CESTAT Mumbai Permits Refund of Service Tax on Canceled Flat Bookings

The refund of service tax paid on cancelled bookings of flats has been permitted by the Mumbai Bench of Customs, Excise, and Service Tax Appellate Tribunal (CESTAT).

According to Rule 66E(b)(sic) of the Service Tax Rules, 1994, in construction services, service tax is needed to be filed on the amount obtained from the buyers for booking the flats before the issuance of the finish of certificate by the competent authority along with the booking can be cancelled via the buyer anytime before opting the possession of the flat. Once the buyer cancels the booking and the consideration for the service is returned the service contract is terminated.

Once the same gets built and no service is furnished a tax refund for these services becomes permissible. The said council needs to be corrected in their opinion that only cancellation of bookings of flats does not indicate that no service was there. If the booking is cancelled and the money is returned to the buyer, where does the question of any service? the bench of P.K. Choudhary (Judicial Member) has observed.

The petitioner is engaged in the business of providing construction services for residential complexes. The petitioner has obtained the bookings of the apartments being constructed through it. The petitioner as per that collected the booking amount and released the pertinent service tax concerning the booking amount so collected. As of distinct causes, 29 allottees decided to cancel their respective bookings with the petitioner. The petitioner refunded the advance amount or booking amount that was paid via these allottees including the service tax amount collected and deposited via the petitioner with the department.

The petitioner was issued a deficiency memo and a Show Cause Notice (SCN) asking for the rejection of refund claims on distinct bases like the lack of documents, substantiating the proof of payment of tax, a copy of the agreement entered into with the customers, booking information, and subsequent cancellation by the customers, and proof of remittance of service tax to the customers. Thereafter the refund claims were rejected via a consolidated adjudication order,

The petitioner filed a plea to the learned commissioner (Appeals), which came to be rejected. Consequently, the appeals before the Tribunal.

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Section 67 of the Finance Act, which controls the valuation of taxable services for assessing or levying tax, highlights that solely the gross amount ‘charged’ via the service provider will be accountable to service tax, the appellant contended. Thus, where the amount has been refunded back to the customers, the same could be construed as no amount being assessed by the service provider, and no tax is charged on that. No service tax payment on any amount is been furnished by the statutory provision that is not collected via the service provider.

The tribunal discovered that the credit or refund of the excess service tax paid via the petitioner was a right that had accrued in favour of the petitioner, and thus, under Section 174 of the CGST Act, 2017, such a right of the petitioner is required to be upheld and protected. Section 142(5) of the CGST Act, 2017 reflects the case as in the present petitions and consequently furnishes for a refund of taxes paid under the former laws.