2025 (6) TMI 1006 - AT - Central Excise

Refund of CENVAT credit arising out of balance of Education Cess and Secondary Higher Education Cess as per the ER-1 for the month of June 2017 - Section 142(3) of the CGST Act 2017 read with Section 11B of the Central Excise Act 1944 - HELD THAT - From the facts of the case it is seen that the appellants had duly followed the procedure and conditions prescribed in complying with the obligations under Cenvat Credit Rules 2004 in taking credit of input and had also complied with for payment of duty/CENVAT credit in their periodical returns the relevant one which was filed for the month of June 2017 with the department. The provisions of Section 142of the CGST Act is a transitional arrangement wherein it has been specifically provided that such provisions apply as a non-obstanate clause whereby such provisions will have overriding effect if anything to the contrary is contained under the provisions of existing law i.e. Central Excise Act 1944 except for the provisions of sub-section (2) of section 11B ibid. Thus all the conditions of the requirements of Section 11B ibid as it remained under the existing law other than those relating to Unjust Enrichment clause contained in Section 11B(2) ibid would apply only if they are not contradictory to the provisions of Section 142of the CGST Act 2017 in dealing with refund of CENVAT credit . It is known very well that the taxation of goods and services in India has hitherto been characterized as a cascading and distortionary tax on production resulting in mis-allocation of resources and lower productivity and economic growth. It had also inhibited voluntary compliance - a well-designed value added tax on all Goods and Services (GST) has been introduced as the most elegant method of eliminating distortions and taxing consumption. Under this GST structure all different stages of production and distribution can be interpreted as a mere tax pass through and the tax essentially sticks on final consumption within the taxing jurisdiction. It is also of common knowledge that GST subsumes a number of existing indirect taxes which were earlier levied by the Centre and State Governments including Central Excise duty Service Tax VAT Purchase Tax Central Sales Tax Entry Tax Local Body Taxes Octroi Luxury Tax etc. It is reasonable to conclude that when the Central Excise Act 1944 amongst other laws relating to old tax regime was repealed by Section 174 of the CGST Act 2017 and that the CCR is also being superseded vide Notification No.20/2017-C.E. (N.T.) dated 30.06.2017 by the Central Government for smooth implementation of transfer to GST regime in indirect taxation it is found that the provisions of Section 142 of the CGST Act 2017 are sufficient to provide for the tax administration for sanction of cash refund in circumstances stated therein and I find that there is no need and it is not legally feasible to make any specific provision in CENVAT statute itself for enabling cash refund of excess CENVAT credit relating to earlier regime while moving to the new GST regime. There are no merits in the impugned order passed by the learned Commissioner (Appeals) to the extent it has rejected the refund of excess CENVAT credit which is contrary to the legal provisions of Section 142(3) of the CGST Act 2017 and thus it does not stand the scrutiny of law. Appeal allowed.

Summary

The core legal questions considered in this appeal revolve around the eligibility and entitlement of the appellants to a refund of the unutilized balance of Education Cess and Secondary & Higher Education Cess (SHE Cess) lying in their CENVAT credit account as on 30.06.2017, which was not carried forward under the GST regime. Specifically, the issues are:

1. Whether refund of the closing balance of Education Cess and SHE Cess lying unutilized in the CENVAT credit account as on 30.06.2017 is permissible under Section 11B of the Central Excise Act, 1944 and the CENVAT Credit Rules, 2004.

2. Whether the appellants are entitled to claim such refund under the transitional provisions of Section 142(3) of the Central Goods and Services Tax (CGST) Act, 2017, read with the existing law.

3. The interpretation and applicability of the provisions of the Central Excise Act, 1944, CENVAT Credit Rules, 2004, and CGST Act, 2017 in the context of refund claims arising from the transition from the pre-GST regime to the GST regime.

4. The legal effect of the repeal of the Central Excise Act, 1944 and supersession of CENVAT Credit Rules, 2004 by the CGST Act, 2017 and whether refund claims under the old regime can be entertained post-GST implementation.

5. The treatment of vested rights in CENVAT credit and whether such rights survive the transition to GST, entitling the appellants to refund.

Issue-wise Detailed Analysis

1. Refund Eligibility under Section 11B of the Central Excise Act, 1944 and CENVAT Credit Rules, 2004

The appellants sought refund of Rs. 1,51,307/- representing the closing balance of Education Cess and SHE Cess as on 30.06.2017, which was not carried forward under GST. The original authority and Commissioner (Appeals) rejected the refund claim primarily on the ground that the CENVAT Credit Rules, 2004, specifically Rule 5, provide refund of CENVAT credit only in cases of export or duty exemption, and no provision exists for refund of unutilized balances such as Education Cess and SHE Cess.

The Original Authority noted that Section 11B of the Central Excise Act, 1944, does not provide for refund of such unutilized cess balances and that the transitional provisions under Section 140 of the CGST Act, 2017, allow only for carrying forward eligible input tax credit via TRAN-1 application, with no provision for cash refund. Further, the refund application was held time-barred under Section 11B as it was filed after the prescribed period of one year from the relevant date.

The Commissioner (Appeals) concurred with these findings, emphasizing that refund of CENVAT credit is limited to specific categories such as export and deemed export under Rule 5 and 5A of the CCR, 2004, and no other provisions allow refund of unutilized cess credit.

Thus, under the pre-GST legal framework, the refund claim was not sustainable.

2. Applicability of Transitional Provisions under Section 142(3) of the CGST Act, 2017

The appellants contended that the refund claim falls within the transitional provisions of Section 142(3) of the CGST Act, 2017, which mandates that any claim for refund of CENVAT credit, duty, tax, interest, or any other amount paid under the existing law, filed before or after the appointed day (01.07.2017), shall be disposed of in accordance with the provisions of the existing law, and any amount accruing shall be paid in cash notwithstanding anything to the contrary in the existing law, except sub-section (2) of Section 11B of the Central Excise Act.

The appellants argued that since the Education Cess and SHE Cess credit could not be carried forward under GST (excluded from TRAN-1), the only remedy is refund in cash under Section 142(3). They relied on judicial precedents affirming that CENVAT credit is a vested right and cannot be extinguished by change in law without explicit provision.

The Tribunal referred to the Larger Bench decision clarifying that appeals against orders passed under Section 142(3) of the CGST Act lie before the Customs, Excise & Service Tax Appellate Tribunal, affirming the Tribunal's jurisdiction.

The Tribunal observed that Section 142 is a non-obstante clause with overriding effect, and the proviso to Section 11B(2) cannot be read to deny refund when the GST regime has repealed the old laws and the CENVAT Credit Rules have been superseded. It recognized that the transitional provisions envisage refund of such unutilized credits in cash, as they cannot be utilized under GST.

Hence, the Tribunal held that the appellants are eligible for refund under Section 142(3) of the CGST Act, 2017.

3. Interpretation of Repeal and Effect on Refund Claims

The repeal of the Central Excise Act, 1944 and supersession of the CENVAT Credit Rules, 2004 by the CGST Act, 2017 was examined. Section 174 of the CGST Act provides that repeal does not affect proceedings instituted before or after the appointed day, and such proceedings shall continue under the repealed Acts as if the CGST Act had not come into force.

The Tribunal emphasized that refund claims filed under the existing law prior to or after the appointed day are to be adjudicated under the existing law, with cash refund payable as per Section 142(3) of the CGST Act. This interpretation ensures continuity and protects vested rights.

4. Vested Rights in CENVAT Credit

The appellants relied on the Supreme Court decisions in Eicher Motors Ltd. and Samtel India Ltd., which held that credit under the Modvat/CENVAT scheme is a vested right and "as good as tax paid." Such credit cannot be taken away by mere change in law unless expressly provided.

The Tribunal endorsed this principle, noting that the appellants earned the Education Cess and SHE Cess credits under the pre-GST regime, and no provision in the GST laws extinguishes such credits. Therefore, denial of refund would violate the principle of vested rights.

5. Treatment of Competing Arguments

The Revenue contended that refund of CENVAT credit is only permissible under Rule 5 of the CCR, 2004, which restricts refund to exports and certain other categories, and that the appellants' claim does not fall within these categories. The Revenue relied on a Bombay High Court decision in Gauri Plasticulture to support this position.

The Tribunal distinguished the facts of Gauri Plasticulture, noting that it involved denial of refund due to surrender of registration and denial of exemption, whereas in the present case, the refund arises from unutilized credit due to transition to GST, a different factual and legal matrix.

The Tribunal also referred to several coordinate bench decisions and a recent binding judgment of the Bombay High Court in Combitic Global Caplet Pvt. Ltd., which held that Section 142(3) mandates cash refund of such amounts and that credit refund in CENVAT account post-GST repeal is nonsensical.

The Tribunal acknowledged divergent views from other benches but gave precedence to the binding High Court decision and larger bench rulings, emphasizing judicial discipline.

6. Application of Law to Facts and Final Conclusion

It was undisputed that the appellants had a closing balance of Education Cess and SHE Cess credit as on 30.06.2017, which was not carried forward under GST and could not be utilized. The appellants followed all procedural requirements in filing the refund claim under Section 11B of the Central Excise Act and Section 142(3) of the CGST Act.

The Tribunal found that the appellants were entitled to refund in cash of the unutilized CENVAT credit balance of Rs. 1,51,307/-, as the credit was a vested right, and the transitional provisions under Section 142(3) of the CGST Act mandate cash refund notwithstanding the absence of specific refund provisions in the repealed CCR, 2004.

The Tribunal set aside the impugned order rejecting the refund and allowed the appeal with consequential relief.

Significant Holdings

"Section 142(3) of the CGST Act, 2017 is a non-obstante provision which overrides any contrary provisions in the existing law and mandates that any claim for refund of CENVAT credit, duty, tax, interest or any other amount paid under the existing law, filed before, on or after the appointed day, shall be disposed of in accordance with the provisions of the existing law and any amount eventually accruing to the claimant shall be paid in cash."

"The appellants are entitled to refund of the unutilized balance of Education Cess and Secondary & Higher Education Cess lying in their CENVAT credit account as on 30.06.2017, which could not be carried forward under the GST regime, under the transitional provisions of Section 142(3) of the CGST Act, 2017 read with Section 11B of the Central Excise Act, 1944."

"CENVAT credit is a vested right and cannot be extinguished by mere change of law unless there is a specific provision to that effect. The appellants' right to refund of unutilized credit survives the transition to GST."

"The repeal of the Central Excise Act, 1944 and supersession of CENVAT Credit Rules, 2004 does not affect the adjudication of refund claims filed under the existing law, which must be disposed of in accordance with the provisions of the existing law, and refund, if admissible, must be paid in cash."

"The denial of refund on the ground that no provision exists under Rule 5 of the CCR, 2004 for cash refund of unutilized CENVAT credit, is not legally sustainable in the context of the transitional provisions under the CGST Act, 2017."

"The impugned order rejecting the refund claim is set aside and the appeal is allowed with consequential relief for refund of Rs. 1,51,307/-."