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TMI Blog2023 (11) TMI 965X X X X Extracts X X X X X X X X Extracts X X X X ..... ax as leviable or payable by the petitioner. The petitioner has contended that such amount was deposited by the petitioner with the respondents, to buy peace, in the event of any prospective demand towards service tax and interest on "interchange income". It is not in dispute that such amount was deposited under protest. It is also the case of the petitioner that no show cause notice in respect of an 'interchange income' was issued to the petitioner for the period from October, 2007 to June, 2012. It is in such context, the petition is filed praying for the following reliefs: "a) issue a Writ of Certiorari or a Writ in the nature of Certiorari or any other writ, order or direction to quash the Order-in-Original No. Refund/ Bipin/ 09/ 2023-24 dated 19 June 2023 that is violative of Article 265 and 300A of the Constitution of India.; b) issue a Writ of Mandamus or a Writ in the nature of Mandamus or any other writ, order or direction under Article 226 of the Constitution of lndia to declare that the retention of deposit of Rs. 56,19,84,075 towards service tax and interest made 'under protest' to the Respondents is without authority of law and liable to be refunded along ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aph 109. In the separate decision as rendered by Mr. Justice S. Ravindra Bhatt, His Lordship has agreed with the conclusions as arrived by Mr. Justice Joseph, being conclusion nos. (ii), (iii), (iv) and (vi). However, insofar as conclusion nos. (v), (vii) and (x) are concerned, His Lordship has taken a different view., while observing that the service tax is undoubtedly a value added tax, however, having characterized the service to be a single unified service, wherein service tax by way of business convenience, is collected from or remitted by the acquiring bank, on the value (whole MDR which includes the interchange fee that is retained by the issuing bank), taxable for the single service rendered by both the acquiring and issuing bank (Citibank), hence it cannot be called upon to pay service tax again, as this would result in double taxation. In such context, His Lordship also did not agree with the reasoning in the case of ABN Amro Bank NV vs. Commissioner of Central Excise, Customs and Service Tax, Noida Appeal No. ST/1921/2012-CU(DB). It was hence observed that the question of remand to the tribunal did not arise. His Lordship accordingly proceeded to dismiss the appeals file ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e petitioner under protest, the Court directed the department to take an appropriate position, with an intention that, possibly the issues could be resolved on the rejection of refund application. However, it appears that our order for such reconsideration of the issues was completely misconstrued, as the Assistant Commissioner (legacy refund), CGST, Mumbai Central passed another Order in Original dated 19 October, 2023. On the earlier occasion and quite peculiarily, the Court was confronted with two original orders, being passed by the same authority. In this view of the matter, we had passed the following order on 7 November, 2023 requesting the Designated Officer to place before the Court as to which would be the relevant Order-in-Original for the purpose of adjudication of the present proceedings. "1. Yesterday we were confronted with a situation that there are two Orders-in-Original as passed by the represented officer. We were really surprised at such approach of the concerned officer that he could pass a second Order-in-Original and that too alleged to be passed in pursuance of our clear orders, which were only in the nature of directing the Respondents to take a call on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out 11 years back, the amounts are enjoyed by the respondents and no show cause notice being issued or any steps otherwise taken to appropriate the said amounts in the manner known to law, so as to consider such amounts to be any legitimate and lawful liability of the petitioner to pay service tax on interchange income. It is submitted by Mr. Rastogi that the petitioner's objection of such amount being paid under protest, was also recorded in the Final Audit Report. 13. It is next submitted by Mr. Rastogi that the Order-in-Appeal dated 30 March, 2021 remanding the proceedings, required respondent no. 2 to render a decision on merits keeping in view relevant issues and the question of law as identified in paragraph 3 of the Order-in-Appeal. In such context, it is submitted that the observations as made in the impugned order in no manner can be sustained to reject the refund applicaton as made by the petitioner. 14. It is next submitted that the reliance on behalf of the revenue on the decision of the Supreme Court in Commissioner of GST and Central Excise vs. M/s. CITIBANK N.A. (supra) is misconceived in the present facts, as the respondent have no ground/cause to retain the amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounts were deposited by the petitioner under protest. It is also not being disputed that, such amounts were not deposited by the petitioner under any lawful demand raised by the respondents of any claim for payment of service tax. 16. Also, perusal of the reply affidavit would indicate that it is merely a recital of events. The relevant contents of the reply affidavit in opposition to the petition on the issue of decision of the Supreme Court in Commissioner of GST and Central Excise vs. M/s. CITIBANK N.A. (supra) are required to be noted, which reads thus: "i) Petitioner was heard. It was held that the issue of interchange fee in the matter of Citibank was heard by the Division Bench before the Hon'ble Supreme Court. The Two judges bench delivered a verdict wherein they agreed on a few aspects but gave a split verdict on few other points. The views shared by the Division bench judge were that Citibank as an issuing bank providing Service; i) 38. (B) On conclusion II, III & IV; I am in agreement with Justice Joseph that prior to 01.07.2012, the service of issuing bank fell within Section 65 (33a) (iii); interchange fee cannot be treated as interest as argued by Citibank; and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disclosing and taxing part of the value in returns. Lastly Justice Josph opined that services provided by Citibank for which it charged an interchange fee would be liable to service tax and it does not amount to double taxation. Justice Bhatt noted that payment of service tax by Citibank would amount to double taxation as service was already collected from the acquiring bank on the entire value of MDR so it should be rendered as a single service by the acquiring and issuing bank as it is taxable as a single service. k) Since there were dissenting opinions, the case will now be referred to the larger bench. If the Larger bench upholds Justice Joseph's opinion, then onus of proving payment of tax on MDR earned by the acquiring bank on the portion of income earned by the issuing banks shall lie upon the Citibank & if larger bench of Supreme Court goes with Justice's Bhatts opinion then it will be beneficial to the banking industry. Till the time larger bench gives its final verdict the ambiguity will continue. l) The adjudicating authority held that the admissibility of refund can be determined only after the larger bench of the Apex Court gives final verdict & rejected the refu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ------ We strongly believe that as we do not have any contractual relationship with the Merchant Establishment (ME) from where interchange income is earned by the acquiring bank and then shared with us as issuing bank, we are not liable to pay service tax on the same. In any case, it is our understanding that the acquiring bank pays service tax on the said income and then shares such tax paid income with us on a revenue sharing basis. Payment of tax on the same revenue twice would amount to double taxation. We, through Indian Bank Association (IBA) are in the process of seeking suitable clarification on this matter from CBEC. However, till we receive the favorable clarification, as a matter of co-operation with the department we offer to deposit an amount of Rs 33,921,088 (including education cess and higher and secondary education cess) strictly 'under protest' on 22 October 2012 for the period April 2007 to September 2007. Please find enclosed the challan evidencing the same as Annexure A. This payment, is also in line with the discussion with the Ld. Additional Commissioner who has confirmed that banks can 'make payment for the period April 2007 to September ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The relevant extract of the Final Audit Report reads thus: "In this regard, assessee inform that they have made the payment of Rs. 2,934,521 (including education cess and higher and secondary education cess) along with applicable interest of Rs. 1,058,305 on 9 October 2012. The copy of the cyber receipt evidencing the proof has been submitted on 10 October 2012. Further, assessee made the contention that the payment is merely to buy peace with the department and in good faith. The payment should not be construed as acceptance of department's view." (emphasis supplied) 22. It also appears to be not in dispute that on the above premise, the amounts were continued to be retained by the department, however, the department did not undertake any exercise of ascertaining such liability and/or raising a demand against the petitioner much less by issuance of a show cause notice. In fact, a show cause notice was never issued to the petitioner. It is in these circumstances, the petitioner had moved an application dated 24 May, 2018 praying for refund of such amounts, as deposited by it under protest along with interest. In the Refund Application, the petitioner inter alia made the follow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preme Court decides the issue. The relevant observations as made in the impugned order reads thus: "3.15 I find that, the two-judge bench of Supreme Court gave a split verdict on taxability of interchange fees. Justice Joseph was of the view that issuing banks earn interchange fees as consideration for providing card payment settlement service and service is taxable in the hands of the issuing bank as when issuing bank and acquiring bank are jointly providing a single unified service. Justice Bhatt held that Citibank was not liable to pay the service tax as services provided by the respondent and acquiring bank were not separated and formed a part of a single unified service. The second point of difference was how the judges viewed service tax machinery provisions. Justice Joseph was of the opinion that since the service was provided by the issuing bank, Citibank was liable to include the interchange fee, file returns and pay service tax on the same. Due to the non-payment of tax by Citibank, Justice Joseph found a possibility of suppression by the issuing bank and sought to remand the matter to the Tribunal for confirmation of facts. However, Justice Bhat on the other hand opine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ange charges will be determined only after the larger bench of the Apex Court gives its final verdict." 24. From the perusal of the impugned order, it is clearly seen that the petitioner asserted that respondent no. 2 had no authority to retain the said amount, which was voluntarily deposited under protest. In our opinion, this would be relevant in the context of the petitioner's contention based on the provisions of Article 265 of the Constitution. 25. As noted by us hereinabove, the stand of the respondents in the reply affidavit is nothing but what the impugned order provides for. When the petitioner is before us asserting violation of provisions of Article 265 of the Constitution, which provides that "No tax shall be levied or collected except by authority of law", this would certainly pre-suppose that the amounts which are levied and collected in accordance with law can only be retained and not otherwise. Thus, the department would need to demonstrate that it had authority in law to withhold/appropriate the amounts as deposited by the petitioner towards tax. This is certainly not the case, as the department is alleging that the amounts which are retained by the department a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entity of reputation. There is nothing on record to suggest that in the event any recovery is initiated against the petitioner, the department would not be in a position to recover any lawful dues. We are not shown any such situation or proceedings against the petitioner. 29. Be that as it may, on behalf of the department we are also not shown any provision under the Finance Act, 1994 which would authorise the department to retain said amounts and in the situation peculiar to the present case. If there are no supporting provisions under the Finance Act for withholding of the service tax deposited by the petitioner under protest, then certainly retention/withholding of such amounts would amount to an action without the sanction and authority in law. Such amounts, hence, would be required to be refunded to the petitioner. 30. Insofar as the department's contention on the basis of split decision in the case of Citibank N.A. is concerned, it may be correct that the issue as involved in such case would now be resolved by the larger Bench, however, in our opinion, in the context of the present facts, adjudication of such issue may not be relevant as far as the issue before us is concer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e whether the appellant would be entitled to a refund of the tax amount, as withheld by the respondent-department. The Constitution Bench dismissing the department's appeal held that the respondent had made the payments voluntarily under a mistake of law which would disentitle the respondent from receiving the amounts in question. It was held to be a settled principles of law that once it was established that the payments, even though it be of a tax, has been made by the party labouring under a mistake of law, the party is entitled to recover the same and the party receiving the same was bound to repay or return it. In such a situation, it was held that there was no question of any estoppel being applicable against the party demanding such payment (in the present case the petitioner). The Court has made the following observations:- "26. Re (i) :The respondent was assessed for the said amounts under the U.P. Sales Tax Act and paid the same; but these payments were in respect of forward transactions in silver. If the State of U.P. was not entitled to receive the sales tax on these transactions, the provision in that behalf being ultra vires, that could not avail the State and the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Indian Contract Act, even though such a distinction has been made in America. vide the passage from Willoughby on the Constitution of the United States, Vol. 1, P. 12 op. cit. To hold that tax paid by mistake of law cannot be recovered under S. 72 will be not to interpret the law but to make a law by adding some such words as "otherwise than by way of taxes" fter the word "paid". 27. If this is the true position the fact that both the parties, viz... the respondent and the appellants were labouring under a mistake of law and the respondent made the payments voluntarily would not disentitle it from receiving the said amounts. The amounts paid by the respondent under the U. P. Sales Tax Act in respect of the forward transactions in silver. had already been deposited by the respondent in advance in accordance with the U. P. Sales Tax Rules and were appropriated by the State of U. P, towards the discharge of the liability for the sales tax on the respective assessment orders having been passed. Both the parties were then labouring, under a mistake of law, the legal position as established later on by the decision of the Allahabad High Court in AIR 1952 All 764 subsequently _ conf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v. Manchester Corporation, 1946 Ch 236 at p. 241 where Romer J. observed: "Even so, however, respectfully agree with the rest of Walton J.'s judgment, particularly with his statement that a general rule applies namely, the rule that, if money is paid voluntarily, without compulsion, extortion or undue influence, without fraud by the person to whom it is paid and with full knowledge of all the facts, it cannot be recovered, although paid without consideration, or in discharge of a claim which was not due or which alight have been successfully resisted." (emphasis supplied) The principles of law as enunciated in the aforesaid decision are squarely applicable in the facts of the present case, inasmuch as, it was certainly on the basis of the audit objection and on a forfituous circumstance, that the petitioner may face a levy on the interchange income, the petitioner had deposited the amount in question under protest. However, this would not ipso facto mean that any deposit of the amount under protest would partake the character of a lawful levy, so as to bring about a legal consequence of the appropriation of amounts, so deposited as a levy. It would be too far-fetched for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would only amount to unjust enrichment by the Department on technical grounds. 24. The Apex Court in CIT v. Shelly Products [2003] 129 Taxman 271/261 ITR 367, as relied upon by Mr. Mistri, has held that where an assessee chooses to deposit by way of abundant caution advance tax or self-assessment tax which is in excess of his liability on the basis of return furnished or by mistake or inadvertence or on account of ignorance, included in his income any amount which is exempted from payment of income tax or is not an income within the contemplation of law, he can certainly make such claim before the concerned authority for refund and he must be given that refund on being satisfied that refund is due and payable. Non giving the refund, in our view, would be in breach of Article 265 of the Constitution of India which states, "no tax shall be levied or collected except by authority of law". In New India Industries Ltd. v. Union of India AIR 1990 (Bom.) the Court held that taxes illegally levied must be refunded. The doctrine of unjust enrichment has to be applied after having regard to the facts of each case. 26. In Balmukund Acharya v. Dy. CIT (2009)_176 Taxman 316/310 ITR 310 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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