Relief to Indiamart: CESTAT Rules Refund of Excess Service Tax Paid on Unused Subscription Amounts Not Time-Barred Post-GST [Read Order]

The New Delhi Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) held that the refund of excess service tax paid on amounts refunded to customers is not time-barred where the right to credit had already accrued under the service tax law and cash refund is sought after introduction of GST.

Indiamart Intermesh Ltd., the appellant, is engaged in providing online marketplace services through its web-based portal. The appellant offers subscription-based services to its customers for different durations and collects the entire subscription amount in advance. Service tax was paid on the full subscription value at the time of receipt.

In certain cases, customers opted to change their subscription plans before the expiry of the existing plan, such as upgrading from a one-year subscription to a longer-duration package. In such cases, the appellant refunded the proportionate amount relating to the unutilized portion of the earlier subscription by issuing credit notes. Service tax attributable to the refunded portion was adjusted by the appellant.

Under Rule 6(3) of the Service Tax Rules, 1994, where consideration for services is refunded as the service is not provided, the assessee is entitled to take credit of the excess service tax paid. However, with the introduction of GST in July 2017, the service tax law ceased to exist, and the appellant could no longer avail such credit.

The appellant filed a refund claim on 28 January 2019 under Section 11B of the Central Excise Act, 1944 for excess service tax paid during the period July 2017 to December 2017. The refund claim was rejected by the Assistant Commissioner on the ground of limitation. The Commissioner (Appeals) upheld the rejection. Aggrieved by the appellate order, the appellant approached the CESTAT.

The appellant’s counsel argued that the excess service tax had accrued as a credit to the appellant under Rule 6(3) of the Service Tax Rules once the consideration was refunded to customers. It was argued that there was no time limit prescribed for taking such credit under the service tax law.

The counsel argued that since service tax was abolished, the appellant could not take credit and was compelled to seek refund in cash. Reliance was placed on Section 142(3) of the CGST Act, which provides that any amount accruing under the existing law shall be paid in cash.

The revenue counsel argued that the refund claim was governed by Section 11B of the Central Excise Act, which prescribes a limitation period of one year. It was argued that Section 142(3) of the CGST Act does not override the limitation prescribed under Section 11B and that the refund application was filed beyond the permissible time limit.

The two-member bench comprising Ms. Binu Tamta (Judicial Member) and Mr. P.V. Subba Rao (Technical Member) examined the records and observed that there was no dispute that service tax had been paid on amounts which were later refunded to customers due to non-provision of service.

The tribunal observed that under the service tax regime, the appellant was entitled to take credit of such excess tax under Rule 6(3) without any limitation period. The tribunal explained that the right to credit had already accrued under the existing law and pointed out that Section 142(3) of the CGST Act mandates payment of such accrued amounts in cash.

The tribunal held that the refund claim was not barred by limitation. The impugned order was set aside and the appeal was allowed with consequential relief to the appellant.

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