Works Contract Road Construction Taxable, Refund Barred Under Unjust Enrichment: CESTAT New Delhi

The New Delhi Bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) on 16 April held that a service tax refund cannot be granted where the taxpayer has passed on the tax burden to the recipient, as such claims are barred by the doctrine of unjust enrichment.

The Bench comprising Judicial Member Dr. Rachna Gupta and Technical Member Hemambika R. Priya upheld the denial of refund to Sandeep Builders, noting that the activities undertaken by the company were correctly taxed as “Works Contract Services” under Section 65B(54) of the Finance Act, 1994. It stated:

“Since, the amount quoted by the appellant was inclusive of service tax, hence, the appellant had passed on the component of the service tax amount to the service receiver viz., Rajasthan Housing Board. Once it is evident that the appellant had passed on the burden of tax, the principle of unjust enrichment would come to play. The doctrine of unjust enrichment is a fundamental principle in tax jurisprudence, ensuring that a taxpayer does not unduly benefit from a refund at the expense of the exchequer.”

Sandeep Builders had sought a refund on the ground that construction of roads for public use was not taxable prior to 1 July 2012 and was later exempt under Notification No. 25/2012-ST. It argued that the services fell within the exemption for road construction and that service tax had been wrongly paid.

The Department, however, contended that the contracts were composite in nature involving both goods and services and therefore classifiable as “Works Contract Services”, which were taxable. It also submitted that the appellant failed to furnish complete supporting documents and that the tax had been correctly discharged.

On consideration, the Tribunal observed that the appellant had provided construction as well as development services, and the nature of work showed that development, construction, and interlocking tile work involved both material and services for completion of work in respect of movable or immovable property. The Bench further stated:

“Works Contract Services at applicable rate is charged on the value of services of aforesaid contract and transfer of property in goods is also involved in the execution of the contract. Thus, the said activity is appropriately covered under the definition of “Works Contract” as defined under Section 65B(54) of Finance Act 1994. Consequently, we hold that the appellant has correctly paid services during the period. Consequently, they are not eligible for refund.”

The Tribunal rejected the claim of exemption for road construction, noting that the scope of work went beyond mere road construction and included taxable elements. It held that the appellant had correctly paid service tax during the relevant period. The Bench stated:

“As the appellant has not been able to establish that the incidence has not been passed on to Rajasthan Housing Board, we hold that the impugned order was correct in holding that the refund, even if admissible is hit by unjust enrichment.”

Accordingly, the CESTAT dismissed the appeal, holding that the refund claim was untenable.

For Appellant: Om. Prakash Aggarwal, Consultant

For Respondent: Shashank Yadav, Authorised Representative