Facts of the Case:

In this case, the appellant engaged in construction and sale of residential flats, had received advances of ₹1,28,80,050/- towards booking of 10 flats during FYs 2013-14 to 2015-16, under the erstwhile service-tax regime. The taxpayer discharged service tax of ₹3,82,350/- on such advances.

After introduction of GST, certain flat bookings were cancelled during FYs 2018-19 and 2019-20 and the advances, along with the service tax earlier collected, were refunded to the buyers. Instead of claiming refund of the erstwhile service tax under the transitional mechanism, the taxpayer claimed the refunded service tax amount of ₹3,82,350/- as ITC in GST returns and utilised it towards GST liability.

The adjudicating authority treated such credit as inadmissible and confirmed tax of ₹3,82,350/-, penalty of ₹38,235/- and interest of ₹3,39,401/- under Section 73. The first appellate authority upheld the demand, holding that refund of service tax paid under the erstwhile law was governed by Section 142(5) of the CGST Act and could not be converted into GST ITC.

Issue:

Whether service tax paid under the erstwhile Finance Act, 1994 on advances received for flat bookings, which were subsequently cancelled and refunded after introduction of GST, could be claimed as ITC under the CGST/UPGST Act, 2017, or whether refund had to be claimed in accordance with Section 142(5) of the CGST Act?

Held That:

The Tribunal first examined the statutory definition of “input tax” under Section 2(62) and “input tax credit” under Section 2(63) of the CGST Act. It held that ITC under the GST regime can arise only in respect of tax which qualifies as “input tax” under the CGST Act. Service tax paid under the erstwhile Finance Act, 1994, prior to implementation of GST, does not fall within that statutory definition and, therefore, cannot be claimed as GST input tax credit.

The Tribunal further held that the fact that the underlying flat bookings were subsequently cancelled and the service tax became refundable did not convert the erstwhile service tax into “input tax” for GST purposes. The taxpayer could not utilise the electronic credit ledger as an alternative mechanism for obtaining refund of a pre-GST service-tax payment.

The Tribunal placed particular reliance on the transitional mechanism contained in Section 142(5) of the CGST Act. The provision specifically deals with a claim filed after the appointed day for refund of tax paid under the existing law in respect of services which were not ultimately provided. Such refund is required to be dealt with in accordance with the erstwhile law, with the amount eventually found refundable being paid in cash.

Since the flat bookings were cancelled after introduction of GST and the corresponding services were ultimately not provided, the Tribunal held that the taxpayer’s remedy was to seek refund of the service tax under the erstwhile Finance Act, 1994 read with Section 142(5), and not to claim the amount as ITC under GST.

The Tribunal also rejected the reliance placed on Kanakia Spaces Realty (P.) Ltd. and Credence Property Developers (P.) Ltd., observing that although the factual circumstances appeared similar, the legal issue considered in those cases was distinguishable from the issue before it.

The Tribunal emphasised that a taxpayer cannot create its own mechanism for obtaining a refund merely because the amount is otherwise refundable. Unless the GST law specifically permits such adjustment through the electronic credit ledger, an erstwhile-law tax payment cannot be unilaterally converted into GST ITC.

Accordingly, the Tribunal held that the taxpayer was not entitled to claim the refundable service tax of ₹3,82,350/- as ITC under the CGST/UPGST Act, upheld the first appellate order and dismissed the appeal.

Keytakeaways 

Refundability of pre-GST service tax does not confer a right to claim the same amount as GST ITC. Where service tax was paid under the erstwhile Finance Act, 1994 and the underlying service was subsequently not provided, the refund has to be processed through the transitional mechanism under Section 142(5) and the applicable provisions of the existing law.

Case Name: Jupiter Buildtech (P.) Ltd. v. Commissioner of State Tax dated 24.09.2026

Citation No. 2026 Taxo.online 3049