Sangeetha Prathap

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Chennai has dismissed a series of appeals filed by Mahindra Holidays & Resorts India Ltd. (MHR), upholding the denial of refund claims relating to service tax paid under the pre-GST regime on timeshare membership services that were later cancelled by customers. The Tribunal held that the refund applications were filed beyond the statutory one-year limitation prescribed under Section 11B of the Central Excise Act, 1944, and that the transitional provision in Section 142(5) of the CGST Act does not override this limitation.

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The bench comprising Ajayan T.V. (Judicial Member) and M. Ajit Kumar (Technical Member) noted that the company operated the “Club Mahindra” timeshare model under which members paid a one-time membership fee along with an annual subscription fee (ASF). Under the service tax regime, MHR discharged service tax liability on an accrual basis, even where members subsequently defaulted or cancelled their memberships. In such cases, the company issued credit notes and refunded part of the amounts received, including the tax component, after which it sought refund of the service tax already paid to the government.

Before the introduction of GST in 2017, excess payment of service tax could be adjusted against future liabilities under Rule 6(3) and Rule 6(4A) of the Service Tax Rules. With the transition to GST, this adjustment route ceased to exist. MHR therefore approached the department seeking cash refunds under Section 142(5) of the CGST Act, which deals with refunds of service tax paid on services “not provided.”

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The Revenue, however, rejected the claims on the ground that they were filed beyond the period of one year prescribed in Section 11B. The company’s appeals before the Commissioner (Appeals) met with the same fate, leading to the present set of second appeals before the Tribunal.

The primary issue before CESTAT was whether the non-obstante clause in Section 142(5) of the CGST Act eliminates the application of the one-year limitation period under Section 11B for refund claims relating to pre-GST service tax paid on services that were ultimately not provided. MHR argued that Section 142(5) overrides all contrary provisions of the existing law except unjust enrichment, and therefore the statutory limitation should not apply. It contended that the tax paid on services not rendered partakes the character of a deposit and must be refunded irrespective of limitation. The company also asserted that inconsistent departmental treatment of various refund applications demonstrated an erroneous approach.

The Revenue submitted that Section 142(5) must be read harmoniously with Section 11B and that the non-obstante clause is confined to the mode of refund—namely, that it shall be granted in cash even if the tax was earlier paid by utilising credit. According to the department, Parliament did not intend to remove the requirement of filing refund applications within one year. It was further pointed out that credit notes in many cases were issued years after cancellation and refund applications filed much later, demonstrating significant lapses attributable solely to the appellant.

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The Tribunal agreed with the Revenue and held that Section 142(5) does not override or relax the limitation prescribed under Section 11B. It observed that the non-obstante clause operates only to the extent of ensuring that refunds of pre-GST levies are made in cash, and not for the purpose of exempting refund claims from the statutory timeline. The bench emphasised that had the legislature intended to delete the limitation requirement, it would have done so expressly. Since all refund applications were filed beyond the permissible period of one year, the Tribunal concluded that they were clearly time-barred. As a result, it upheld the rejection orders passed by the lower authorities and dismissed all appeals filed by Mahindra Holidays.

Appearance

Counsel For  Appellant: Harish Bindumadhavan, Advocate

Counsel For Respondent: Vijayalakshmi R, Advocate

Cause Title: Mahindra Holidays and Resorts India Ltd.  Versus 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)