CESTAT: Refund Cannot Be Denied on Classification Grounds Once Tax Liability Stands Settled
Pranav B Prem
The New Delhi Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that a refund cannot be denied on the ground of classification once the tax liability itself has been settled by a judicial pronouncement. The Tribunal, comprising Dr. Rachna Gupta (Judicial Member) and Ms. Hemambika R. Priya (Technical Member), allowed the appeal of Airport Retail Pvt. Ltd., setting aside the order of the Commissioner (Appeals) which had rejected the company’s refund claim of over ₹11.73 crore.
Background
The dispute arose when Delhi International Airport Ltd. (DIAL), which had leased the Delhi Airport from the Airports Authority of India, granted Airport Retail Pvt. Ltd. the licence to operate duty-free shops in designated areas of the airport. The licence agreements, executed in 2006 and 2008, required Airport Retail to pay fixed monthly licence fees, a share of gross revenue, and a minimum annual guarantee in US dollars. DIAL started collecting service tax on these payments and deposited the same with the department.
Airport Retail challenged this levy before the Delhi High Court in W.P. (C) No. 4274 of 2010. On 30 July 2014, the High Court held that the licence agreement could not be subjected to service tax under Section 65(105)(zzm) of the Finance Act, 1994 as “airport services.” It ruled that the transaction amounted to “renting of immovable property,” falling instead under Section 65(105)(zzzz), and that for the period prior to 1 July 2010, the levy was not sustainable. The Court also granted liberty to the petitioner to seek a refund of the tax paid.
Two show cause notices were earlier issued to Airport Retail, covering the periods 2006–2010. Following the High Court’s ruling, the company filed a refund claim on 3 July 2015 under Section 11B of the Central Excise Act, 1944 read with Section 83 of the Finance Act, 1994. The adjudicating authority rejected the claim, and the Commissioner (Appeals) upheld that rejection on the ground that the assessee had failed to fulfil the legal aspect of classification.
Tribunal’s Findings
The CESTAT observed that the issue of classification had already been conclusively settled by the Delhi High Court. It noted: “The controversy about the classification of the impugned activity… stands at rest by the Hon’ble High Court of Delhi vide judgment dated 30.07.2014. It has already been held that for the period in dispute, the more appropriate tax entry was ‘Renting of Immovable Property’ and not ‘Airport Service’.” The Tribunal held that once the High Court had decided that the activity was not taxable as “airport services” and that the assessee had no liability for the relevant period, refund could not be denied on classification grounds.
It further emphasized that Section 11B permits refund subject to two conditions:
The claim is filed within one year from the relevant date, and
The incidence of duty has not been passed on to another person.
The Bench found both conditions satisfied. The refund application, filed within one year from the High Court’s judgment, was within limitation. Further, DIAL had confirmed that the service tax collected from the appellant had been deposited with the department, making it clear that the burden had not been passed on.
Allowing the appeal, the Tribunal held that rejection of the refund claim on the basis of classification was unsustainable and contrary to judicial protocol. The impugned order was set aside, and the refund claim of Airport Retail Pvt. Ltd. was sanctioned. The appeal was thus allowed.
Appearance
Counsel for Appellant/ Assessee: Anand Sukumaran
Counsel for Respondent/ Department: S.K. Meena
Cause Title: M/s Airport Retail Private Limited Versus Commissioner of Service Tax, Gurgaon-II
Case No: Service Tax Appeal No. 51677 Of 2017
Coram: Dr. Rachna Gupta (Judicial Member), Ms. Hemambika R. Priya (Technical Member)
