Unjust Enrichment Applies Even If Tax Not Payable: CESTAT Rejects Service Tax Refund

The Customs, Excise & Service Tax Appellate Tribunal (CESTAT), New Delhi, has dismissed the appeal filed by M/s Sandeep Builders and upheld the rejection of service tax refund, primarily on the ground of unjust enrichment and failure to challenge the original self-assessment. The bench of Dr. Rachna Gupta (Judicial Member) and Hemambika R. Priya (Technical Member) ruled that even if the tax was not payable, the refund cannot be granted where the burden of tax has been passed on to the service recipient and the assessment has not been modified through proper legal channels . The dispute arose when the appellant, a contractor engaged in construction and development works for the Rajasthan Housing Board, filed a refund claim of ₹15.17 lakh on the premise that construction of public roads was either non-taxable prior to July 1, 2012 or exempt thereafter under Notification No. 25/2012-ST. However, the Department rejected the claim, treating the services as “Works Contract Services” liable to tax, and issued a show cause notice accordingly . During the proceedings, the appellant restricted its claim to approximately ₹8.78 lakh relating to road construction and interlocking tile work. It was argued that such roads were constructed for public use under housing schemes and thus qualified for exemption. The appellant also contended that the incidence of tax had not been passed on, as service tax was either borne by them or deducted under reverse charge by the Rajasthan Housing Board . However, the Tribunal found that the contracts clearly indicated that the quoted amounts were inclusive of taxes and that the burden of service tax had effectively been passed on to the recipient. It noted that once the tax component is recovered from the service recipient, the principle of unjust enrichment is attracted, barring any refund claim . The Bench emphasized that unjust enrichment is a settled doctrine in tax jurisprudence, preventing a taxpayer from claiming refund when the tax burden has already been shifted. It relied on the Supreme Court’s landmark ruling in Sahakari Khand Udyog Mandal Ltd., reiterating that refund is permissible only when the claimant proves that the tax incidence was not passed on. Further, the Tribunal highlighted that the appellant failed to produce essential documents such as contracts, G-Schedules, and tax payment records, which are crucial for processing refund claims. This evidentiary lapse further weakened the appellant’s case . On the substantive issue, the Tribunal held that the activities undertaken by the appellant involved both supply of goods and services, squarely falling within the definition of “Works Contract” under Section 65B(54) of the Finance Act, 1994. Consequently, the payment of service tax was held to be proper and no refund was admissible . Importantly, the Tribunal also reiterated a critical legal principle that refund proceedings cannot be used to alter or re-open concluded assessments. Relying on the Supreme Court’s decision in ITC Ltd. and the Delhi High Court’s ruling in BT (India) Pvt. Ltd., it held that unless the original self-assessment is challenged and modified through statutory appeal or reassessment, refund claims cannot be entertained . The Bench concluded that since the appellant neither disproved unjust enrichment nor challenged the underlying assessment, the refund claim was rightly rejected. Accordingly, the appeal was dismissed, and the impugned order was upheld. Case Details Case Title: Sandeep Builders Versus Commissioner of Central GST & Central Excise-Jodhpur Citation: JURISHOUR-824-CES-2026(DEL) Case No.: Service Tax Appeal No. 51487 Of 2018 Date: 16.04.2026 Counsel For Appellant: Om. Prakash Aggarwal, Consultant Counsel For Respondent: Shashank Yadav, Authorised Representative Click Here To Read Order Read More: Service Tax Not Leviable on Cost Sharing, Royalty and GAM Expenses: CESTAT Quashes Major Demands Against Expeditors International

Unjust Enrichment Applies Even If Tax Not Payable: CESTAT Rejects Service Tax Refund

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