Pranav B Prem

The Customs, Excise, and Service Tax Appellate Tribunal (CESTAT), New Delhi, has ruled that refund claims of service tax are maintainable when property bookings are cancelled, as no taxable service was actually rendered. The Tribunal emphasized that once a property booking is cancelled and the amount, including service tax, is refunded to the customer, there remains no scope for service tax levy. A division bench comprising Binu Tamta (Judicial Member) and P.V. Subba Rao (Technical Member) delivered the ruling in the case of M/s Wave Megacity Centre Pvt. Ltd. v. Commissioner (Appeals-I), Central Tax, GST & Central Excise, Delhi.

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Background

The appellant, Wave Megacity Centre Pvt. Ltd., engaged in providing construction and related services under a project named Wave City Centre, had collected service tax from customers on booking amounts for commercial and residential units. Later, between September and November 2017, several customers cancelled their bookings, and the appellant refunded the entire booking amounts, including the service tax component, through credit notes. Subsequently, the appellant filed a refund claim of ₹33,79,262, representing service tax paid on cancelled bookings. The adjudicating authority, however, rejected the refund as time-barred under Section 11B of the Central Excise Act, 1944, read with Section 83 of the Finance Act, 1994, citing delayed filing and insufficient documentation. The Commissioner (Appeals) upheld this rejection, leading to the present appeal before the CESTAT.

Assessee’s Arguments

Counsel for the appellant, A.K. Batra and Sakshi Khanna, contended that since no services were rendered after cancellation, the amounts refunded were not taxable consideration and should be treated merely as deposits. They further argued that the limitation period of one year under Section 11B is applicable only to refund of duty, tax, or interest, and not to amounts erroneously deposited. It was submitted that under Rule 6(3) of the Service Tax Rules, 1994, the assessee is entitled to take credit or claim refund of tax paid on services not provided, provided credit notes are issued or payments are refunded to the customers. The appellant relied on earlier CESTAT decisions in Credence Property Developers Pvt. Ltd. and Wave One Pvt. Ltd., where refunds under similar circumstances were allowed despite the limitation clause.

Department’s Stand

The Department argued that the refund was barred by limitation and was not maintainable in light of the Supreme Court’s ruling in ITC Ltd. v. CCE, Kolkata, which held that refund proceedings cannot overturn self-assessment. It was also contended that the appellant had not produced sufficient evidence to show absence of unjust enrichment or that the incidence of tax was not passed on to customers.

Findings and Decision

The Tribunal observed that the core condition for levying service tax is the provision of taxable service, and in the absence of actual service, the question of taxation does not arise. Citing the principle laid down in Credence Property Developers Pvt. Ltd., it reiterated that: “When there is no incidence of service, there cannot be any leviability of service tax. 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.”

The bench held that since the appellant had issued credit notes for cancelled services and refunded the entire booking amounts, the transaction was effectively nullified and could not attract tax liability. Consequently, the service tax collected became a deposit, and retention of such amounts by the Department would violate Article 265 of the Constitution of India, which mandates that no tax shall be levied or collected except by authority of law. The Tribunal also agreed that Rule 6(3) of the Service Tax Rules, 1994 squarely applied, enabling the assessee to claim refund or adjust the excess tax paid when services are not rendered.

On the issue of limitation, the bench followed the view that Section 11B’s one-year limit does not apply to such refunds since they do not pertain to tax or duty but rather to deposits wrongly retained. However, the Tribunal remanded the case to the adjudicating authority to verify compliance with the principle of unjust enrichment and to allow refund if the condition is satisfied.

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Setting aside the orders of the lower authorities, the Tribunal allowed the appeal by way of remand, directing re-examination of the unjust enrichment aspect. It reaffirmed that refund of service tax on cancelled property bookings is maintainable, as no tax can be levied on non-existent services.

Appearance

Counsel for Appellant/ Assessee: A.K. Batra and Sakshi Khanna

Counsel for Respondent/ Department: S.K. Meena

Cause Title: M/s. Wave Megacity Centre Private Limited v. Commissioner (Appeals-I), Central Tax Goods And Service Tax and Central Excise

Case No: Service Tax Appeal No.54979 of 2023

Coram: Binu Tamta (Judicial Member), P.V. Subba Rao (Technical Member)