2025 (5) TMI 1127 - AT - Central Excise

Refund of CENVAT credit of Countervailing Duty CVD and Special Additional Duty SAD paid by the appellant - non-fulfilment of export obligation in respect of Advance Authorisation - HELD THAT - It is clear from the decision of the Tribunal in Shakti Pumps 2024 (7) TMI 541 - CESTAT NEW DELHI that Shakti Pumps was held entitled to claim refund of CENVAT credit in cash under the provision of section 142(3) of the CGST Act even though Shakti Pumps had paid CVD and SAD post implementation of the CGST Act and in terms of the 2004 Credit Rules as applicable prior to 01.07.2017 Shakti Pumps was entitled to claim CENVAT credit of CVD and SAD paid on imports. The appellant would therefore be entitled to refund in cash CENVAT credit of the amount of CVD and SAD paid after 01.07.2017. It would be seen that the Jharkhand High Court after acknowledging that under section 142(3) of the CGST Act a refund application can be filed with respect to any amount relating to CENVAT credit paid under the existing law and it has to be disposed of in accordance with the provisions of the existing law the refund was not granted for the reason that the writ petitioner had not claimed transactional credit but had claimed the amount of service tax on port service as credit in the ST-3 returns to which it was admittedly not entitled to as it was an assessee under service tax only on reverse charge mechanism and admittedly the port services availed by the writ petitioner was not covered under reverse charge mechanism. Thus it was found as a fact that the writ petitioner had not only illegally taken credit of service tax on port services as credit in the ST-3 returns but had filed an application for refund of the same under section 142(3) of the CGST Act which was not permissible in law. This decision of the Jharkhand High Court in Rungta Mines 2022 (2) TMI 934 - JHARKHAND HIGH COURT would therefore not come to the aid of the department. The decision of the Larger Bench of the Tribunal in Collector of Central Excise Chandigarh vs. Kashmir Conductors 1997 (7) TMI 186 - CEGAT COURT NO. II NEW DELHI - LB relied upon by the learned authorized representative appearing for the department is also not applicable to the facts of the present case since it deals with time limit for filing refund claim. In the instant case the refund claim has not been rejected as being barred by time under section 11B of the Central Excise Act 1944. Conclusion - The appellant would be entitled to refund of CENVAT credit in cash under the provisions of section 142(3) of the CGST Act of the amount of CVD and SAD paid after the coming into force of the CGST Act on 01.07.2017. Appeal allowed.

Summary

The core legal questions considered in this appeal revolve around the entitlement to refund of CENVAT credit in cash for Countervailing Duty (CVD) and Special Additional Duty (SAD) paid by the appellant after the implementation of the Goods and Service Tax (GST) regime on 01.07.2017, in circumstances where the appellant failed to fulfill export obligations under Advance Authorization licenses. Specifically, the issues are:

1. Whether the appellant is entitled to refund of CENVAT credit of CVD and SAD paid voluntarily post-implementation of the CGST Act under the provisions of section 142(3) of the CGST Act, 2017.

2. The applicability and interpretation of section 142(6)(a) and 142(6)(b) of the CGST Act with respect to refund claims related to CENVAT credit.

3. The relevance and application of the CENVAT Credit Rules, 2004 (the 2004 Credit Rules), especially rule 9(1), in the post-GST regime.

4. The effect of non-fulfillment of export obligations under Advance Authorization on the admissibility of refund claims under the existing law and GST transitional provisions.

5. The impact of judicial precedents, including decisions of the Tribunal and High Courts, on the entitlement to refund of CENVAT credit in such circumstances.

Issue-wise Detailed Analysis

Issue 1: Entitlement to Refund of CENVAT Credit of CVD and SAD Paid Post-GST Implementation under Section 142(3) of the CGST Act

Relevant Legal Framework and Precedents: Section 142(3) of the CGST Act mandates that every claim for refund of any amount of CENVAT credit, duty, tax, interest, or other amount paid under the existing law shall be disposed of in accordance with the provisions of the existing law, with any amount accruing to the claimant to be paid in cash. The term "existing law" is defined under section 2(48) of the CGST Act as any law relating to levy and collection of duty or tax on goods or services passed before the commencement of the CGST Act.

Section 173 of the CGST Act omits Chapter V of the Finance Act, 1994, and section 174 repeals the Central Excise Act, 1944, effective from 01.07.2017, with saving provisions preserving ongoing proceedings.

The 2004 Credit Rules, framed under the Excise Act and Finance Act, ceased to exist post-01.07.2017 due to repeal of the parent Acts.

In the decision of the Tribunal in Shakti Pumps (2024), the appellant was held entitled to refund of CENVAT credit in cash under section 142(3) even though CVD and SAD were paid post-GST implementation. The Tribunal emphasized that refund claims must be disposed of under the existing law, and the repeal of the Excise Act and associated rules did not extinguish the right to refund but required disposal in accordance with the existing law.

Similarly, the Larger Bench decision in Bosch Electrical Drive India Pvt. Ltd. (2023) upheld that refund claims under section 142(3) relate to amounts paid under existing law and must be adjudicated accordingly, even if payment occurred after GST implementation.

Division Bench decisions such as Granules India Ltd. and Aculife Healthcare Pvt. Ltd. reinforced this principle, holding that payment of CVD and SAD during the GST regime for imports under advance authorization entitles the appellant to refund of CENVAT credit in cash, as the credit was admissible under the pre-GST law.

Court's Interpretation and Reasoning: The Court reasoned that although the appellant paid CVD and SAD after 01.07.2017, the payment related to import transactions under advance authorization licenses issued prior to GST implementation. The appellant was entitled to CENVAT credit under the 2004 Credit Rules for such duties paid. Since the 2004 Credit Rules ceased to exist post-GST, the appellant could not carry forward or utilize such credit under the CGST Act. Section 142(3) provides a mechanism for refund of such credits in cash.

The Court rejected the department's argument that the refund claim must be governed by section 142(6)(a) or (6)(b), clarifying that these subsections pertain to appeals, reviews, or recovery proceedings, whereas the appellant's claim was a refund application under section 142(3).

Key Evidence and Findings: The appellant had paid the CVD and SAD voluntarily after failing to fulfill export obligations. Redemption letters/export obligation discharge certificates were issued by DGFT, and customs authorities discharged bonds against advance authorizations. The appellant filed refund applications and affidavits asserting voluntary payment.

Application of Law to Facts: The Court applied section 142(3) to hold that the appellant's refund claim must be adjudicated under the existing law, which, despite repeal, governs the rights and liabilities pertaining to CENVAT credit on CVD and SAD paid for pre-GST imports. The appellant's entitlement to refund in cash was upheld.

Treatment of Competing Arguments: The department argued that the refund claim was inadmissible under section 142(6)(b) and rule 9(1) of the 2004 Credit Rules, citing the Servo Packaging Ltd. decision. The Court distinguished Servo Packaging Ltd., noting it was not applicable to the present facts and that subsequent decisions had departed from it. The department's reliance on the Jharkhand High Court decision in Rungta Mines was also rejected as the facts there involved illegal credit claims and were not analogous.

Conclusion: The appellant is entitled to refund of CENVAT credit in cash under section 142(3) of the CGST Act for CVD and SAD paid after GST implementation on imports under advance authorization licenses.

Issue 2: Applicability and Interpretation of Section 142(6)(a) and (6)(b) of the CGST Act

Relevant Legal Framework: Section 142(6)(a) applies to proceedings of appeal, review, or reference relating to claims for CENVAT credit, whereas section 142(6)(b) applies to proceedings relating to recovery of CENVAT credit.

Court's Interpretation: The Court clarified that these provisions do not govern refund claims filed under section 142(3). The appellant's refund application was a claim for refund of CENVAT credit paid under the existing law, not an appeal or recovery proceeding. Therefore, neither section 142(6)(a) nor (6)(6)(b) applies to the present case.

Conclusion: The refund claim must be considered under section 142(3), and misclassification under sections 142(6)(a) or (6)(b) does not affect the appellant's entitlement.

Issue 3: Relevance of CENVAT Credit Rules, 2004, Post-GST Implementation

Relevant Legal Framework: The 2004 Credit Rules were framed under the Central Excise Act and Finance Act, both repealed effective 01.07.2017 by sections 173 and 174 of the CGST Act.

Court's Reasoning: The repeal of the Excise Act and Finance Act led to automatic repeal of the 2004 Credit Rules. Consequently, no CENVAT credit could be claimed or utilized under these rules after GST implementation. However, the rights and liabilities arising before repeal survive for adjudication under the existing law.

Application to Facts: The appellant could not claim or utilize CENVAT credit of CVD and SAD paid post-GST under the 2004 Credit Rules but was entitled to refund under section 142(3) of the CGST Act.

Conclusion: The 2004 Credit Rules ceased to operate post-GST, but refund claims under existing law for credits accrued before repeal remain valid.

Issue 4: Effect of Non-fulfillment of Export Obligations on Refund Claims

Legal Framework: Under the Foreign Trade Policy (FTP) and Customs law, failure to fulfill export obligations under Advance Authorization requires payment of customs duties with interest. Section 142(6)(b) of the CGST Act disallows input tax credit on amounts paid due to non-fulfillment of export obligations.

Court's Analysis: The appellant had failed to fulfill export obligations and paid customs duties voluntarily thereafter. The department contended that refund claims are inadmissible due to non-fulfillment. However, the Court noted that the appellant's payment was voluntary and supported by discharge certificates from DGFT and customs authorities.

The Court distinguished cases where duties were paid due to contraventions or fraud from the present case where payment was voluntary and supported by documentation.

Conclusion: Non-fulfillment of export obligations does not preclude refund of CENVAT credit in cash for duties voluntarily paid post-GST implementation under section 142(3).

Issue 5: Treatment of Judicial Precedents

Relevant Precedents: The department relied on the Tribunal decision in Servo Packaging Ltd. and the Jharkhand High Court decision in Rungta Mines Ltd. The appellant relied on the Tribunal decisions in Shakti Pumps, Bosch Electrical Drive, Granules India Ltd., Aculife Healthcare, and others.

Court's Reasoning: The Court found that the Servo Packaging Ltd. decision was not applicable to the facts of the present case and had been departed from by subsequent Division and Larger Bench decisions. The Rungta Mines decision was distinguished on facts involving illegal credit claims.

The Court held that the appellant's case squarely falls within the principles laid down in Shakti Pumps and other supportive decisions, entitling the appellant to refund under section 142(3).

Conclusion: The appellant's entitlement to refund is supported by binding Tribunal precedents, and contrary decisions relied upon by the department do not apply.

Significant Holdings

"Section 142(3) of the CGST Act provides that 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 the 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."

"The repeal of the Excise Act and the Finance Act with effect from 01.07.2017 automatically led to the repeal of the 2004 Credit Rules framed thereunder. Consequently, the appellant could not have claimed refund under rule 4(7) of the 2004 Credit Rules or taken credit under section 140(1) of the CGST Act after that date."

"The refund claim filed by the appellant is not governed by section 142(6)(a) or (6)(b) of the CGST Act as these provisions relate to appeals, reviews, or recovery proceedings, whereas the present claim is a refund application under section 142(3)."

"Non-fulfillment of export obligations under Advance Authorization does not disentitle the appellant from claiming refund of CENVAT credit in cash for duties voluntarily paid post-GST implementation, provided the payment is supported by redemption certificates and discharge of bonds."

"The appellant is entitled to refund of CENVAT credit in cash under section 142(3) of the CGST Act for the amount of CVD and SAD paid after 01.07.2017, notwithstanding the implementation of the GST regime and repeal of the pre-existing laws."

"The decision of the Tribunal in Shakti Pumps and other subsequent decisions are binding precedents affirming the appellant's right to refund, and contrary decisions relied upon by the department are either distinguishable or not applicable."

The impugned order rejecting the refund claim was set aside, and the appeal was allowed accordingly.