CESTAT New Delhi Allows Refund Of Service Tax On Cancelled Project, Rejects Limitation Bar

The New Delhi Bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) on 8 April held that authorities cannot deny refund of service tax paid on advances received for construction services on the ground of limitation, where the project is subsequently cancelled and the amounts are returned to customers.

A Bench comprising Judicial Member Binu Tamta and Technical Member P.V. Subba Rao allowed the appeal filed by Reach Promoters Pvt. Ltd. and remanded the matter, holding that the time limit under Section 11B(1) of the Central Excise Act does not apply in cases where service tax is paid on advances for construction services, the project is later cancelled, and the amounts are refunded. It held:

“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. No law authorises the department to keep it as tax.”

Reach Promoters received advances in 2012 towards construction-related services and paid service tax on those amounts. The company cancelled the project in 2015 before handing over possession and refunded the advances to customers. It then filed a refund claim on 29 June 2016, which the authorities rejected as time-barred under Section 11B(1) of the Central Excise Act.

Before the Tribunal, the taxpayer argued that courts and tribunals consistently allow refunds in identical cases because no taxable service ultimately comes into existence. The Department also conceded that precedent supported the assessee's case.

The Tribunal accepted these submissions and held that cancellation of bookings and refund of consideration means no service ever arises, so the State cannot retain the tax. It further held that limitation does not bar such refund claims.

However, it remanded the matter to the adjudicating authority to verify whether the refund would result in unjust enrichment under Section 11B(2) of the Central Excise Act read with Section 142(5) of the CGST Act.

Accordingly, the appeal was allowed by way of remand.

Appearance for the Appellant: Shri Atul Gupta, Chartered Accountant, Shri Varun Gaba and Ms. Anmol Gupta, Advocates 

Appearance for the Department: Shri Aejaz Ahmad, Authorized Representative