Refund of pre-GST service tax on cancelled flat bookings upheld u/ss 142(5) and 174 CGST Act

CESTAT (Mumbai) held that it has jurisdiction under Section 142 of the CGST Act, 2017 to adjudicate refund claims of service tax paid under the erstwhile regime. In the present construction service matter, service tax had been paid on amounts received from flat buyers prior to completion, but bookings were subsequently cancelled and consideration refunded. CESTAT held that upon cancellation and refund, the service contract stood terminated, no taxable service was provided, and the right to refund of excess tax had accrued and is protected by Section 174 and Section 142(5) of the CGST Act. The assessee's refund claims were allowed.

---

---

1. ISSUES PRESENTED AND CONSIDERED

a) Whether the Tribunal has jurisdiction to entertain appeals against orders rejecting refund claims of service tax paid under the erstwhile regime but processed under section 142 of the CGST Act, 2017.

b) Whether limitation prescribed under section 11B of the Central Excise Act, 1944 can be applied to reject refund claims filed under section 142(5) of the CGST Act, 2017.

c) Whether, upon cancellation of bookings for residential apartments and refund of consideration including service tax to buyers, any taxable service remains so as to justify retention of the tax by the Department.

d) Whether the absence of an explicit provision in the GST law for refund of service tax bars refund of tax paid under the erstwhile service tax law, where the right to refund has accrued prior to GST and is saved by the transitional and saving provisions.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a): Tribunal's jurisdiction over appeals against orders under section 142 of the CGST Act

Legal framework discussed

(i) Section 142(3), 142(5) and 142(6)(b) of the CGST Act, 2017 (transitional provisions relating to refund and appellate proceedings).

(ii) Section 174(2)(f) of the CGST Act, 2017 (saving of pending and future proceedings under repealed/amended Acts).

(iii) Chapter V of the Finance Act, 1994 and the Central Excise Act, 1944 as "existing law".

Interpretation and reasoning

(i) The Court relied on a Larger Bench decision which examined whether an appeal lies to this Tribunal against an order passed under section 142 of the CGST Act.

(ii) Under section 142(3), refund claims after 01.07.2017 for amounts relatable to the erstwhile regime are to be disposed of "in accordance with the provisions of the existing law", i.e. Chapter V of the Finance Act, 1994 and the Central Excise Act, 1944, including their appellate provisions.

(iii) Section 142(6)(b) explicitly mandates that every proceeding of appeal, review or reference relating to recovery of CENVAT credit initiated before, on or after the appointed day shall be disposed of in accordance with the provisions of the existing law.

(iv) Section 174(2)(f) saves any proceeding, including appeals, instituted before, on or after the appointed day under the amended or repealed Acts, and directs that they be continued as if the CGST Act had not come into force.

(v) It was noted that an appeal under the CGST Appellate Tribunal provisions lies only against orders passed under sections 107 or 108 of the CGST Act; hence, no appeal lies to the CGST Appellate Tribunal against orders under section 142.

(vi) The legislative intent could not be to deprive either the assessee or the Revenue of the right of appeal in respect of such transitional refund matters.

Conclusions

(i) An appeal against an order passed under section 142 of the CGST Act, 2017 lies to the Customs, Excise and Service Tax Appellate Tribunal.

(ii) The Tribunal, therefore, has jurisdiction to adjudicate the present appeals concerning refund claims filed under section 11B of the Central Excise Act, 1944 read with section 142(5) of the CGST Act, 2017.

Issue (b): Applicability of limitation under section 11B to refund claims under section 142(5) of the CGST Act

Legal framework discussed

(i) Section 11B of the Central Excise Act, 1944 (general limitation for refund claims).

(ii) Section 142(5) of the CGST Act, 2017 (transitional refund of tax paid under the existing law).

Interpretation and reasoning

(i) The Court recognised that, generally, two conditions are essential for any refund: (a) filing within limitation, and (b) non-passing of the incidence of duty.

(ii) However, for the present matters, the Court noted that the question of limitation has already been considered by the Tribunal in other decisions, where it was held that the time limit in section 11B cannot be invoked to reject refund claims filed under section 142(5) of the CGST Act.

(iii) The Court followed those precedents and treated the limitation objection as not sustainable in the context of refund claims covered by section 142(5).

Conclusions

(i) The time limit under section 11B of the Central Excise Act, 1944 is not a valid ground to reject refund claims filed under section 142(5) of the CGST Act, 2017.

(ii) The refund claims in issue cannot be denied on the ground of limitation.

Issue (c): Existence of taxable service and entitlement to refund of service tax upon cancellation of bookings

Legal framework discussed

(i) Section 67 of the Finance Act, 1994 (valuation of taxable services - tax on "gross amount charged").

(ii) Section 66E(b) of the Finance Act, 1994 (declared service relating to construction of complex, etc., reference made as "Rule 66E(b)").

(iii) Rule 6(3) of the Service Tax Rules, 1994 (mechanism for adjustment/credit of excess service tax where service is not provided wholly or partially).

(iv) Article 265 of the Constitution of India ("No tax shall be levied or collected except by authority of law").

Interpretation and reasoning

(i) The Court noted that the appellant, a provider of construction of residential complex service, had collected booking amounts from allottees, paid service tax thereon, and subsequently, upon cancellation of bookings, refunded the entire consideration including the service tax to the allottees.

(ii) It was observed that, under Rule 6(3) of the Service Tax Rules, an assessee is entitled to avail CENVAT credit/adjustment of excess service tax paid when the taxable service is not provided for any reason.

(iii) In the present case, due to cancellation of bookings, the appellant could not and did not provide the intended construction service to the concerned allottees; this factual position was not disputed.

(iv) The Court accepted the appellant's contention that such cancellation of agreements is to be treated as "non-provision of service" within the meaning of Rule 6(3), giving rise to a right to credit/refund of the excess tax paid.

(v) It was further noted that, post-GST, there is no mechanism to claim this specific credit/adjustment in GST returns; hence, the only effective remedy was to seek refund of the service tax so paid and later neutralised by refund to customers.

(vi) Referring to section 67 of the Finance Act, 1994, the Court reasoned that service tax is leviable only on the "gross amount charged" by the service provider. Where the amount initially collected is subsequently refunded, there is, in effect, no amount "charged" and consequently no tax leviable.

(vii) The Court emphasised that the foundational requirement for imposition of service tax is the existence of "service". If no service is provided, there can be no levy of service tax.

(viii) In the factual situation where the buyer booked a flat, paid consideration, the appellant paid service tax after collecting it, and later, on cancellation, returned the entire booking amount together with service tax, the Court held that this sequence is equivalent to there having been no booking and no service at all.

(ix) Once the booking is cancelled and consideration for the service is returned, the service contract stands terminated and "no service is provided"; hence, any amount earlier paid as service tax no longer has authority to be retained as tax.

(x) The Court held that in such circumstances, the amount with the Department is merely a "deposit". Retention of this amount as tax, in the absence of an underlying taxable service, violates Article 265 of the Constitution because the levy and collection are not backed by authority of law.

(xi) On this reasoning, the Court rejected the view of the lower authorities that mere cancellation of booking does not mean absence of service; instead, it held that where booking is cancelled and money is returned, there is no service at all and, therefore, no tax can be lawfully retained.

Conclusions

(i) On cancellation of flat bookings and refund of the entire consideration including service tax to the allottees, no taxable service remains in existence.

(ii) The service tax originally paid in respect of such bookings lacks authority of law upon cancellation and refund, and the amount stands converted into a mere deposit with the Department.

(iii) The Department has no legal authority to retain such amount as tax; the appellant is entitled to credit/refund of the excess service tax paid under Rule 6(3) of the Service Tax Rules, 1994.

(iv) The appellant is therefore entitled to refund of the service tax amounts claimed in respect of the cancelled bookings.

Issue (d): Effect of absence of express GST provision for refund of erstwhile service tax; saving of accrued rights

Legal framework discussed

(i) Section 142(5) of the CGST Act, 2017 (refund of tax paid under existing law, to be disposed of in accordance with existing law and paid in cash if admissible).

(ii) Section 174 of the CGST Act, 2017, particularly the saving of rights and liabilities accrued under repealed/amended laws.

Interpretation and reasoning

(i) It was contended before the authorities that there is no provision under the GST laws for refund of the service tax deposited by the appellant, and hence refund could not be granted.

(ii) The Court held that the right to credit/refund of excess service tax on non-provision of service had already accrued to the appellant under the erstwhile regime, particularly by virtue of Rule 6(3) of the Service Tax Rules, 1994.

(iii) Section 174 of the CGST Act, 2017 protects such accrued rights notwithstanding repeal or amendment of prior laws; thus, such vested right must be upheld and enforced.

(iv) Section 142(5) of the CGST Act, 2017 specifically contemplates refund of amounts of tax paid under the existing law and provides the mechanism to process such refund claims in accordance with that law, even after the introduction of GST.

(v) The combined effect of sections 142 and 174 is that neither repeal of prior law nor absence of a specific substantive refund provision in GST can defeat an accrued right to refund of taxes lawfully refundable under the earlier regime.

Conclusions

(i) The absence of an explicit substantive refund provision in the GST enactment does not bar refund of service tax that became refundable under the erstwhile law and is protected as an accrued right under section 174 of the CGST Act, 2017.

(ii) Section 142(5) of the CGST Act, 2017 provides the operative framework for grant of such refunds; the appellant's right to refund of excess service tax paid on cancelled bookings is thus preserved and enforceable.

(iii) The impugned orders rejecting refund on the premise of lack of GST provision are unsustainable; the appellant is entitled to refund with consequential relief, in accordance with law.

---