2023 (1) TMI 252 - AT - Service Tax

Refund of Service Tax amount - amount returned/refunded to the buyer alongwith the advance amount paid, by the builder, upon the cancellation of the two flats booked by the said buyer - Point of Taxation Rules - HELD 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. But for that purpose there has to have some service . Unless service is there no service tax can be imposed. For the applicability of the provisions as referred to in the deficiency memo or in the Adjudication order or appellate order, the pre-condition is service . If any service has been provided which is taxable as specified in the Finance Act, 1994 as amended from time to time then certainly the assessee is liable to pay, but when no such service has been provided then the assessee cannot be saddled with any such tax and in that case the amount deposited by the assessee with the exchequer will be considered as merely a deposit and keeping of the said amount by the department is violative of Article 265 of the Constitution of India which specifically provides that No tax shall be levied or collected except by authority of law. Since Service Tax, in issue, received by the concerned authority is not backed by any authority of law, the department has no authority to retain the same. Buyer booked the flat with the appellant and paid some consideration. The appellant as a law abiding citizen entered the same in their books of accounts and paid the applicable service tax on it after collecting it from the buyer. But when the buyer cancelled the said booking on which service tax has been paid and the appellant returned the booking amount along with service tax collected then where is the question of providing any service by the appellant to that customer. The cancellation of booking coupled with the fact of refunding the booking amount along with service tax paid would mean as if no booking was made and if that is so, then there was no service at all. The net effect is that now the amount, which earlier has been deposited as tax, is merely a deposit with the department and the department has to return it to the concerned person i.e. the assessee. In the fact of this 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. Once it has been held that there is no service then by any stretch Point of Taxation Rules, 2011 can t be roped in as for the applicability of the said Rules firstly providing of any service by the Appellant has to be established. Therefore, the authorities below were not justified in invoking the Provisions of Point of Taxation Rules, 2011 for denying the refund. The Appellant is entitled for refund and the appeal is accordingly allowed.

Summary

Issues Involved:
Refund of Service Tax amount on cancellation of booked flats.

Analysis:

Issue 1: Refund of Service Tax on cancellation of booked flats
The appellant, engaged in providing Construction of Residential Complex Service, filed refund claims for Service Tax paid on two cancelled flat bookings. The Adjudicating Authority rejected the refund claim, stating no provision for refund as the appellant paid only the due amount. The appellant argued that no service was provided upon cancellation, thus no Service Tax should be levied. The Tribunal emphasized that tax is applicable only on taxable services provided, and in the absence of service, no tax can be imposed. The Tribunal highlighted the violation of Article 265 of the Constitution if tax is collected without legal authority. It concluded that since no service was provided due to cancellation, the Service Tax refund is admissible.

Issue 2: Interpretation of Service Tax Rules
The Tribunal analyzed Rule 66E(b) of Service Tax Rules, 1994, which mandates payment of Service Tax on flat bookings before completion certificate issuance. It clarified that once a booking is cancelled, and consideration is returned, the service contract terminates, making the refund of tax applicable. The Tribunal disagreed with the lower authorities' view that cancellation of booking does not negate service provision. It emphasized that if no service is provided, the Point of Taxation Rules cannot be invoked. Therefore, the Tribunal held that the appellant is entitled to the refund as no service was rendered upon cancellation.

In conclusion, the Tribunal allowed the appeal, stating the appellant is entitled to the refund of Service Tax paid on cancelled flat bookings due to the absence of service provision post-cancellation.