The Bangalore Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that service tax refund claims are non-maintainable unless the underlying assessment order or classification is first challenged.
Aakruti Holdings, the appellant, is a partnership firm engaged in the development of residential complexes. The appellant registered under “Works Contract Service” and paid service tax under the composite scheme at the rate of 4%.
CBEC Circular No. 108/2/2009-ST was issued, clarifying that builders and developers were not liable for service tax at that time. The appellant sought a refund of Rs. 1,19,146, arguing that the tax was erroneously paid.
The department issued a show cause notice rejecting the refund claim. On appeal, the Commissioner of Central Excise (Appeals) dismissed the appeal upholding the rejection. Aggrieved by the Commissioner’s order, the appellant approached the CESTAT.
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The appellant argued that their services were not liable to service tax as per the CBEC circular. The appellant’s counsel relied on various judgments including CCE v. Keerthi Estates Pvt. Ltd. and Classic Promoters and Developers v. CCE which held that service tax paid during the period in question was refundable.
The revenue countered that the appellant had never challenged the classification of services under “Works Contract Service” or the assessment order that determined their liability. The revenue relied on Supreme Court rulings in CCE, Kanpur v. Flock India Pvt. Ltd., and Priya Blue Industries Ltd. v. CC which held refund claims cannot be entertained without disputing the assessment order through statutory appeals.
The revenue also argued that the appellant had consistently paid tax under the “Works Contract Service” category and could not bypass the statutory process by filing a direct refund claim.
The two-member bench comprising D.M. Misra (Judicial Member) and R. Bhagya Devi (Technical Member) agreed with the revenue’s arguments. The tribunal observed that the appellant had opted for the “Works Contract Service” composite scheme and paid tax accordingly. Filing a refund claim without disputing the classification or assessment of services was contrary to established legal principles and Supreme Court rulings.
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The tribunal pointed out that refund claims are like execution proceedings and cannot substitute for an appeal or review of an assessment order. It explained that once an assessment order stands, the duty is payable as per that order unless successfully challenged through proper appellate mechanisms. The appellant’s appeal was dismissed.
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