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2025 Supreme(Online)(Kar) 33636
KARNATAKA HIGH COURT
S.G.PANDIT, K. V. ARAVIND, JJ
STATE BANK OF INDIA HAL BRANCH VIMANAPURA POST BANGALORE-560017 – Appellant
Versus
THE PRINCIPAL COMMISSIONER OF CENTRAL GST NORTH COMMISSIONERATE – Respondent
CENTRAL EXCISE APPEAL NO. 1 OF 2022
For the Appellants/Petitioners: SRI. VIJAYA KUMAR P. L.
For the Respondents: SRI. JEEVAN J. NEERALGI
Refund claims under the Central Excise Act must be based on the actual provision of services, not on the initial payment date of service tax.
Headnote:(A) Central Excise Act, 1944 - Section 11B - Claim for refund of excess service tax paid by a banking institution after surrendering a contract. The appellant-Bank issued a performance guarantee, charged an upfront commission, and subsequently refunded part of the commission upon early surrender of the guarantee. The court determined that the relevant date for refund should be when the guarantee was surrendered rather than the date of initial service tax payment, as retaining tax for unrendered services contravenes constitutional provisions. (Paras 1, 2, 9, 11, 14, 19)
(B) Service Tax - Retention of service tax without rendering services - The court emphasized that tax must be collected only for services provided and cannot be retained for periods where services were not rendered, aligning with the principles established in prior Supreme Court rulings. (Paras 16, 21)
Facts of the case:
The Bank issued a guarantee for 31 months but was surrendered after 14 months. Post-surrender, the Bank filed a refund claim for excess service tax, which was denied on the grounds of limitation. The appeal raised questions about the relevant date for such claims.
Findings of Court:
The court ruled that section 11B of the Central Excise Act applies and affirmed the principle that refunds should be allowed when no services were rendered during the time taxes were paid.
Issues: Whether the relevant date for refund under Section 11B is the date services were rendered or when the service tax was initially paid.
Ratio Decidendi: The court held that the relevant date for claiming refunds due to unrendered services should be defined as the date the service was no longer applicable, which is when the guarantee was surrendered.
Result: Appeal allowed.
| Table of Content |
|---|
| 1. claim for refund filed under section 11b of the central excise act. (Para 1 , 2) |
| 2. the appellant bank refunded commission after premature surrender of guarantee and sought refund of service tax. (Para 3 , 4 , 5) |
| 3. arguments presented regarding refund claim and relevant date determination. (Para 7 , 8) |
| 4. court's interpretation of the relevant date for refund claims. (Para 9 , 14 , 19) |
| 5. final ruling on the appropriate relevant date for claiming refunds. (Para 18 , 21) |
ORAL JUDGMENT
(PER: HON'BLE MR. JUSTICE S.G.PANDIT)
The appellant-State Bank of India (for short, ‘SBI’) is in appeal under Section 35G of the Central Excise Act , 1944 (for short, ‘1944 Act’) praying to set aside the final order bearing No.22877/2017 dated 22.11.20178 passed by the Customs, Excise and Service Tax Appellate Tribunal, Bengaluru (for short, ‘CESTAT’) in Appeal No.ST/23183/2014 (Annexure-d) and to refund an amount of Rs.19,85,4638/- being the excess of amount paid by the appellant towards service tax along with interest.
2. The appeal was admitted on 22.06.2022 to examine the following substantial questions of law:
1. In the facts and circumstances of the case whether Section 11B of the Central Excise Act , 1944 is applicable to the refund claim of the Appellant?
2. Whether the Appellate Tribunal has erred in law by considering the claim for refund under Section 11B of the Central Excise Act , 1944 when the claim for the refund arose only after the period stipulated under Section 11B of the Central Excise Act , 1944?
3. Whether the Appellate Tribunal has erred in law by not determining the question whether Section 11B of the Central Excise Act , 1944 is applicable to the facts and circumstances of the case?
4. Whether the Appellate Tribunal erred in law by applying the law laid down by the Hon’ble Supreme Court in Mafatlal Industries Ltd. V/S Union of India (1997 (89) EL 247) to the present case?
3. Brief facts of the case are that, the appellant is a banking institution constituted under the State Bank of India Act, 1955. The appellant carries on banking business and for the purpose of service tax falls under the category of banking and financial services. The appellant holds the service tax registration No.AAACS8577KST158. The appellant/SBI issued performance bank guarantee on behalf of its customer – Hindustan Aeronautics Limited (for short, ‘HAL’) for a period of 31 months commencing from the date of issuance i.e., 19.07.2008. The appellant/SBI charged upfront commission of Rs.3,10,84,531/- towards the bank guarantee issued for the entire tenure of 31 months and on the said amount of commission, the appellant/SBI paid a sum of Rs.41,12,567/- as service tax.
4. It is submitted that HAL surrendered the bank guarantee upon fulfillment of its export obligations after 14 months of issuance of bank guarantee i.e., on 24.08.2009. On HAL surrendering the bank guarantee prematurely, it claimed refund of commission for the residual period of 17 months from the appellant/SBI. Accordingly, the appellant/SBI is said to have refunded a sum of Rs.1,80,49,083/- towards the commission collected for the remaining surrendered period. Thereafter on 04.11.2009, the appellant/SBI filed refund claim before the second respondent for a sum of Rs.19,85,463/- stating that it is the excess service tax paid towards the banking service and commission collected.
5. The second respondent by order dated 26.02.2010 rejected the claim of the appellant/SBI for refund stating that the claim is barred by limitation, as the claim is filed after lapse of more than one year. Aggrieved by the same, the appellant/SBI filed appeal on 07.05.2010 before the first respondent in Appeal No.507/2014 which was dismissed on 01.07.2014. Aggrieved by the order of Original Authority as well as the Appellate Order, the appellant/SBI filed appeal before the CESTAT under Section 86(1) of the Finance Act , 1994. The CESTAT vide judgment dated 22.11.2017 dismissed the appeal holding th
