Pranav B Prem

The Chennai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that refund claims filed under Section 142(5) of the Central Goods and Services Tax Act, 2017 (CGST Act) are subject to the limitation prescribed under Section 11B of the Central Excise Act, 1944, and that the non-obstante clause in Section 142(5) cannot override such limitation. The Bench comprising Ajayan T.V. (Judicial Member) and M. Ajit Kumar (Technical Member) dismissed the appeal filed by Mahindra Holidays and Resorts India Ltd. (MHRIL), upholding the view that refund claims filed beyond one year from the date of payment of service tax are barred by limitation, notwithstanding the transitional provision contained in Section 142(5) of the CGST Act.

Background

The appellant, Mahindra Holidays and Resorts India Ltd., operates resorts across India and provides holiday and leisure services to its members under the “Club Mahindra Holidays” brand. The company collects a one-time membership fee (time-share fee) and annual subscription fees (ASF) from its members. Service tax was paid by the appellant on these collections on an accrual basis, i.e., as and when the invoices were raised. However, where members defaulted on payments for two or more years, MHRIL cancelled their membership contracts as per the subscription agreement.

The company claimed that it was entitled to refund of service tax paid on such cancelled contracts and invoices, as the services were never rendered. Accordingly, it filed refund claims under Section 11B(2) of the Central Excise Act, 1944, read with Section 142(5) of the CGST Act, 2017. However, the department rejected the refund claims on the ground that they were filed beyond the one-year limitation prescribed under Section 11B. The Commissioner (Appeals) upheld the rejection, following which MHRIL preferred an appeal before the Tribunal.

Appellant’s Submissions

The appellant contended that Section 142(5) of the CGST Act begins with a non-obstante clause, which overrides all contrary provisions of the earlier laws. Therefore, it was argued that the time limit prescribed under Section 11B does not apply to refund claims filed under the transitional provisions of the CGST Act. It was further submitted that Section 142(5) was intended to provide a smooth transition from the service tax regime to GST, and that the Legislature never intended to bar refund claims merely on account of delay.

The appellant argued that the tax paid on unrendered services was not in the nature of “duty” but a deposit, and hence the limitation prescribed under Section 11B was inapplicable. It also contended that there was no element of unjust enrichment, as the burden of tax had not been passed on to customers.

Revenue’s Arguments

The Revenue argued that Section 142(5) of the CGST Act expressly provides that refund claims relating to the erstwhile regime “shall be disposed of in accordance with the provisions of the existing law.” Therefore, all procedural requirements, including limitation under Section 11B of the Central Excise Act, continue to apply to refund claims pertaining to service tax. The Department emphasized that the reference to Section 11B(2) within Section 142(5) was intended to ensure that the principle of unjust enrichment was not overlooked, especially when the refund was being claimed in cash from the credit ledger—a facility not permissible under the pre-GST regime.

Findings of the Tribunal

The Tribunal noted that the issue turned on the interpretation of Section 142(5) of the CGST Act, which contains a non-obstante clause stating: “Notwithstanding anything to the contrary contained in any law… every claim for refund filed after the appointed day for refund of any amount of CENVAT credit, duty, tax or interest paid under the existing law shall be disposed of in accordance with the provisions of the existing law...”

The Bench observed that although the provision includes the words “notwithstanding anything to the contrary,” the clause is located in the middle of the section and not at the beginning. Therefore, it must be given a restricted meaning, limited to the context of the transitional provision rather than interpreted as an absolute override of other laws. “Section 142(5) does not refer to overriding any particular provision. Hence, the non obstante clause has to be given a restricted meaning, limited to the context in which it is used,” the Tribunal observed.

It further held that Section 11B of the Central Excise Act remains applicable to all refund claims filed under the earlier tax laws. The phrase “shall be disposed of in accordance with the provisions of the existing law” clearly mandates adherence to the procedural requirements, including the time limit for filing such claims. The Bench also relied on several precedents emphasizing that non obstante clauses cannot be mechanically construed to repeal or supersede other provisions unless there is a clear inconsistency between the two. “There should be a clear inconsistency between the two provisions before giving overriding effect to one over the other. There is no automatic repeal or complete supersession of all other provisions merely because of a non obstante clause,” the Tribunal stated.

Holding that the refund applications filed by Mahindra Holidays were barred by limitation, the Tribunal rejected the appeal and confirmed the order of the lower authorities. “The appellant’s contention that their refund claim under Section 142(5) of the CGST Act cannot be rejected as time-barred is untenable. The time limit prescribed under Section 11B of the Central Excise Act continues to govern refund claims filed under the transitional provisions,” the Bench concluded. Accordingly, the appeal was dismissed.

Appearance

Counsel for Appellant/ Assessee: Harish Bindumadhavan and Vijayalakshmi R

Counsel for Respondent/ Department: Sanjay Kakkar

Cause Title: Mahindra Holidays and Resorts India Ltd. v. Commissioner of GST & Central Excise

Case No: Service Tax Appeal Nos. 40011 to 40014 of 2021

Coram: Ajayan T.V. (Judicial Member), M. Ajit Kumar (Technical Member)