CESTAT Allows Refund Of Service Tax Paid On Cancelled Bookings Of Flats

The Mumbai Bench of Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has allowed the refund of service tax paid on cancelled bookings of flats.

The bench of P.K. Choudhary (Judicial Member) has observed that, as per Rule 66E(b)(sic) of the Service Tax Rules, 1994, in construction services, service tax is required to be paid on the amount received from buyers towards booking of flats 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. Once the buyer cancels the booking and the consideration for service is returned, the service contract is terminated, and once it is established that no service is provided, a refund of tax for such service becomes admissible. The authorities below are not correct in their view that mere cancellation of bookings of 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 appellant/assessee is in the business of providing construction services for residential complexes. The appellant has received bookings in respect of the apartments being constructed by it. The appellant had accordingly collected the booking amount and discharged the applicable service tax in respect of the booking amount so collected. Subsequently, due to various reasons, 29 allottees decided to cancel their respective bookings with the appellant. The appellant refunded the advance amount or booking amount so paid by such allottees, along with the service tax amount collected and deposited by the appellant with the department.

The appellant was issued a deficiency memo and a show cause notice proposing rejection of refund claims on various grounds, such as the absence of documents, substantiating the proof of payment of tax, a copy of the agreement entered into with the customers, details of the booking and subsequent cancellation by the customers, and proof of remittance of service tax to the customers. Subsequently, by a consolidated adjudication order, the refund claims were rejected.

The appellant filed appeals before the learned commissioner (Appeals), which came to be rejected. Hence, the appeals before the Tribunal.

The appellant contended that Section 67 of the Finance Act, which governs the valuation of taxable services for charging or levying tax, emphasizes that only the gross amount 'charged' by the service provider shall be liable to service tax. Therefore, where the amount has been refunded back to the customers, it can be construed that no amount is charged by the service provider, and no tax is levied on the same. The statutory provision itself does not accommodate any service tax payment on any amount that is effectively not collected by the service provider.

The tribunal found that the credit or refund of the excess service tax paid by the appellant was a right that had accrued in favor of the appellant, and therefore, as per Section 174 of the CGST Act, 2017, such a right of the appellant ought to be upheld and protected. Section 142(5) of the CGST Act, 2017 contemplates the very situation as in the present appeals and accordingly provides for a refund of taxes paid under the erstwhile laws.

Counsel For Appellant: Mayur Jain

Counsel For Respondent: S.B.P. Sinha

Case Title: Kanakia Spaces Reality Pvt. Ltd. Versus Commissioner Of Cgst & Central Excise, Mumbai

Case No.: Service Tax Appeal No. 85860 Of 2020

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