The Goods and Service Tax Appellate Tribunal (GSTAT), Agra Bench has held that a builder who refunded flat buyers after cancelling their bookings could not recover the service tax paid before GST by entering the amount as input tax credit in its GST returns. The Tribunal upheld a demand totalling ₹7,59,986, including tax, interest and penalty.
A Bench comprising Judicial Member Ajeet Singh and Technical Member Vivek Kumar has observed that service tax paid under the earlier law does not qualify as “input tax” under the CGST Act, 2017. If the tax is refundable because the proposed service was ultimately not provided, the claim must follow the procedure under the earlier law, as provided by Section 142(5) of the CGST Act.
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The appellant/assessee received advances totalling ₹1,28,80,050 for bookings of 10 residential flats during 2013–14, 2014–15 and 2015–16. It collected and deposited ₹3,82,350 as service tax on those advances.
The buyers cancelled the bookings during 2018–19 and 2019–20. The company refunded their advances along with the service tax it had collected. It then claimed the ₹3,82,350 previously deposited with the government as input tax credit in its GST return and adjusted its GST liability against that amount.
The adjudicating officer disallowed the credit and raised a demand under Section 73. The order imposed tax of ₹3,82,350, interest of ₹3,39,401 and a penalty of ₹38,235, bringing the total to ₹7,59,986. The first appellate authority upheld the demand, prompting the company to approach GSTAT.
The company argued that, once the flat bookings were cancelled and the buyers were refunded, the service tax paid on those transactions became refundable. It submitted that using GST credit was a way to adjust an amount already lying with the government.
The builder also argued that denying the adjustment would allow the government to retain tax on cancelled transactions. It said it had paid ₹36,30,000 in CGST and SGST when the flats were subsequently sold, and contended that the adjustment caused no revenue loss.
It further challenged the first appellate authority’s reliance on Section 142(5), arguing that the provision had not been invoked in the original show cause notice or adjudication order. The company maintained that the provision enabled a refund and did not prohibit its chosen method of adjustment.
The department opposed the appeal. It argued that service tax paid before GST could not be treated as GST input tax credit and that any refund had to be sought through the procedure prescribed by law.
GSTAT identified the central question as whether service tax paid before GST, on bookings later cancelled, could be claimed as input tax credit under GST.
The Tribunal examined the definitions of “input tax” and “input tax credit” in Sections 2(62) and 2(63) of the CGST Act. It held that service tax deposited under the Finance Act, 1994, was not input tax within those definitions. Its amount therefore could not be credited through a GST return.
The Bench then referred to Section 142(5), which deals with claims made after the introduction of GST for refund of tax paid under the earlier law in respect of services that were not provided. It observed that such claims are to be dealt with under the earlier law and that any amount found payable is to be paid in cash.
Because the flat bookings had been cancelled and the proposed services were not ultimately provided, the Tribunal held that the builder had to pursue any service tax refund through that statutory route. It could not create its own refund mechanism by entering the amount in its GST electronic credit ledger.
The Tribunal also considered the decisions cited by the builder concerning cancelled property transactions. It found that the question requiring determination in this appeal was different: whether an amount paid as service tax could be taken as GST input tax credit.
GSTAT upheld it and dismissed the company’s appeal. The ruling addresses the method of recovering the earlier service tax; it does not record a decision allowing a cash refund claim or determine the outcome of any such claim.
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