CESTAT Allows Service Tax Refund on Construction Services to Military Engineering Services, Quashes Rejection [Read Order]

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), New Delhi has allowed the refund of service tax paid on construction services rendered to the Military Engineering Services (MES), setting aside the rejection orders passed by the lower authorities and remanding the matter for reconsideration.

The Tribunal has held that the Appellant is entitled to claim refund under Section 102 of the FinanceAct, 1994, as amended read with Notification No. 9/2016-ST. The Tribunal has set aside the impugned order and has allowed the claim for refund permitting MES to be impleaded as co-applicant.

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The appellant Agarwal Jagdish Construction Co. Pvt. Ltd. had rendered construction services to MES, which is a department of the Ministry of Defence for infrastructure development including non-commercial government buildings from June 2015 to June 2016. The appellant had paid service tax on these services, but subsequently, it claimed a refund of ₹70.46 lakhs, stating that such services were exempted under the relevant provisions.

The refund claim was however denied by the department on the ground of non-submission of relevant documents and on the principle of unjust enrichment. The Commissioner (Appeals) confirmed this denial and hence, this appeal has been preferred before the Tribunal.

The appellant stated that it had rendered services to a Government department for non-commercial purposes, and hence it was clearly exempted as per Notification No. 9/2016-ST and Section 102 of Finance Act 1994. The appellant further argued that it had in effect borne the burden of service tax which was paid to the Department.

The Department argued that the appellant failed to fulfill the conditions prescribed under the relevant provisions.

The Bench comprising Binu Tamta (Judicial Member) and Hemambika R. Priya (Technical Member) observed that the services provided to MES being a Government department and undertaking non-commercial activities would be eligible for exemption.

The Tribunal held that the benefit of retrospective exemption and refund cannot be denied. The Tribunal further observed that the doctrine of unjust enrichment would not apply if the tax liability was borne by the Government entity.

Accordingly, the Tribunal allowed the appeal by way of remand directing the adjudicating authority to reconsider the refund claim with MES as a co-applicant.

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