Kolkata CESTAT Allows Service Tax Refund as Biscuits Can Qualify as Foodstuff

The Kolkata Bench of Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has ruled that biscuits can be considered ‘foodstuff’ and thus qualify for the exemption from service tax.

The bench, comprising R. Muralidhar (Judicial Member) and K. Anpazhakan (Technical Member), has granted the refund that was initially denied by the adjudicating authority due to time restrictions. These restrictions do not apply when a payment is made on the grounds of a mistaken belief and is not needed for any duty or tax.

The appellant/assessee, a biscuit manufacturer, is registered under Central Excise and Service Tax Authorities for paying Service Tax via the Reverse Charge Mechanism for the services given by Goods Transport Agencies (GTAs). They had been paying service tax on a “reverse charge basis” for GTA services.

An announcement was made by the government about the exemption for the transportation of “foodstuff” from service tax payment to GTAs. Not in the knowledge of this exemption, the appellant unintentionally continued to make service tax payments on a “reverse charge basis” between July 2013 and March 2014. Upon discovering that these payments were unnecessary due to the exemption provided in Notification No. 25/2012 dated June 20, 2012, the assessee proceeded to submit a refund claim.

A show cause notice was issued questioning the validity of the refund claim filed on September 9, 2015, stating that it was time-barred according to Section 11B of the CEA, 1944. On October 23, 2015, a corrigendum was released, which included additional accusations stating that the necessary documents regarding the non-transfer of duty to others had not been provided. After following the appropriate protocol, the adjudicating authority dismissed the refund claim under Section 11B and Section 83 of the Finance Act, 1994. The Commissioner (Appeals) affirmed this ruling during the appeal process.

In relation to the rejection of the refund claim based on the time limitation specified in Section 11B, the argument put forth is that the appellant made a payment of service tax that was unnecessary from the beginning. In such situations, previous judgments by various tribunals and the Supreme Court have established that when service tax is paid by mistake, the provision of Section 11B is not applicable.

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The tribunal determined that when there is no legal obligation or duty to pay service tax, the amount paid by the petitioner under a mistaken belief does not meet the criteria for being categorized as a duty or “service tax” according to the law. Consequently, as it is not legally required to be paid, the department lacks the authority to retain the amount. It cannot be regarded as excise duty under any interpretation, and therefore, Section 11B does not come into action.