Commissioner GST and CX (Appeals III) , Mumbai has in its recent landmark ruling in the case of Mr Harish V Kagnana (HUF) has allowed refund of service tax to the appellant upon cancellation of flat. Such refund will be granted under Section 142(5) of the CGST Act,2017.
Facts of the case:
- Appellant booked a residential flat on 28.02.2015. Flat cancelled on 19.02.2019 (in GST regime).
- Amount of service tax paid by the appellant to the builder was not refunded by the builder.
- Builder has neither filed any refund claim towards the service tax amount paid on such cancelled flat nor has adjusted such amount against any future service tax/GST Liability in accordance with Rule 6(3) of Service Tax Rules.
- Appellant claimed refund of service tax on 19.08.2019 under the provisions of Section 11B of the Central Excise Act, 1944 as applicable to Service Tax under Section 83 of the Finance Act,1994.
- The refund claim of the Appellant was rejected by the Adjudicating Authority, against which appeal was filed before Commissioner (Appeals).
Order of adjudicating authority rejecting the service tax refund claim:
- Once consideration is received prior to receipt of completion certificate,entire value of construction becomes taxable and mere cancellation of flats does not mean there was no service
- Refund filed after expiry of one year from date of agreement/intent or date of payment of service tax and same was hit by limitation of time under Section 11B of Central Excise Act.
- Service tax collected and deposited by the builder had been paid against the self assessed service tax liability and assessment was not provisional. So the question of refund does not arise.
- Service Provider has claimed CENVAT Credit on selling of under construction flat and has not reversed the availed CENVAT Credit on the cancelled flat.
Order of Commissioner (Appeals) allowing the service tax refund claim:
The highlights of the ruling given by Commissioner (Appeals) are as under:
Refund allowed after final assessment as well: Law does not provide that refund can be claimed only in provisional assessment cases or refund cannot be claimed if the assessment was final.
No Service has been provided: For construction service, tax is required to be paid on amount received towards booking of flat before issuance of completion certificate and this process goes on for years and booking can be cancelled before taking possession of flat. No service has been provided in the instant case as consideration for services was returned and the service contract got terminated.
Refund to be granted as per Section 142(5) of CGST Act: FAQ issued by CBIC relied upon which clarified that any service paid on or before 30th June 2017 for the services to be provided but subsequently not provided shall be eligible for refund under the said Section.
Limitation under Section 11B of CEA not applicable: Section 142(5) free said claims from fetters of limitation provided under Section 11B(1) of CEA. Since no service has been provided in the instant case, the provision of relevant date of one year and date of payment as per Section 11B cannot be made applicable.
Date of Cancellation of flat should be the relevant date: Even if payment is in nature of service tax, date of cancellation of flat shall be considered as relevant date for calculating time limit of one year as the event that led to refund is the cancellation by buyer.
Claim is not hit by doctrine of unjust enrichment: The Appellant has borne the incidence of service tax whose refund is being claimed and thus it is crystal clear that claim is not hit by doctrine of unjust enrichment.
READ / DOWNLOAD ORDER:
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Frah Saeed is a law graduate specializing in the core field of indirect taxes and is the Co-founder of taxwallah.com. She has authored many publications on GST and is into full-time consultancy on GST to big corporates. She as a part of taxwallah.com heads a team comprising of Chartered Accountants and Advocates and plays a key role in our mission to disseminate GST knowledge to all.
