Tribunal rules against service tax payment on residential flats, refunds granted

The Tribunal held that Section 11B of the Central Excise Act, 1944 was not applicable in the case where the appellants had paid service tax erroneously. The appellants, as ultimate owners of residential flats, were not liable to pay service tax as per Circular No. 108/2/2009-S.T. dated 29-1-2009. Therefore, the impugned orders rejecting the refund claims were set aside, and the appeals were allowed with any consequential relief deemed necessary.

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Issues:
Refund claim rejection based on Section 11B of the Central Excise Act, 1944.

Analysis:
The appellants contested the rejection of their refund claims by the learned Commissioner (Appeals) on the grounds of Section 11B of the Central Excise Act, 1944. The case involved the sale of residential flats to the appellants by a builder who had paid service tax on the flats. The appellants, as ultimate owners, were not liable to pay service tax as per Circular No. 108/2/2009-S.T. dated 29-1-2009. Despite this, they filed a refund claim which was initially sanctioned by the adjudicating authority but later rejected on appeal by the Revenue. The appellants argued that since they were not required to pay service tax, Section 11B should not apply to them, citing the decision of the Hon'ble High Court of Karnataka in the case of CCE v. KVR Construction - 2012 (26) S.T.R. 195 (Kar.).

The learned Advocate for the appellants relied on the KVR Construction case to support their contention that the provisions of Section 11B should not be applicable to them since they were not liable to pay service tax. On the other hand, the learned A.R. representing the Revenue reiterated the findings of the impugned order rejecting the refund claim. After hearing both sides and considering the submissions, it was observed that the appellants had paid the service tax erroneously, which was not disputed by the department. The Circular 108/2/2009-S.T. dated 29-1-2009 stated that the department was not legally allowed to calculate service tax in such cases, and any such calculation would be unconstitutional. Merely making an erroneous payment did not authorize the department to retain the amount. Therefore, it was held that the provisions of Section 11B of the Central Excise Act, 1944 were not applicable in this scenario, in line with the precedent set by the Hon'ble High Court of Karnataka in the KVR Construction case.

In conclusion, the Tribunal held that Section 11B of the Central Excise Act, 1944 was not applicable in this matter. Consequently, the impugned orders rejecting the refund claims were set aside, and the appeals were allowed with any consequential relief deemed necessary.

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