Once Service Fee Is Refunded By Assessee, Transaction Between Parties No Longer Qualifies As Service & No Service Tax Is Leviable: CESTAT

The Bench of Dr. Rachna Gupta (Judicial Member) and Hemambika R. Priya (Technical Member) has observed that “…the waiver of service fee must be understood as the re-negotiation of the invoice value, which has been reduced from a fixed amount to NIL….”

In this case, the Assessee/Appellant provided services to milk unions, collecting a service fee on which service tax was paid. However, following an AGM decision and an order dated 13.10.2014, the service fee was retroactively waived for the period from 01.04.2014 to 30.06.2014. Consequently, the assessee refunded the entire service fee and service tax to the milk unions.

The assessee then filed a refund claim for the service tax paid on services provided to the milk unions for this period. The department issued a Show Cause Notice proposing to reject this refund claim, which was confirmed by an order. The assessee appealed against this order, but the appeal was rejected. The assessee has now challenged the order before the Tribunal.

The assessee contended that no service tax was payable by the appellant as the transaction does not qualify as a service', hence, the refund claim was rightly filed. Refund is available to the assessee in terms of rule 6(3) of the Service Tax Rules read with section 11B of the Excise Act.

The bench opined that once the consideration (service fee) was refunded by the Assessee to the milk unions, the transaction between the two parties no longer qualified as a 'service' and no service tax would be leviable thereupon.

The bench noted that prior to the waiver of service fee, the activities undertaken by the assessee qualified as a taxable service in terms of Section 65B(44) of the Act. Further, the assessee also discharged service tax on the service fee received from the milk unions.

Since, preceding the full waiver of service fee, there is no dispute that the assessee was rendering a 'service' to the milk unions and that post waiver the assessee has issued credit notes to all milk union members for the amount of service tax as was collected from them, the appeal the service tax so paid is refundable to the assessee, added the bench.

In view of the above, the Tribunal allowed the appeal.

Counsel for Appellant/ Assessee: Shagun Arora

Counsel for Respondent/ Department: S.K. Meena

Case Title: M/s. Rajasthan Co-Operative Dairy Federation Limited v. Commissioner of Central GST, Jaipur