23.03.2022 – Tax Collected Without Authority Of Law Must To Be Returned To The Customers – CESTAT Delhi

The Hon’ble CESTAT Delhi vide its order dated 09.03.2022 in the matter of Prasar Bharati Vs. Commissioner of Service Tax, Delhi in Service Tax Appeal no. – 52864 of 2016 held that tax collected from the customers without authority of law under the grab of its liability to pay service tax, when actually it was not liable to pay, must be returned to the customers from whom it was collected.

Facts:

  • The appellant is engaged in providing the service of broadcasting through Doordarshan Kendra, Trivandrum and only carrying the advertisement of the advertisers and broadcasting the same however no advertisement was made by the appellant.
  • That the services provided by the advertising agency was a taxable service, however a circular no. 341/43/96-TRU dated 31.10.1996 was issued by CBEC clarifying that ‘the amount paid excluding the commission by the advertising agency for space and time in getting the advertisement published in the printing media or the electronic media would not be includable’ in value of taxable service for the purpose of levy of service tax.
  • It was observed by the officers of the department that the services provided by Doordarshan Kendra, Trivandrum are taxable, neither any registration has been taken by it nor any tax has been paid or any return filed.
  • On the basis of above three show cause notices were issued to the appellant dated 01.01.2002 (for 1198 -2001), dated 09.05.2003 (for 2001-2002) and dated 06.10.2003 (for 2002 – 2003), however the appellant later on took the registration on 06.08.2003,
  • The Ld. Commissioner while adjudicating the aforesaid show cause notices dropped the demand for first two show cause notices, at the same time confirmed the demand of Rs. 36,92,874/- for the third show cause notice dated 06.10.2003. Hence the present appeal has been filed.

Appellants Plea:

  • That the show cause notice dated 06.10.2013 is for the period 2002-2003 and the appellant was not providing any taxable service during that period.
  • That Section 73A (2), inserted by Finance Act 2006, was not in existence during the period when the service tax was mistakenly collected by the Appellant. Thus the section has been wrongly invoked and prayed for setting aside the impugned order.

Revenue Submissions:

  • On the other hand Department Representative appearing for revenue submitted that the fact of collection of service tax from customers and not depositing the same with the Government has not been disputed by the appellant.
  • Relying on the Judgment of Modern Co-op Bank Ltd. vs CCE, Nasik reported in [2010(19) STR 697 (Tri-Chennai) & IWI Cryogenic Vaporization System India vs. CCE & ST Vadodara II – 2016 (41) STR 290 (Tri-Ahmd), it was submitted that the demand has been rightly confirmed by the adjudicating authority and prayed for dismissing the appeal.

Held:

  • The Hon’ble Bench after considering the submissions from the both sides observed that the Advertisement involves broadly three activities. First is the creative work, Second is the actually making of advertisement and third is the actual carrying of the advertisement through media which is done by newspapers, magazines, radio channels, television channels etc.
  • Further observing the appellant is engaged in the third activity, referred to the CBEC circular No. 341/43/96-TRU dated 31.10.1996 and the judgment of Hon’ble Madras High Court in the matter of M/s. Adwise Advertising Pvt. Ltd. reported in [1998 (97) ELT 35], noticed that the service tax would be payable on the commission received by the advertising agency and not on amount paid for space and time in getting the advertisement.
  • Thereafter the Hon’ble Bench taking note of the law stated in Section 73A(2) observed that the adjudicating authority despite the fact of the view, the appellant is not liable to service tax, confirmed the demand invoking Section 73A(2).
  • Considering the submission made on behalf of the appellant that ‘confirmation of demand invoking Section 73A(2) is not justified as it was not in existence during the disputed period’ held the said argument of the appellant is not sustainable as the amount collected from the customers as service tax was retained and not paid to the government by the appellant .
  • That article 265 of the Constitution prohibits collection of tax without authority of law and the tax therefore is not a voluntary payment which one may decide on its own and cannot be collected by anyone, suo moto. It is a payment extracted by legislative authority and even the Government on its own cannot levy tax by itself.
  • The Hon’ble Bench referring to the case of Lord Krishna Sugar Mills vs Union of India reported in 1959 AIR 1124 held that in the instant case collected by the appellant cannot be demanded by the Government as the appellant was not entitled to collect and the retention of the same would amount to unjust enrichment.
  • The Hon’ble Bench taking note of the ratio laid and law stated in Rambux Chittenged vs Madhusudan Paul Choudhary, Mafatlal Industries Ltd. vs Union of India reported in [1997 (5) SCC 536], Indian Council for Enviro Legal Action vs. Union of India reported [1996(5) SC 281], section 68 & 72 of the Indian contract Act, 1972, Article 265 of the Constitution and Padmavati vs. Harijan Sewak CM(M) No.449/2002, held that the Government had no authority to demand the tax as the activity of the appellant was not liable to service tax, and the  section i.e. 73A(2), under which the demand has been made, was not in existence.
  • Further it was held that the appellant had no authority under Service tax law or any other law to collect the amount of service and as Section 73A (2) was not in existence, the statutory provisions cannot be read as to allow the appellant to retain the amount collected, where the Government also cannot demand it in absence of section 73A (2). Thus, the amount collected must be returned to the customers from whom it was collected.
  • Lastly it was held that in absence of any legal provisions neither the Government nor the appellant has any right over the amount collected as service tax from the customers.

 

The Hon’ble CESTAT, Delhi with the above findings set aside the impugned and directed the appellant to return the amount of service tax collected to the customers within two months, and if the appellant is unable to return the amount to any of the customers, such amount shall be deposited in the Consumer Welfare fund.   

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