CESTAT Allows Service Tax Refund On Advance Amount Returned To The Buyer, Upon The Cancellation Of The Flats Booking

The Mumbai Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has allowed service tax refunds on advance amounts returned to the buyer upon cancellation of the flat booking.

The bench of Ajay Sharma (a judicial member) has observed 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 a refund of tax for such a service becomes admissible.

The issue raised was in respect of the refund of service tax on the advance amount returned or refunded to the buyer upon the cancellation of the flats booked by the buyer.

The assessee/appellant is engaged in providing construction services for residential complexes. They constructed a residential complex, Wind Shire, at Nandoshi Village, Pune. Two customers had booked their respective flats in the project, entered into a duly registered sale agreement, and paid the part payment along with service tax. The service tax paid was deposited by the appellant with the exchequer. Later on, due to some reasons, both bookings were cancelled by the customers, and the entire payment made by them was refunded to them by the appellant.

The customers asked for a refund of the service tax amount, and the customers were not registered with the Service Tax Authorities.

The department issued two show cause notices proposing to reject the refund claim as time-barred in view of Section 11B of the Central Excise Act, 1944. The adjudicating authority rejected both refund claims. On appeal filed by the appellant, the Commissioner (Appeals) upheld the adjudication order and rejected the appeal.

The tribunal has held that the first principle of service tax is that tax is to be paid only on the services that are taxable under the said statute, and for that purpose, there has to be some ‘service’. Unless service is provided, no service tax can be imposed.

The CESTAT stated that when no service has been provided and the booking has been cancelled, how can the tax on it be retained by the exchequer and in what capacity? This amount has been paid by the customers, and when they cancel the booking, they want to get a refund of their entire amount, including the amount of service tax they paid separately, which they are entitled to.

The tribunal held that the appellant cannot be said to be liable to pay service tax as no service has been provided and the amount paid by them would not have the character of tax. The provisions of Section 11B would, therefore, not be applicable to applications, and the question of applying the limitation prescribed under Section 11B would not arise.

Case Title: Guardian Landmarks LLP Versus Commissioner of Central Excise & Service Tax

Case No.: Service Tax Appeal No. 88084 of 2019

Date: 06.06.2023

Counsel For Appellant: Viraj Reshamwala

Counsel For Respondent: S.B. P. Sinha

Click Here To Read The Order