Madras High Court Directs Refund Of ₹6.41 Lakh To The Madras Club, Says Tax Burden Not Passed On Members

The Madras High Court on 1 September directed the authorities to refund Rs.6.41 lakh to The Madras Club, after finding that the club had not passed on the tax burden to its members to that extent.

A Division Bench of Justices Anita Sumanth and C. Kumarappan partly allowed the club's appeal against a CESTAT order rejecting its refund claim. The judges held:

“...in respect of the portion of the amount in a sum of Rs.9,09,717/-, the appellant has already passed on the burden to its members. However, the remaining sum of Rs.6,41,369/- is yet to be received from the members. In other words, no burden has been passed on to the members to the extent of Rs.6,41,369/-. Therefore, the appellant is entitled to have refund only to the extent of Rs.6,41,369/-”

The club had faced a service tax demand of Rs.29.24 lakh on subscription amounts received from its members. The Commissioner (Appeals) subsequently set aside the demand, and the CESTAT upheld the decision. The club had already paid Rs.15.51 lakh pursuant to the demand and thereafter sought a refund.

The CESTAT rejected the refund claim on the ground of unjust enrichment, holding that the club had passed on the tax burden to its members. Before the High Court, the club relied on an Auditor's Certificate to contend that the amount had not been passed on to its members.

The High Court reiterated that a refund under Section 11B of the Central Excise Act, 1944 is subject to the doctrine of unjust enrichment.

Referring to the Supreme Court's judgment in Mafatlal Industries Ltd. v. Union of India, it held that a taxpayer seeking refund must establish that the burden of duty has not been passed on to another person. It also held that the Auditor's Certificate was relevant for determining the refund claim, although its evidentiary value depended on its veracity and authenticity.

The certificate showed that the club had recovered Rs.9.09 lakh from its members, while Rs.6.41 lakh remained pending collection. The Court held that the club had therefore passed on the tax burden to the extent of Rs.9.09 lakh and could not claim a refund of that amount. Since it had not passed on the burden relating to the remaining Rs.6.41 lakh, the club was entitled to a refund of that amount.

It also rejected the club's contention that the State's retention of the amount amounted to unjust enrichment, observing that the doctrine applies to the taxpayer seeking restitution and not to the State.

The Bench therefore set aside the CESTAT's order and directed the authorities to refund Rs.6.41 lakh to The Madras Club, along with applicable interest under the Central Excise Act, within eight weeks.

Accordingly, the High Court partly allowed the appeal.

For Appellant: Mr. R.Anishkumar, Advocate 

For Respondent: Mr.Sai Srujan Tayi, Standing Counsel