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Refund of service tax allowed to real estate buyers on cancellation of the contract

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Refund of service tax allowed to real estate buyers on cancellation of the contract
CA Bimal Jain By: CA Bimal Jain
June 20, 2023
All Articles by: CA Bimal Jain       View Profile
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The CESTAT, Mumbai in the case of GUARDIAN LANDMARKS LLP VERSUS COMMISSIONER OF CENTRAL EXCISE & SERVICE TAX, PUNE II - 2023 (6) TMI 309 - CESTAT MUMBAI allowed refund claim of service tax to real estate developer on behalf of the unregistered customer, who has paid the service tax along with advance payment and due to some reason the real estate purchase contract was cancelled.


M/s. Guardian Landmarks LLP ("the Appellant”) is engaged in the business of construction of residential complex.

Customers had booked their respective flats in the Appellant’s real estate project and entered into a sale agreement dated April 26, 2016 and paid the part payment along with service tax. Out of all customers, 2 customers Ms. Sushma G. Ketkar and Ms. Sayali S. Wankar, due to some reasons cancelled their bookings on June 20, 2018. Subsequently, the Appellant refunded the entire payment made by such customers except service tax amount.

Since the customers were not registered under Service tax, the Appellant on behalf of such customers sought refund of service tax from the Service Tax Authorities.

The Revenue Department issued 2 Show Cause Notices dated April 1, 2019 (“the SCNs”) to the Appellant. The Adjudicating Authority vide Orders-in-Original dated April 09, 2019, and April 11, 2019 (“the OIOs”) respectively rejected both the refund claims on the ground of being time-barred as per Section 11B of the Central Excise Act, 1944 (“the CE Act”).

Aggrieved by the OIOs the Appellant filed an appeal before the Commissioner (Appeals) who vide Order-in-Appeal No. PUN-CT-APPII-0000-039-040-19- 20 dated August 22, 2019 (“the Impugned Order”) upheld the OIOs and rejected the appeal filed by the Appellant.

Aggrieved by the Impugned Order the Appellant filed an appeal before the CESTAT.


Whether the unregistered person eligible to get refund of service tax paid on advance amount paid to the real estate developer upon cancellation of booked flats?



  • Observed that, once the customer cancels the booking and the booking amount was returned, the service contract gets terminated and once it is established that no service is rendered, the refund of tax for such service become admissible.
  • Stated that when no service has been provided then the assessee cannot be saddled with service tax liability and the tax deposited by the assessee will be considered as ‘deposit’ and keeping the said tax amount by the Revenue 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.”
  • Noted that, the Revenue Department has erred in applying limitation stated in Section 11B of the CE Act since, the amount retained by the Revenue Department does not have a character of tax but an amount paid under mistake of law. Thus, the provisions of Section 11B would not be applicable.
  • Held that, the amount of service tax retained by Revenue Department is not backed by any authority of law thus, the same is liable to be refunded to the Appellant.

Our comments:

This is an applaudable judgment by the CESTAT, Mumbai to refund the service tax amount held by the Revenue Department without authority of law. The judgment is helpful for all unregistered person who have paid service tax at the time of payment of booking amount pertaining to real estate and due to some reason have cancelled the contract and have not received refund of service tax amount till now. Since, the limitation of Section 11B of CE Act, would not be applicable on such service tax amount withheld by the Revenue Department, the customer even in the current financial year i.e. 2023-24 can approach the respective developer(s) for demanding a refund of service tax paid which was not refunded to them at the time of cancellation of the contract.

In the GST regime, the CBIC vide Circular No. 188/20/2022-GST dated December 27, 2022, has provided relief to unregistered persons by prescribing a manner of filing an application for refund of GST paid to real estate developer(s) in the event of cancellation of the contract on account of non-completion/delay in construction activity or due to any other reason.

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By: CA Bimal Jain - June 20, 2023



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