The Hon’ble CESTAT Mumbai vide its order dated 05.01.2023 in the matter of Credence Property Developers Pvt. Ltd. Vs. Commissioner of CGST & Central Excise, Mumbai East in Service Tax Appeal No. 85780 of 2020, allowed the refund filed by the builder, finding that if the buyer cancels the booking of flat on which service tax has already been paid by the builder, and the builder returns the amount to the buyer along with service tax collected, it would mean as if no booking was made and there was no service at all.

The Appellant filed the appeal before the Hon’ble CESTAT challenging the order dated 28.02.2020 passed by the Commissioner (Appeals – III), GST & CX, Mumbai, whereby the appeal filed by the appellant was rejected.

Facts: –

• That the Appellant is engaged in providing Construction of Residential Complex Service.
• The Appellant filed two refund claims under Section 11B of the Central Excise Act read with Section 83, Finance Act, 1994 amounting to Rs.1,09,367/- and Rs.55,123/- respectively seeking refund of Service Tax paid in respect of two flats in Project Central Park which were booked by a buyer M/s. Symbio Generics, but were later cancelled by the said buyer.
• That upon cancellation, the Appellant refunded the amount of advance amount paid by the buyer along with Service Tax amount collected by it and thereafter, filed the refund claims of the amount of service tax paid on the cancelled bookings.
• With respect to the refund claims, a deficiency memo was issued to the Appellant and later the Adjudicating Authority vide its order dated 17.10.2018 rejected the refund claims on the ground that the question of refund of service tax does not arise as the appellant has not paid any excess service tax but has paid only the required service tax payable by it.
• Thereafter, the appeal preferred by the Appellant against the said adjudication order was also dismissed by the Appellate Authority vide its order dated 28.02.2020.

It was submitted on the behalf of the Appellant that the issue regarding the cancellation of flat is considered as non-provision of service as specified by Rule 6(3) of Service Tax Rules, 1994.  Further, there is no mechanism available in the post-GST regime to claim such credits in GST returns and therefore the only remedy available with it is to claim refund of such service tax paid.  It was also submitted that in absence of any service, the appellant cannot be burdened with any Service Tax.

On the other hand, the findings recorded in the impugned order were reiterated on the behalf of the revenue and prayed for dismissal of Appeal.

Held: –

• The Hon’ble CESTAT after considering the submissions made and facts of the case, found that the first principle of service tax is that tax is to be paid on those services only which are taxable under the said statute, however, for that there has to have some ‘service.’
• That for applicability of provisions as provided in the deficiency memo, adjudication order and the appellate authority order, the pre-condition is ‘service.’
• It was found that if the assessee provides a taxable service, then certainly the assessee is liable to pay Service Tax, but when no such service has been provided then the assessee cannot be burdened with any such tax. And in that case the amount deposited by the assessee with the exchequer would be considered as ‘’
• Further, keeping the said amount of ‘deposit’ by the department is violative of Article 265 of the Constitution, which specifically provides that ‘No tax shall be levied or collected except by authority of law.’
• Since, the amount of Service Tax in dispute in the present matter, received by the department is not backed by any authority of law, the department has no authority to retain the same.
• That in the case in hand, the buyer booked and paid some consideration inclusive of applicable Service Tax, and the builder on collecting the same deposited the same with the Government/Department. However, when the buyer cancelled the said booking and the Appellant returned/refunded the booking amount to the buyer along with service tax collected, it would mean as if no booking was made and there was no service at all. If there is no service then question of paying any tax on it does not arise and the department can’t keep it with them.  No law authorises the department to keep it as tax.
• It was found by the Hon’ble CESTAT that in the instant case, it can be safely concluded that no service has been provided by the Appellant as the service contract got terminated and the consideration for service has been returned. Therefore, the amount which earlier was deposited as tax, is merely a ‘deposit’ and the department has to return it to the Appellant/assessee.
• It was also noticed by the Hon’ble CESTAT that as per Section 66E of the Finance Act, 1994, service tax is required to be paid on amount received from buyers towards booking of flat before the issuance of completion certificate by the competent authority and the booking can be cancelled by the buyer any time before taking possession of the flat. However, if the buyer cancelled the booking and the consideration for service was returned on termination of the service contract and once it is established that no service is provided, then the refund of such tax paid becomes admissible.  Therefore, the authorities below are not correct in their view that mere cancellation of booking of flats does not mean that there was no service and the ‘Point of taxation Rules, 2011’ as referred by the authorities, cannot be roped in as for the applicability of the said Rules firstly providing of any ‘service’ by the Appellant has to be established.

The Hon’ble CESTAT with the above findings, allowed the appeal filed by the Appellant by holding that the Appellant is entitled for refund.