Service Tax Refund Admissible Where Flat Bookings Are Cancelled and Consideration Returned to Allottees: CESTAT Mumbai
Background and Context
The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Mumbai, has delivered a significant ruling in Kanakia Spaces Reality Pvt. Ltd. Vs Commissioner of CGST & Central Excise concerning the entitlement of a real estate developer to claim refund of service tax originally paid on apartment booking advances, where those bookings were subsequently cancelled and the entire consideration — including the service tax component — was returned to the respective allottees.
The case involved three connected appeals, all directed against a common order passed by the Commissioner (Appeals-III), GST & CX, Mumbai, bearing Order-In-Appeal No. NA/GST/A-III/MUM/273-275/2019-20 dated 11.03.2020. The Tribunal took up all three appeals together for a consolidated hearing and disposal.
Facts of the Case
The appellant, Kanakia Spaces Reality Pvt. Ltd., is engaged in providing construction of residential complex services. In the course of its business, the appellant received booking advances from prospective purchasers of apartments under construction and duly discharged the applicable service tax on such amounts.
Subsequently, 29 allottees cancelled their respective bookings for various reasons. Upon cancellation, the appellant refunded the full booking amounts to each allottee, along with the corresponding service tax that had been collected and deposited with the Revenue.
Refund Claims Filed
Three separate refund claims were filed by the appellant:
| Sr. No. | Refund Claim Filed On | Original Claim Amount | Revised Claim Amount |
|---|---|---|---|
| 1 | 06.03.2018 | ₹23,98,303 | ₹14,54,120 |
| 2 | 27.04.2018 | ₹7,47,677 | ₹7,47,677 |
| 3 | 29.06.2018 | ₹3,68,617 | ₹2,56,453 |
| Total | ₹35,14,597 | ₹24,58,250 |
Details of Refund Claim Filed on 06.03.2018
| Date of Cancellation | Name of Customer | Project | Unit No. | Original Refund |
|---|---|---|---|---|
| 01-11-2017 | Bhupendra S. Danu | Levels | B – 3403 | ₹5,01,192 |
| 10-11-2017 | Krunal Mahendra Gandhi | Levels | C-903 | ₹1,12,500 |
| 21-12-2017 | Arpit Khaitan | Levels | C – 2601 | ₹22,500 |
| 16-10-2017 | Nirmala Rose James Chettiar | Rainforest | D – 1203 | ₹9,000 |
| 16-10-2017 | Jahida Abdulsamad Pathan | Rainforest | C – 1303 | ₹4,57,902 |
| 06-12-2017 | Elsy Francis Nadar | Zenworld | B – 701 | ₹9,000 |
| 06-12-2017 | Elsy Francis Nadar | Zenworld | B – 702 | ₹9,000 |
| 02-02-2018 | Prathamesh Raorane | Zenworld | E – 402 | ₹69,734 |
| 26-02-2018 | Mr. Tushar Vasant Pawar | Zenworld | B – 901 | ₹1,135 |
| 19-12-2017 | Chandrakant Mohanlal Doshi | Sevens | G – 1503 | ₹2,17,157 |
| 23-12-2017 | Vivek Bhutta | Sevens | C – 1705 | ₹45,000 |
| Total | ₹14,54,120 |
Details of Refund Claim Filed on 27.04.2018
| Date of Cancellation | Name of Customer | Project | Unit No. | Original Refund |
|---|---|---|---|---|
| 25-10-2017 | Sukesh Goyal HUF | Wallstreet | B-914 | ₹1,72,314 |
| 17-11-2017 | Mamta Mittal | Wallstreet | B-312 | ₹70,470 |
| 28-11-2017 | Sanjay Kheta | Wallstreet | B-313 | ₹1,43,802 |
| 10-03-2018 | Kailash Chandra Agarwal | Wallstreet | B-702 | ₹2,31,226 |
| 10-03-2018 | Kailash Chandra Agarwal | Wallstreet | B-702 | ₹1,29,865 |
| Total | ₹7,47,677 |
Details of Refund Claim Filed on 29.06.2018
| Date of Cancellation | Name of Customer | Project | Unit No. | Original Refund |
|---|---|---|---|---|
| 23-06-2017 | Snehaben Dineshkumar Patel | Rainforest | H – 1303 | ₹1,34,865 |
| 09-06-2017 | Amit Brijvansh Singh | Rainforest | A 301 | ₹73,156 |
| 15-06-2017 | K Wing – Farhan Tambe | Zenworld | A 701 | ₹48,432 |
| Total | ₹2,56,453 |
Departmental Action and Rejection of Refund Claims
Following the filing of the refund applications, the Department issued deficiency memoranda-cum-show cause notices proposing rejection of the claims on the ground of inadequate documentation. The Department sought, among other things:
- Proof of payment of service tax
- Copies of agreements executed with customers
- Details of booking and subsequent cancellation
- Evidence of remittance of service tax amounts back to the allottees
A consolidated adjudication order was passed rejecting all three refund claims. The appellant challenged this before the Commissioner (Appeals), whose common order dated 11.03.2020 upheld the rejection. The appellant thereafter approached CESTAT Mumbai.
Submissions Before the Tribunal
Appellant's Arguments
The appellant's counsel advanced the following contentions:
The Commissioner (Appeals) had erroneously held that the case laws and circulars relied upon by the appellant pertained to the pre-negative list era and were therefore inapplicable. This reasoning was contested as legally unsound.
The Department's interpretation — that services had already been rendered at the time of booking and that cancellation of a flat could not be treated as non-provision or partial non-provision of service — was characterised as wholly untenable. The very existence of the adjustment mechanism under
Rule 6(3)of the Service Tax Rules demonstrated legislative recognition that cancellation equates to non-provision of service.