to deny refund on technical ground, even when the tax payer make a valid claim based on valid reasons about facts and law both.

It is normally observed that the  revenue officers are vigilant in disallowing relief, disallowing refunds and interest thereon, raising demands- which are many times unjust and illegal. But unfortunately they are lethargic and adopt practices of 'to avoid', when it comes to refund, allowing interest or even other relief admissible as per law. Their main motive, usually remains how to deny or defer the relief. Such practices needs a change for better taxpayer and tax collectors relationships. There must be honesty on part of tax payers and tax collectors both.

'Honesty is the best policy' must be followed by authorities:

Every day we feel honesty being practiced by businessmen in business dealings. Without honesty any business will not run for a long time. This is because both sides keep policy of "honesty is the best policy". So once it is found that one party is not keeping honesty, the other party just stop dealing with dishonest party. The policy that "honesty is the best policy" should also be followed by revenue officers.

Passing orders contrary to the  law and raising unjust and illegal demands is nothing but dishonesty on part of revenue officers. However, in case of taxation, the businessman or taxpayer has no such option to stop dealing with tax officer merely because he is not maintaining honesty while passing orders. Every year the taxpayer may have to approach appellate authorities, but still he has to deal with the officers who are raising unjust and illegal demand, repeatedly. We have seen orders passed which are contrary even to judgments of the Supreme Court and high courts, this in one way is dishonesty on part of revenue officers.

Excessive tax paid- relief denied by lower authorities and the tax payer had to approach High Court:

In case of Central Office Mewar Palace Org. Vs UOI 2008 -TMI - 31747  the tax payer had to approach the Rajasthan High Court to get refund of tax paid in excess of payable tax. In this case assessee had made application for refund of excess tax paid, but the assessment was not challenged. Lower authorities denied tax refund.

The CESTAT also considered the claim in same light and observed that  though the assessment was appealable but assessee had not filed appeal and the assessee had not challenged the assessment order, the claim of refund cannot be entertained. Allowing refund will amount to indirectly challenge the assessment order, without filing statutory appeal, against the assessment order. Thus the Tribunal held that the claim of refund has no merit, and the appeal was dismissed."

The assessee approached the Rajasthan High Court with the following question of law:

          "Whether in the facts and circumstances the claim to refund of service tax which has been paid in excess wrongly could have been refused?"

The court noted facts as follows:

       a. the assessee voluntarily deposited certain amounts with the department, purportedly representing service tax on different services, which were charged by the assessee from its sister concerns/clients, for the period September 1999 to May 2000.

      b. Lateron assessee realized that those services were not chargeable to service tax.

     c. the assessee issued credit notes with respect to the entire amounts to its concerns/clients, and lodged a claim for refund on 24.11.2000, for a sum of Rs.3,40,040/-, which was subsequently revised on 18.12.2000 to Rs.3,36,980/-.

     d.  A.C. issued SCN  to the assessee, calling upon, as to why the claim for refund be not rejected, as the assessee has not produced the evidence to establish justification of the claim. This notice was replied to the effect, that they would furnish original invoices raised on account of non-taxable services, and the original debit/credit notes raised in favour of the clients, and evidence regarding payment received only for the balance amount after adjustment of such credit notes.

        e. The A.C. rejected the claim for refund observing  , that the representative of the company, who appeared showed credit/debit notes issued to their clients/sister concerns, but could not produce invoices, details/evidence of value, ascertained for non-taxable/taxable services. He  also found, that the assessee company as a whole is registered, and has been depositing service tax, which covers all taxable services rendered by the company to its clients, and that the main purpose of carrying on the operations of the company is to centralise all the professional functions in a totally de-centralised environment, through recruiting the professionals who are expert in the particular field. The A.C.  also found, that the assessee did not furnish complete details and evidence relating to refund claim to verify amount claimed by the assessee. The claim and documents did not show as to how they arrived at the value of non-taxable services, and that mere production of statement showing value of unit-wise taxable services and services, which are non-taxable services cannot be considered authentic/ genuine document, for the purpose of granting refund.  He also  found, that nowhere the evidence produced by the assessee establish, that the service tax collected by them has not been virtually passed on to their clients/customers, and thus, it was observed, that incidence of burden has been passed on to the clients/customers, apart from the fact that assessee has collected tax without authority of law for nontaxable services, and by merely raising credit notes, does not authorities the assessee to claim refund. Thus, the prayer for refund was rejected.

       f. Appeal before the Commissioner was dismissed, on  entirely different reasoning, viz. that all the services with respect to which the service tax was charged are included under the head "Manpower Recruitment Agency" and "Security Services" and that they are covered by the definition of "Management Consultant". Thus he  found, that the services were taxable, and the appeal was dismissed. It may be observed, that contention of the learned counsel for the appellant was, that all necessary documents been produced before the learned Assessing Officer.

       g Then the matter was carried in further appeal before the learned Tribunal, and surprisingly, the Tribunal dismissed the appeal by adopting yet different reasoning, viz. that since the assessee had not challenged the assessment order, the claim of refund cannot be entertained, so as to indirectly challenge the assessment order, without filing statutory appeal, against the assessment order.

        h. The High Court  heard learned counsel for the parties, and considered relevant provisions of the Finance Act 1994, and  Central Excise Act. The High Court held that " at the outset, it may be observed, that under the scheme of things, starting from Section 73 onwards it is clear, that the assessee himself is to deposit service tax in form ST-3, there is no provision for assessment. Passing of assessment order is contemplated only in cases where the notice is issued under Section 73, and it is found, that service tax is not levied or paid, or has been short levied or short paid etc. In that view of the matter, the very basis/reasonings given by the learned Tribunal, simply have no legs to stand. Admittedly, the appeal under Section 85 lies against a specific order of the concerned authority in Form ST-4, which requires to disclose, designation and address of the officer passing the decision or order appealed against, and the date of decision or order, so also the date of communication of the decision or order appealed against to the appellant. Admittedly, when no order capable of being appealed against, had ever been passed, it cannot be said that the assessee could file appeal against the assessment order, and not having so filed appeal he cannot lay the claim of refund. Thus, the order of the Tribunal cannot sustain.

Regarding reasoning of Commissioner the court held that  "so far as the reasonings adopted by learned Commissioner are concerned, the learned Counsel for the appellant has invited our attention to Annex.4, another order of the same authority, being Commissioner dated 30^th September 2005, passed in the case of the assessee itself, for the subsequent period April 2000 to March 2002, wherein it has clearly been held, that all these services as cataloged in the said order are not chargeable to service tax. And consequently the proceedings initiated against the assessee, wherein the adjudicating authority had demanded tax, were set aside, and the proceedings were dropped. It is not shown, that this order dated 30.9.2005 has, at all been appealed against, nor has it otherwise been shown to be wrong. In that view of the matter, the reasonings given by the learned Commissioner, in the order Annex.2, also cannot sustain.

The court further observed that  Then remains the order Annex.1, which proceeds on the basis, as quoted above, while according to the learned counsel for the appellant, all relevant and necessary documents had been shown in original, and photostat copies were produced on record, but they have not been looked into.

               On consideration of all orders and records the court held that "In that view of the matter, the question as framed is required to be answered against the Revenue, and in favour of the assessee, but at the same time, the relief which we are inclined to grant is, only to the effect, that while setting aside the orders Annex.2 and 3, we remit the matter back to the Commissioner (Appeals-II), Central Excise and Customs, Jaipur, to restore the appeal to its original number, and adjudicate the claim of the assessee afresh, in accordance with law, keeping in view the observations made above, and also keeping in view the order passed by the said Commissioner dated 30.9.2005, in the case of the assessee itself. The Commissioner is also directed to decide the appeal expeditiously.

Therefore the appeal was  accordingly allowed and the orders of the Tribunal and the Commissioner were set aside and the matter was remanded as above.

Yet a  long way to get refund:

We find that voluntarily tax paid which was found excessive payment was claimed for refund but refund was denied on some or other ground by various lower authorites. Thus there is no consistency in orders but apparent motive is to deny refund. From the judgment of the High Court we find that the matter has been restored to the Commissioner (Appeal). Therefore, again there may be a long way ahead to cross till the assessee really get refund of excessive tax paid under mistake of law.

Such cases may prompt tax payers not to pay tax on one or other reasons and then, if revenue demand tax, plead ignorance or raise some or other ground for non taxability and indulge in litigation. Revenue authorities has nothing on personal account, by raising unjust and illegal demands. Still if the revenue authorities are not honest and fair in their dealing, how the tax payer can be supposed to be fair, reasonable and fully honest, while paying taxes from their own pocket.

First of all the tax officers must show honesty and then expect honesty from taxpayers. It is merely because there is no penalty for dishonesty on part of tax officers that they are found dishonest while passing unjust and illegal orders and that is a reason for dishonesty by tax payers. Honest tax payers are harassed and then the have to adopt dishonest means.

Wrongly collected/ paid taxes must be refunded voluntarily:

The law should provide for voluntary  refund of excessive tax paid by tax payer or collected by authorities, when it is found that the tax has been paid or collected excessively and it is no longer due to the government as per legal position. The revenue authorities should also adopt honest policies and grant refund of such excessive tax paid/ collected voluntarily and even without any application for refund.

The revenue officers must maintain an account for tax refundable in different circumstances. In cases where tax payer has paid tax voluntarily and later on it is found that the tax was not at all payable, the tax authorities must guide and help the tax payer to get refund of such tax.