CESTAT Allows Service Tax Refund To Developer Of Residential Flats On Cancellation Of Booking

The Delhi Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has allowed the service tax refund to the developer of residential flats on cancellation of the booking.

The bench of Anil Choudhary (Judicial Member) has observed that the appellant was entitled to a refund in view of the Cenvat credit no longer being available, and in spite of being entitled to the same under Rule 6(3) of the Service Tax Rules, the appellant is entitled to a refund of the amount under Section 142(3) of the CGST Act. The appellant has refunded the booking amount, including service tax, and has thus satisfied the bar of unjust enrichment.

The appellant is in the business of constructing residential complexes, among others, and is registered with the service tax department. The appellant had entered into an "Agreement of Sale" of flats during the service tax regime prior to June 30, 2017, and had received advance payment from the proposed buyers for flats in their project, namely "Pinnacle."

The project was delayed, and seven apartment bookings were canceled on December 30, 2019, prior to receiving an occupancy certificate for the year 2021. The flats booked earlier, on November 15, 2016, were canceled under a "cancellation agreement" between the parties.

On cancellation, the appellant issued a credit note to the buyer of the flat and also adjusted the amount of the credit note in the ledger account of the buyer. Pursuant to the adjustment, the amount of the deposit, along with the service tax received from the buyer of the flat, was refunded with respect to all seven flats.

The appellant contended that some of the invoices that were raised after June 30, 2017, during the GST regime have been reversed, and they have taken input tax credits for the tax paid during the GST regime, for which no objection has been raised by revenue. So far, pursuant to the raising of an invoice prior to June 30, 2017, the appellant has demonstrated that service tax was shown as a tax liability in the return for the period April through June 2017 and that such tax was properly paid, as reflected in the return. Further, Rule 6(3) of the Service Tax Rules provides that if a service provider has issued an invoice and/or received any payment against any service that is not provided, whatever the reason may be, then the service provider can take credit for any excess service tax paid by him.

However, due to the change of regime from service tax to GST, in the event of cancellation of the proposed service in September 2019, the appellant could not take credit for service tax. Accordingly, in view of the transitional provisions under Section 142 of their CGST Act, the appellant applied for a refund of the service tax paid on the cancellation (booked prior to June 30, 2017).

The refund claim, which was filed on September 30, 2020, was denied due to limitation and unjust enrichment.

The appellant took the matter to the Commissioner (Appeals), who determined that because the refund claim was filed on September 30, 2020, but the demand letter or invoice issued by the appellant to the buyer was dated June 25, 2017, the refund was time-barred. He agreed with the adjudicating authority, holding that the unjust enrichment bar raised by the appellant had also not been satisfied. The bar of unjust enrichment is raised because they raised the invoice on the buyer of the flat, and the legal presumption under Section 12B of the Central Excise Act is that the tax charged in the invoice is deemed to have been passed on to the buyer.

The appellant contended that the appellant had refunded the amount received from the buyer of the flat pursuant to the cancellation, along with the amount of service tax. The amount of service tax remained as a deposit with the department, and accordingly, there was no time limit, as such an amount became refundable pursuant to the cancellation of the booking.

The appellant relied on the CBIC Circular dated February 10, 2012, which clarified that the developer/builder is entitled to service tax credit on cancellation of bookings, wherein the builder has refunded the amount of the booking, including service tax, to the buyer of the flat.

The tribunal held that the appellant was entitled to a refund of the amount of Rs. 12,74,883. The Adjudicating Authority was directed to grant the refund of the amount along with interest as per rules within 45 days.

Case Title: M/s Ratnawat Infra Construction Company Versus Commissioner, Central Excise & CGST-Jaipur I

Citation: Service Tax Appeal No. 51654 of 2022

Date: 06.02.2023

Counsel For Appellant: Advocate Mohit Gohlyan

Counsel For Respondent: Authorised Representative Gopi Raman

Click Here To Read The Order