CESTAT: Service Tax Refund on Cancelled Construction Projects Not Time-Barred; Matter Remanded for Unjust Enrichment Check

April 8, 2026 : The New Delhi Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has ruled that refund of service tax paid on advances for construction services cannot be denied on the ground of limitation when the underlying project is subsequently cancelled and the amounts are returned to customers.

The ruling came in M/s Reach Promoters Pvt. Ltd. v. Commissioner (Appeals-II), Central Tax/Excise, Delhi (Service Tax Appeal No. 51789 of 2022), where the Tribunal allowed the appeal and remanded the matter for limited verification on the issue of unjust enrichment.

As per the record, the appellant, engaged in construction-related services, had received advances in 2012 and paid applicable service tax. However, the project was cancelled in 2015 before possession, and the entire amounts were refunded to customers. The appellant thereafter filed a refund claim on 29 June 2016.

The refund was rejected by the adjudicating authority and upheld by the Commissioner (Appeals) as time-barred under Section 11B(1) of the Central Excise Act, 1944.

Before the Tribunal, it was argued that once the project is cancelled and consideration is refunded, no service is rendered, and the tax paid loses its character as “service tax” and becomes a deposit. The Department also conceded that the issue was covered by settled precedent.

Accepting this position, the Tribunal reiterated the foundational principle that service tax is leviable only upon provision of taxable service. Where the transaction is nullified due to cancellation and refund, no service can be said to exist. In such cases, retention of tax by the Department lacks authority of law.

Relying on earlier decisions including Wave Megacity Centre Pvt. Ltd. and Credence Property Developers Pvt. Ltd., the Bench held that limitation under Section 11B cannot be invoked to deny such refund claims. It clarified that the “relevant date” for limitation would arise from subsequent events like cancellation of agreements and issuance of credit notes, not from the original date of tax payment.

The Tribunal also noted that the assessee could have alternatively availed credit under Rule 6 of the Service Tax Rules, 1994, which further supports the admissibility of refund.

However, the Bench emphasized that refund remains subject to the doctrine of unjust enrichment under Section 11B(2) of the Central Excise Act read with Section 142(5) of the CGST Act, 2017. Accordingly, the matter was remanded to the adjudicating authority to verify whether the burden of tax had been passed on.

The appeal was thus allowed by way of remand, with rejection on limitation held unsustainable.

Coram: Ms. Binu Tamta (Member Judicial) and Mr. P.V. Subba Rao (Member Technical)
Final Order No.: 50714/2026
Date: 08 April 2026