Once The Flat Buyer Cancels The Booking Builder Not Liable To Pay Service Tax: CESTAT

The Mumbai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that once the buyer cancelled the booking and the consideration for service was returned, the service contract got terminated, and once it is established that no service is provided, then refund of tax for such service becomes admissible.

The bench of Ajay Sharma (a judicial member) has observed that the department was not correct in holding that the mere cancellation of bookings for flats does not mean that there was no service. If the booking is cancelled and the money is returned to the buyer, then where is the question of any service?

The assessee or appellant is in the business of providing residential complex construction services. They had filed two refund claims seeking a refund of service tax paid in respect of two flats in Project Central Park that were booked by a buyer, M/s. Symbio Generics, but were later cancelled by the buyer. Upon cancellation, the appellant refunded the advance amount paid by the buyer along with the service tax amount collected by them.

The appellant had filed a refund claim for the cancelled booking, upon which the department issued a deficiency memo. The adjudicating authority rejected the refund claim on the ground that the question of a refund of service tax does not arise as the appellant has not paid any excess service tax but has paid only that much which they were liable to pay for consideration received by them on the invoice issued, and there is no provision for a refund of service tax.

The appellant contended that in the absence of any service, the appellant cannot be burdened with any service tax.

As per Rule 66E(b), Service Tax Rules, 1994, in construction services, service tax is required to be paid on the amount received from buyers towards the booking of a flat before the issuance of a completion certificate by the competent authority, and the booking can be cancelled by the buyer at any time before taking possession of the flat.

The tribunal held that if there is no service, then by any stretch, the "Point of Taxation Rules, 2011" cannot be roped in, as for the applicability of the said rules, firstly, the provision of any "service" by the Appellant has to be established. Therefore, the authorities below were not justified in invoking the Provisions of Point of Taxation Rules, 2011, for denying the refund.

Case Title: Credence Property Developers Pvt. Ltd. Versus Commissioner of CGST & Central Excise

Citation: Service Tax Appeal No. 85780 of 2020

Date: 05.01.2023

Counsel For Appellant: Chartered Accountant Anand Desai

Counsel For Respondent: Superintendent (AR) S B P Sinha

Click Here To Read The Order