Refund of service tax on cancelled bookings treated as deposit, with limitation not defeating claim and unjust enrichment remanded

Where service tax was paid on advances for proposed construction services but the bookings were later cancelled and credit notes issued, the refund claim was not barred merely because it was filed beyond one year under section 11B; the relevant date was taken as the date of cancellation and credit notes. Once the underlying agreements were cancelled and the customers were refunded, no taxable service survived, so the earlier remittance was treated as a refundable deposit rather than service tax. The matter was, however, remanded for limited verification of unjust enrichment under the transitional refund framework, with the appellant to produce supporting documents.

---

---

Issues: (i) Whether the refund claim of service tax paid on bookings cancelled and covered by credit notes was barred by limitation under section 11B of the Central Excise Act, 1944. (ii) Whether the amount collected earlier, after cancellation of the underlying agreements and refund to customers, retained the character of tax or was only a refundable deposit. (iii) Whether the matter required remand for examination of unjust enrichment under the transitional refund provisions.

Issue (i): Whether the refund claim of service tax paid on bookings cancelled and covered by credit notes was barred by limitation under section 11B of the Central Excise Act, 1944.

Analysis: The claim arose from service tax collected on advances for proposed construction services, later returned when the bookings were cancelled. The legal position applied in prior decisions was that where no service was ultimately rendered and the amount was returned through credit notes, the claim is governed by the transitional refund framework and not defeated merely because the application was filed beyond one year under section 11B. The relevant date was treated as the date of issuance of the credit notes after cancellation, not the original date of payment of tax.

Conclusion: The refund claim was not liable to be rejected as time-barred.

Issue (ii): Whether the amount collected earlier, after cancellation of the underlying agreements and refund to customers, retained the character of tax or was only a refundable deposit.

Analysis: Once the bookings were cancelled and the entire consideration was refunded, no taxable service survived. In that situation, the amount earlier remitted to the exchequer was treated as a deposit rather than tax, because taxation presupposes an actual taxable service. The refusal to retain such amount was supported by the principle that tax cannot be collected without authority of law and by the rule permitting credit when the service is not provided and the amount is returned or credit notes are issued.

Conclusion: The amount was held to be refundable and not retainable as service tax.

Issue (iii): Whether the matter required remand for examination of unjust enrichment under the transitional refund provisions.

Analysis: Although limitation was not a valid ground to deny the refund, the record still required scrutiny on whether the incidence of tax had been passed on. That factual inquiry remained necessary under the transitional refund provision governing such claims, and the appellant was to be given an opportunity to place the requisite documents on record.

Conclusion: The matter was remanded for limited consideration of unjust enrichment.

Final Conclusion: The refund claim succeeded on the question of limitation and the nature of the amount, but the matter was sent back for verification of unjust enrichment before final grant of relief.

Ratio Decidendi: Where service tax was paid on an advance for a proposed service that was never rendered and the consideration was refunded on cancellation, the amount is to be treated as a refundable deposit and the refund cannot be rejected merely on the basis of limitation under section 11B.

---