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Collected Service Tax To Be Refunded By The Tax Dept. When Flat Booking Is Cancelled

Cause Title : Credence Property Developers Pvt. Ltd. vs Commissioner of CGST & Central Excise, Mumbai East, Service Tax Appeal No. 85780 of 2020, CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL MUMBAI

Date of Judgment/Order : 05.01.2023

Corum : Hon’ble Mr. Ajay Sharma, Member (Judicial)

Citied: 

Background

The Appellant is a builder providing Construction of Residential Complex Service. Two flats in Project Central Park which were booked through/from them by a buyer, but were later cancelled by the said buyer. Upon cancellation, the appellant refunded advance amount paid by the buyer along with Service Tax amount collected by them. The Appellant subsequently filed two refund claims under Section 11B of the Central Excise Act read with Section 83, Finance Act, 1994 amounting to Rs.1,09,367/- and Rs.55,123/- respectively seeking refund of Service Tax paid but Adjudicating Authority rejected the refund claim on the ground that the question of refund of service tax does not arise as the appellant has not paid any excess service tax but has paid only that much which they were liable to pay for consideration received by them on the invoice issued and in such a situation there is no provision for refund of service tax. Appeal filed by the appellant was also dismissed. Hence this appeal.

The Appellant argued that the issue regarding the cancellation of flat is considered as non provision of service as specified by Rule 6(3) of Service Tax Rules, 1994. Further in post-GST regime there is no mechanism available to claim such credits in GST returns and therefore the only remedy available with them is to claim refund of such service tax paid in excess and in the absence of any service the Appellant cannot be burdened with any Service Tax.

The Revenue Dept. reiterated the findings recorded in the impugned order and prayed for dismissal of Appeal.

Judgment

The Tribunal held that the first principle of service tax is that tax is to be paid on those services only which are taxable under the said statute. But for that purpose there has to have some ‘service’. Unless service is there no service tax can be imposed. 

As per Rule 66E(b), Service Tax Rules, 1994 in construction service, service tax is required to be paid on amount received from buyers towards booking of flat before the issuance of completion certificate by the competent authority and the booking can be cancelled by the buyer any time before taking possession of the flat. Once the buyer cancelled the booking and the consideration for service was returned, the service contract got terminated and once it is established the no service is provided, then refund of tax for such service become admissible.

The cancellation of booking coupled with the fact of refunding the booking amount along with service tax paid would mean as if no booking was made and if that is so, then there was no service at all. If there is no service then question of paying any tax on it does not arise and the department can’t keep it with them. When no service has been provided then the assessee cannot be saddled with any such tax and in that case the amount deposited by the assessee with the exchequer will be considered as merely a ‘deposit’ and keeping of the said amount by the department is violative of Article 265 of the Constitution of India which specifically provides that “No tax shall be levied or collected except by authority of law.”

The authorities below are not correct in their view that mere cancellation of booking of flats does not mean that there was no service. If the booking is cancelled and the money is returned to that buyer then where is the question of any service? Once it has been held that there is no service then by any stretch ‘Point of Taxation Rules, 2011’ can’t be roped in as for the applicability of the said Rules firstly providing of any ‘service’ by the Appellant has to be established. Therefore, the authorities below were not justified in invoking the Provisions of Point of Taxation Rules, 2011 for denying the refund.

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