CESTAT: Service Tax Refund Not Time-Barred Where No Service Rendered; Amount Treated as Deposit

March 20, 2026 : The Customs, Excise and Service Tax Appellate Tribunal, New Delhi, has held that refund of service tax paid on transactions where services were ultimately not rendered cannot be denied on the ground of limitation under Section 11B of the Central Excise Act, 1944. The Tribunal clarified that such amounts lose the character of “tax” and are to be treated as mere deposits, which the Department cannot retain.

The Division Bench comprising Binu Tamta (Judicial Member) and Hemambika R. Priya (Technical Member) was dealing with appeals filed by M/s Indiabulls Distribution Services Limited against rejection of refund claims as time-barred.

The appellant, engaged in real estate brokerage services, had received booking amounts from customers and discharged service tax on such receipts. However, in multiple cases, bookings were subsequently cancelled and the entire consideration, including service tax, was refunded to customers. The assessee thereafter filed refund claims amounting to ₹6.70 crore, contending that no taxable service had been rendered.

The Department rejected the claims on the ground that they were filed beyond the one-year limitation period prescribed under Section 11B. This view was upheld by the Commissioner (Appeals), prompting the present appeals.

Before the Tribunal, the appellant argued that where services are not provided and consideration is returned, the limitation under Section 11B does not apply. Reliance was also placed on Rule 6(3) of the Service Tax Rules, 1994, which permits adjustment or credit of excess tax paid in cases where services are not rendered.

Accepting these contentions, the Tribunal held that service tax is leviable only upon actual rendition of a taxable service. Where bookings are cancelled and amounts are refunded, it is as if no service was ever provided. In such circumstances, the amount deposited earlier as service tax assumes the nature of a deposit.

The Bench emphasized that retention of such amounts by the Department would violate Article 265 of the Constitution of India, which mandates that no tax shall be levied or collected without authority of law. It reiterated that once the taxable event itself fails, no tax liability can arise.

On the question of limitation, the Tribunal ruled that refund claims in such cases cannot be rejected as time-barred under Section 11B. It clarified that the relevant date for limitation, if at all applicable, would be the date of cancellation of booking or issuance of credit notes, and not the date of initial payment of tax.

While allowing the appeals, the Tribunal set aside the impugned orders and remanded the matter to the Adjudicating Authority for the limited purpose of examining the applicability of the doctrine of unjust enrichment under Section 11B(2). The appellant was granted an opportunity to produce relevant evidence in this regard.

Cause Title: M/s Indiabulls Distribution Services Limited v. Commissioner, Central Tax, Central Excise & Service Tax
Case No.: Service Tax Appeal Nos. 51091 & 51092 of 2022
Coram: Binu Tamta (Judicial Member), Hemambika R. Priya (Technical Member)