Tax Refund Cannot Be Denied As Time-Barred Where Service Was Not Provided: CESTAT New Delhi
The New Delhi Bench of the Customs, Excise and Service Tax Appellate Tribunal on 20 March held that refund of service tax paid on services which were ultimately not provided cannot be rejected on the ground of limitation under Section 11B of the Central Excise Act, 1944.
A Division Bench comprising Judicial Member Binu Tamta and Technical Member Hemambika R. Priya was hearing appeals filed by Indiabulls Distribution Services Ltd against rejection of refund claims on the ground of time bar.
The Bench observed:
“Once the booking has been cancelled and the amount has been refunded, there is no scope for rendering any service on which the Department can hold the amount towards service tax.”
Indiabulls, engaged in real estate brokerage services, had paid service tax on amounts received from customers. In several cases, the bookings were cancelled and the consideration along with tax was returned. The company then filed refund claims amounting to Rs. 6.70 crore.
The Department rejected the claims, holding them to be time-barred under Section 11B, as they were filed beyond one year from the date of payment of tax.
The Tribunal noted that where no service is ultimately provided and the amount along with tax is returned, the payment assumes the character of a mere “deposit” and not tax. Relying on earlier decisions, the Bench held that in such cases, refund cannot be denied on the ground of limitation. The relevant date would be the date of issuance of credit notes or cancellation, not the date of tax payment, and the Department cannot retain service tax when no service exists.
The Tribunal further observed that once the booking is cancelled and the entire amount is refunded, it is as if no service was ever provided, and therefore levy of service tax itself fails.
Accordingly, the Tribunal allowed the appeals and remanded the matter to the Adjudicating Authority to examine the aspect of unjust enrichment under Section 11B(2) of the Act.
For Appellant: Shri Sudhir Malhotra, Advocate
For Respondent: Shri Rajeev Kapoor, Authorised Representative