Service Tax Refund on Govt. Construction Services Allowed: CESTAT Rules on Unjust Enrichment, MES as Proper Claimant

The Customs, Excise & Service Tax Appellate Tribunal (CESTAT), New Delhi, has held that the company is entitled to claim a refund of service tax paid on construction services provided to the Military Engineering Services (MES). The bench of Binu Tamta (Judicial Member) and Hemambika R. Priya (Technical Member) remanded the matter to the adjudicating authority for reconsideration with specific directions regarding procedural compliance. The appeal arose from an order rejecting the company’s refund claim of ₹70.46 lakh on the grounds of lack of documentary evidence and the bar of unjust enrichment. The appellant had provided construction services for infrastructure projects, including those related to the Pinaka Regiment, to MES units in Bhopal and Jaipur during the period from June 2015 to June 2016. The dispute stems from changes in the service tax exemption regime applicable to construction services provided to government bodies. Earlier, such services were exempt under the Mega Exemption Notification No. 25/2012-ST. However, the exemption was withdrawn with effect from April 1, 2015, making such services taxable. Subsequently, the government reintroduced the exemption through Notification No. 09/2016-ST dated March 1, 2016, subject to certain conditions, including that the contract must have been entered into prior to March 1, 2015. Additionally, Section 102 of the Finance Act, 1994 provided retrospective exemption for the intervening period (April 1, 2015 to February 29, 2016) and enabled refund of service tax collected during that time. Relying on these provisions, the appellant claimed that no service tax was payable for the relevant period and sought a refund under Section 102 read with Section 11B of the Central Excise Act, 1944. The department rejected the refund claim, primarily on two grounds. First, the appellant had allegedly failed to furnish complete documentation, such as copies of agreements and invoices, to establish eligibility under the exemption provisions. Second, the claim was held to be hit by the doctrine of unjust enrichment, as it was presumed that the tax burden may have been passed on to another party. The Commissioner (Appeals) upheld the rejection, prompting the appellant to approach the Tribunal. The tribunal noted that the services were provided to MES, a government department under the Ministry of Defence, and involved construction of non-commercial infrastructure. Therefore, the conditions for exemption under Notification No. 09/2016-ST and Section 102 of the Finance Act were satisfied. The Tribunal also referred to earlier decisions holding that services rendered to MES are not for commercial purposes and thus qualify for exemption. It emphasized that retrospective exemption provisions were specifically introduced to address such situations and enable refund of taxes collected during the interim period. The Tribunal relied on precedents which recognized that in such cases, the tax burden is often borne by the service recipient—here, MES. It observed that refund claims may need to be processed with MES as a co-applicant, particularly where the tax incidence has effectively been borne by the government department. The Tribunal highlighted judicial guidance suggesting that refund amounts, in such circumstances, may be directly credited to the account of the service recipient to avoid unjust enrichment concerns. The Tribunal held that the appellant is entitled to the refund claim. However, it remanded the matter to the Assistant Commissioner for fresh consideration. The CESTAT directed the adjudicating authority to re-examine the claim after allowing MES to be impleaded as a co-applicant, ensuring proper determination of the rightful claimant and compliance with the statutory framework. Case Details Case Title: Agarwal Jagdish Construction Co. Pvt Ltd. Versus Commissioner(Appeals) and ADG, DGGSTI, Jaipur Citation: JURISHOUR-483-CES-2026(DEL) Case No.: Service Tax Appeal No. 52467 Of 2018 Date: 23.03.2026 Counsel For Appellant: Suchi Sethi, Advocate Counsel For Respondent: Mehboob Ur Rehman, Authorised Representative Click Here To Read Order Read More: Conversion to Christianity Bars SC/ST Act Protection: Supreme Court

Service Tax Refund on Govt. Construction Services Allowed: CESTAT Rules on Unjust Enrichment, MES as Proper Claimant

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