Refund of service tax on cancelled services escapes limitation but remains subject to unjust enrichment verification

Refund of service tax paid on consideration for services later cancelled and not rendered is described as not barred by limitation under Section 11B of the Central Excise Act, 1944. The analysis explains that returned consideration and credit notes indicate no taxable service was ultimately provided, so the tax cannot be retained. Rule 6(3) of the Service Tax Rules, 1994 recognised adjustment of excess tax, while Section 142(5) of the CGST Act, 2017 applied where GST transition prevented ordinary adjustment. Refund remains subject to verification of unjust enrichment under Section 11B(2).

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Issues: Whether refund of service tax paid on amounts received for services that were subsequently not rendered due to cancellation can be rejected as time-barred under Section 11B of the Central Excise Act, 1944, and whether such refund is admissible subject to unjust enrichment under Section 11B(2) read with Section 142(5) of the Central Goods and Services Tax Act, 2017.

Analysis: The Tribunal followed the consistent view taken in earlier decisions on the same controversy that where the underlying service is not rendered and the consideration is returned through cancellation and issuance of credit notes, there is no taxable service and the amount earlier paid as service tax cannot be retained as tax. In such circumstances, Rule 6(3) of the Service Tax Rules, 1994 recognized entitlement to adjustment of excess service tax where invoices were issued or payments received for services not ultimately provided. Since transition to the GST regime prevented availment of such credit in the normal course, the claim had to be dealt with under the existing law read with Section 142(5) of the Central Goods and Services Tax Act, 2017. The bar of limitation under Section 11B was held inapplicable to such refund claims, but the refund remained subject to the test of unjust enrichment under Section 11B(2) of the Central Excise Act, 1944.

Conclusion: Refund could not be denied as time-barred; the assessee was held entitled to consideration of refund, subject only to verification of unjust enrichment, in favour of the assessee.

Ratio Decidendi: Where consideration received for a taxable service is returned because the service is not rendered and credit notes are issued, the amount paid as service tax is not retainable as tax, and refund of such amount cannot be rejected on limitation under Section 11B of the Central Excise Act, 1944, though it remains subject to unjust enrichment under Section 11B(2) read with Section 142(5) of the Central Goods and Services Tax Act, 2017.

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