2022 (10) TMI 1009 - AT - Service Tax

Refund of CENVAT Credit - providing Business Support Services to their foreign clients - Rule 5 of the CENVAT Credit Rules 2004 read with Notification No. 27/2012-C.E (N.T.) dated 18.06.2012 - July 2014 to September 2014 - the grievance of the appellant is that the amount of Rs.2, 93, 427/- was not sanctioned to the appellant in cash and instead was directed to take re-credit of the said amount - HELD THAT - Whatever the reasons may be for rejection of cash refund it has to be seen that after the introduction of G.S.T. the said direction to take re-credit has become impractical for the appellant - The Tribunal in the case of VEER-O-METALS PVT LTD VERSUS COMMISSIONER OF CENTRAL TAX BANGALURU SOUTH COMMISSIONERATE 2021 (4) TMI 117 - CESTAT BANGALORE had considered a situation as to whether refund in cash can be allowed when credit cannot be availed by the assessee. As the appellant has been allowed to take re-credit and is not able to do the same due to the introduction of G.S.T. I am of the view that he has to be given refund of the said amount in cash - the appellant is eligible for refund of the amount of Rs.2, 93, 427/-. Appeal allowed - decided in favor of appellant.

Summary

The core legal questions considered by the Tribunal in this appeal are:

• Whether the appellant is entitled to a cash refund of the unutilized CENVAT credit amounting to Rs. 2,93,427/- claimed for the period July 2014 to September 2014, which was partially rejected by the Original Authority and Commissioner (Appeals) on the ground that the appellant should take re-credit instead of cash refund.
• Whether the re-credit of CENVAT credit directed by the authorities below is a practical remedy after the introduction of the Goods and Services Tax (GST) regime, given that the CENVAT credit account no longer exists.
• The interpretation and applicability of Rule 5 of the CENVAT Credit Rules, 2004 and Notification No. 27/2012-C.E. (N.T.) dated 18.06.2012, particularly the definition of "Net CENVAT credit" under Rule 5(1)(B).
• The impact of the provisions of Section 142(3) and Section 142(6)(a) of the Central Goods and Services Tax (CGST) Act on refund claims pending under the erstwhile law at the time of GST implementation.
• The legal effect of prior judicial precedents, notably the Tribunal decisions in M/s. Veer-o Metals Pvt. Ltd. and Wave Mechanics Pvt. Ltd., on the entitlement to cash refund versus re-credit of CENVAT credit in the context of transition to GST.

Issue-wise Detailed Analysis:

1. Entitlement to Cash Refund versus Re-credit of CENVAT Credit

The appellant initially filed refund claims aggregating Rs. 2,93,427/- for earlier periods (April to September 2013) but had withdrawn those claims and instead took re-credit during the quarter July to September 2014. Subsequently, the appellant filed a refund claim for this amount under Rule 5 of the CENVAT Credit Rules, 2004 read with Notification No. 27/2012-C.E. The Original Authority allowed refund of Rs. 3,34,714/- but rejected the refund of Rs. 2,93,427/-, directing the appellant to take re-credit of this amount instead.

The appellant contended that the authorities erred in differentiating between "credit availed" and "re-credit taken," arguing that Rule 5(1)(B) defines "Net CENVAT credit" as the credit availed during the relevant period, without excluding re-credit. The appellant submitted that since the credit of Rs. 2,93,427/- was availed (including re-credit) during the relevant period, refund of this unutilized credit should have been allowed in cash.

The Tribunal observed that the authorities below accepted the appellant's right to take re-credit but denied cash refund. The Tribunal noted that the appellant was prevented from taking re-credit after GST implementation because the CENVAT credit account ceased to exist, rendering the direction to take re-credit impractical.

2. Practicality of Re-credit after GST Implementation

The appellant argued that since the GST regime commenced from 1.7.2017, and there is no CENVAT credit account post-GST, the remedy of taking re-credit is of no practical use. The appellant relied on the Tribunal decision in M/s. Veer-o Metals Pvt. Ltd., where it was held that after GST introduction, claimants are entitled to cash refund under Section 142(3) and Section 142(6)(a) of the CGST Act for credits accrued under the earlier law but not utilized.

The Tribunal concurred with this view, recognizing that the direction to take re-credit is impractical post-GST and that the appellant should be entitled to cash refund of the unutilized credit.

3. Interpretation of Rule 5 of CENVAT Credit Rules and Notification No. 27/2012-C.E.

Rule 5(1)(B) of the CENVAT Credit Rules defines "Net CENVAT credit" as the credit availed during the relevant period. The authorities below had taken the view that re-credit taken is not equivalent to credit availed in the normal course and therefore excluded the re-credited amount from refund eligibility.

The Tribunal rejected this artificial distinction, emphasizing that the credit availed and re-credit taken should not be differentiated for the purpose of refund claims. The appellant had debited the amount in its CENVAT account as required under the Notification, fulfilling procedural requirements.

4. Application of Section 142(3) and Section 142(6)(a) of the CGST Act

Section 142(3) of the CGST Act mandates that any refund claim filed before or after the appointed day (GST implementation date) under the existing law shall be disposed of under the existing law, but any amount due shall be paid in cash notwithstanding anything to the contrary in the existing law (except certain provisions of the Central Excise Act).

Section 142(6)(a) provides that appeal, review, or reference proceedings relating to claims for CENVAT credit initiated before or after the appointed day shall be disposed of under the existing law, and any credit found admissible shall be refunded in cash notwithstanding anything to the contrary.

The Tribunal relied on these provisions to hold that the appellant is entitled to cash refund of the unutilized CENVAT credit amount, as the claim was pending at the time of GST introduction and the credit was never disallowed.

5. Precedential Support from Tribunal Decisions

The appellant relied on the Tribunal decisions in M/s. Veer-o Metals Pvt. Ltd. and Wave Mechanics Pvt. Ltd. In Wave Mechanics, the Tribunal held that cash refund is not admissible under Rule 5 of the CENVAT Credit Rules read with Notification No. 27/2012-C.E. in respect of clearances made by one Export Oriented Unit (EOU) to another on the Inter Unit Transfer (IUT) basis, and that re-credit is the appropriate remedy.

However, the Tribunal in Veer-o Metals considered the transitional provisions of the CGST Act and held that where re-credit is not possible post-GST, cash refund must be allowed under Section 142(3) and (6)(a). The present case was found analogous to Veer-o Metals, and the Tribunal accordingly allowed cash refund.

6. Treatment of Competing Arguments

The authorities below emphasized adherence to the extant law under the CENVAT Credit Rules and Notification, directing re-credit. The appellant argued that the GST transition provisions override such directions, making re-credit impossible and necessitating cash refund.

The Tribunal balanced these views by applying the transitional provisions of the CGST Act, which explicitly mandate cash refunds where re-credit is not feasible, thereby overruling the earlier approach.

Conclusions

The Tribunal concluded that the appellant is entitled to cash refund of Rs. 2,93,427/-. The direction to take re-credit is not sustainable post-GST, and the refund claim must be allowed in cash as per Section 142(3) and (6)(a) of the CGST Act. The impugned order denying cash refund was set aside, and the appeal was allowed with consequential reliefs.

Significant Holdings:

"...as per sub-section (3) of Section 142 of CGST Act, every claim for refund filed by any person before, on or after the appointed day, for refund of any amount of Cenvat credit, duty, tax, interest or any other amount paid under the existing law, shall be disposed of in accordance with the provisions of existing law and any amount eventually accruing to him shall be paid in cash, notwithstanding anything to the contrary contained under the provisions of existing law other than the provisions of sub-section (2) of Section 11B of the Central Excise Act, 1944."

"...as per sub-section (6)(a) of Section 142, every proceeding of appeal, review or reference relating to a claim for Cenvat credit initiated whether before, on or after the appointed day under the existing law shall be disposed of in accordance with the provisions of existing law, and any amount of credit found to be admissible to the claimant shall be refunded to him in cash, notwithstanding anything to the contrary contained under the provisions of existing law other than the provisions of sub-section (2) of Section 11B of the Central Excise Act, 1944."

"...the appellant had already debited the entire amount in their Cenvat account and the said amount was debited under a bona fide belief that the cash refund would be sanctioned to them and the very fact that Cenvat credit was never disallowed, hence the Cenvat credit lying in the balance of Cenvat account are liable to be refunded in cash to the appellant as per the provisions of sub-section (3) or sub-section (6)(a) of Section 142 of CGST Act."

"...the impugned order denying the cash refund is not sustainable in law and the appellant is entitled to cash refund as per sub-section (3) and sub-section (6)(a) of Section 142 of CGST Act."

Core principles established include the overriding effect of the CGST transitional provisions mandating cash refunds for unutilized CENVAT credit claims pending at GST commencement, the impracticality of re-credit post-GST, and the proper interpretation of "credit availed" to include re-credit for refund eligibility under Rule 5 of the CENVAT Credit Rules.