Transitional insurance-tax refunds remain available for cancelled policies where services were not provided and tax was returned to insured persons

Transitional refunds under Section 142(5) of the Central Goods and Services Tax Act, 2017 cover service tax paid under the earlier regime where insurance policies were cancelled and services were not provided. The text explains that the one-year limitation under Section 11B of the Central Excise Act, 1944 should not bar such claims when the statutory conditions for refund are satisfied. It further states that unjust enrichment is avoided where premium and tax received through financiers or agents are returned through the same channel and ultimately credited to the insured. On that reasoning, cash refund is described as legally admissible where the tax incidence is not retained by the assessee.

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Issues: (i) Whether refund claims filed after introduction of GST for service tax paid under the earlier regime in respect of cancelled insurance policies and services not provided were barred by limitation under Section 11B of the Central Excise Act, 1944 when made under Section 142(5) of the Central Goods and Services Tax Act, 2017; (ii) Whether such refund claims were hit by the principle of unjust enrichment where premium and tax had been received through financiers or agents and, on cancellation, the corresponding amounts were returned through the same channel.

Issue (i): Whether refund claims filed after introduction of GST for service tax paid under the earlier regime in respect of cancelled insurance policies and services not provided were barred by limitation under Section 11B of the Central Excise Act, 1944 when made under Section 142(5) of the Central Goods and Services Tax Act, 2017.

Analysis: Section 142(5) of the Central Goods and Services Tax Act, 2017 governs post-GST claims for refund of tax paid under the existing law in respect of services not provided, while Rule 6(3) of the Service Tax Rules, 1994 recognizes adjustment or credit where consideration for a service not provided is returned. The statutory scheme was read to mean that where no service was ultimately rendered because the insurance policy stood cancelled and the premium with tax component was returned, the claim is to be processed under the existing law only to the extent contemplated by Section 11B(2) of the Central Excise Act, 1944. The one-year limitation in Section 11B was not treated as a bar to such transitional refund claims concerning services not provided.

Conclusion: The refund claims were not barred by limitation; this issue was decided in favour of the assessee.

Issue (ii): Whether such refund claims were hit by the principle of unjust enrichment where premium and tax had been received through financiers or agents and, on cancellation, the corresponding amounts were returned through the same channel.

Analysis: Rule 6(3) of the Service Tax Rules, 1994 requires return of the amount to the person from whom it was received and does not mandate compliance with Section 64VB of the Insurance Act, 1938 as a separate condition for refund eligibility. The material on record showed that the premium had been received through financiers or agents, the cancellation amount along with the tax component had been remitted back to them, and the amount ultimately reached the insured by credit in the insured's account. In these circumstances, the incidence of tax had not been retained by the assessee and the bar of unjust enrichment was not attracted.

Conclusion: The refund claims were not hit by unjust enrichment; this issue was decided in favour of the assessee.

Final Conclusion: Transitional refund of service tax paid on cancelled insurance policies was legally admissible in cash where no service was ultimately provided and the tax burden had been passed back through the financing chain to the insured; the departmental challenge failed on both limitation and unjust enrichment, and the remand order was unsustainable.

Ratio Decidendi: A refund claim filed after the appointed day under Section 142(5) of the Central Goods and Services Tax Act, 2017 for tax paid under the earlier service tax regime on services not provided is not rejectable on limitation under Section 11B of the Central Excise Act, 1944, and is not barred by unjust enrichment where the consideration and tax component have been returned to the person from whom received so that the incidence of tax does not remain with the assessee.

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