2025 (6) TMI 1265 - AT - Service Tax

Refund of CENVAT credit arising out of service tax paid 30.01.2018 - sub-sections (3) of Section 142of the CGST Act 2017 read with Section 11B of the Central Excise Act 1944 - principles of unjust enrichment - 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 in payment of service tax on 30.01.2018 for which refund application was filed on 31.12.2018 with the department. In terms of legal provisions prescribing the procedure for transitional credit under Section 142(9)(b) of the CGST Act 2017 when the same is unable to be utilized for further payment of duty/tax the appellants had applied for refund before the departmental authorities. The main ground on which the refund application of the appellants was held as not entertainable in the impugned order is that there exists no provision for cash refund of CENVAT credit and therefore the refund in terms of proviso (c) to Section 11B(2) ibid is not permissible in the case of the appellants. In this regard it is found that the provisions of Sections 142(3) of CGST Act 2017 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 142(9)(b) of the CGST Act 2017 in dealing with refund of CENVAT credit . Further upon introduction of GST regime the transitional arrangements have been provided under Section 142 of CGST Act to enable the CENVAT credit if refundable to be paid in cash to the eligible persons as there was no way that such excess CENVAT credit could be used by the assessee in payment of tax on output service or duty on final products. It is also found that the proviso (c) to Section 11B(2) ibid cannot be read to state that refund of such excess CENVAT credit has not been provided under Rule 5 of the CCR as the entire arrangement of refund of excess CENVAT credit is arising as a transitional arrangement by moving from Excise duty/Service Tax regime to GST regime. 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 it is found 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. In the case of Dhyan Networks and Technologies Pvt. Ltd. Vs. Commissioner of GST and Central Excise Chennai 2022 (10) TMI 1009 - CESTAT CHENNAI the Tribunal has held that cash refund is required to be given to the assessees in terms of Section 142 of the CGST Act 2017. Conclusion - There are no merits in the impugned order passed by the learned Commissioner (Appeals) to the extent it has rejected the refund of service tax paid as 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. Therefore by setting aside the impugned order dated 30.09.2019 the appeal is allowed in favour of the appellants with consequential relief with respect to refund of excess CENVAT credit of Rs.12, 86, 186/- payable to the appellants. The impugned order is set aside - the appeal filed by the appellants is allowed by way of refund of Rs.12, 86, 186/- as per law.

Summary

The core legal questions considered in this appeal revolve around the eligibility and entitlement of the appellant to a refund of CENVAT credit arising from service tax paid post-GST implementation, specifically under the transitional provisions of the Central Goods and Services Tax Act, 2017 (CGST Act). The issues include:

1. Whether the refund of CENVAT credit arising out of service tax paid on 30.01.2018 is refundable under sub-section (3) of Section 142 of the CGST Act, 2017 read with Section 11B of the Central Excise Act, 1944.

2. The interpretation and applicability of the transitional provisions under Section 142 of the CGST Act concerning refund claims for amounts paid under the erstwhile law.

3. Whether the absence of specific provisions for cash refund of CENVAT credit under the CENVAT Credit Rules, 2004 (CCR) precludes the appellant from obtaining a refund.

4. The legal effect of the repeal of the Central Excise Act, 1944 and the supersession of CCR by the GST regime on refund claims for CENVAT credit.

5. The applicability of judicial precedents and the treatment of competing arguments regarding refund eligibility under the transitional provisions.

Issue-wise Detailed Analysis:

1. Eligibility for Refund of CENVAT Credit under Section 142(3) of the CGST Act, 2017:

The legal framework centers on Section 142 of the CGST Act, 2017, which provides transitional provisions for refund claims related to amounts paid under the existing law prior to GST implementation. Sub-section (3) mandates that refund claims filed before, on, or after the appointed day must be disposed of according to the provisions of the existing law, with any amount accruing to the claimant to be paid in cash, overriding contrary provisions except those in sub-section (2) of Section 11B of the Central Excise Act, 1944.

The appellant had paid service tax under the Finance Act, 1994 on 30.01.2018, post-GST implementation, for services availed from foreign service providers under the Reverse Charge Mechanism (RCM). The refund claim was rejected by the original authority and upheld by the Commissioner (Appeals) on grounds that no provision existed under CCR 2004 for refund of such CENVAT credit and that Section 142(3) was not applicable.

The Court's interpretation emphasized that Section 142(3) is a non-obstante clause with overriding effect, enabling refund of CENVAT credit paid under the erstwhile law even after GST implementation. The repeal of the Central Excise Act and supersession of CCR do not negate the transitional provisions that allow cash refunds. The Court noted that the appellant fulfilled all procedural requirements and that the refund claim was not barred by the unjust enrichment principle, which was not disputed.

Key evidence included the audit report pointing out the service tax liability, payment of Rs.12,86,186 by the appellant, and the refund application filed under Form-R. The Court found that the refund claim was not an arrear recovery under Section 142(8)(a) but a genuine claim under transitional provisions.

Competing arguments by the Revenue relied on the absence of specific refund provisions under CCR and the Bombay High Court's decision in Gauri Plasticulture, which denied cash refund for unutilized CENVAT credit when the assessee surrendered registration. The Court distinguished this precedent, noting the factual differences and the unique transitional context here.

Conclusion: The refund claim is maintainable under Section 142(3) of the CGST Act, and the appellant is entitled to cash refund.

2. Interpretation of Section 142 and the Repeal of Central Excise Laws:

The Court examined the legislative intent behind Section 142, which facilitates a smooth transition from the Central Excise and Service Tax regime to GST. The repeal of the Central Excise Act, 1944, and the supersession of CCR by the GST regime necessitated transitional provisions to address unutilized credits.

The Court held that the proviso to Section 11B(2) of the Central Excise Act, which restricts refund in certain cases, must be read subject to the overriding effect of Section 142(3). The absence of a specific provision in CCR for cash refund does not preclude refund under the transitional provisions. The Court underscored that the refund of excess CENVAT credit is a consequence of the shift to GST, where credit cannot be carried forward or utilized, thereby justifying cash refund.

The Court further analyzed the objectives of GST-to eliminate cascading taxes, integrate markets, and enhance federalism-highlighting that denying refund would contradict these objectives.

Conclusion: The transitional provisions under Section 142 are sufficient and have overriding effect, enabling cash refunds despite repeal and absence of specific CCR provisions.

3. Treatment of Judicial Precedents:

The appellant relied on decisions from the Madras High Court and the Tribunal, including Ganges International and Terex India, which held that service tax paid post-GST implementation is refundable under Section 142(3). The Court found these precedents persuasive, especially the detailed reasoning in Terex India, which clarified that payment under audit detection is not an arrear recovery under Section 142(8), but a valid refund claim under Section 142(3).

The Revenue relied on the Bombay High Court's Gauri Plasticulture decision, which was distinguished on facts and context. The Court also referred to a recent binding judgment of the Bombay High Court in Combitic Global Caplet Pvt. Ltd., which unequivocally held that refund under Section 142(3) must be paid in cash and that the government cannot retain amounts without legal authority.

Further, the Court noted the importance of judicial discipline as per the Supreme Court's ruling in Union of India v. Kamlakshi Finance Corporation, emphasizing adherence to higher appellate orders to avoid administrative chaos and harassment.

Conclusion: The Court aligned with judicial precedents favoring refund under Section 142(3) and rejected the Revenue's contrary stance.

4. Application of Law to Facts and Final Determination:

The appellant paid service tax on RCM basis post-GST implementation, was unable to utilize the credit due to the new regime, and filed a refund claim under transitional provisions. The authorities below rejected the claim citing inapplicability of CCR refund provisions and Section 142(3).

The Court applied the legal framework, noting that the refund claim is governed by Section 142(3), which requires disposal under existing law but mandates cash payment of any amount accruing to the claimant. The Court found no dispute on the validity of the credit or unjust enrichment and held that the refund claim is legitimate and must be allowed.

The Court also rejected the Revenue's argument that the refund claim was barred due to lack of specific CCR provisions or that the payment was an arrear recovery under Section 142(8). It clarified that the payment was voluntary and post-audit detection, not an assessment or adjudication proceeding.

Conclusion: The appellant is entitled to a refund of Rs.12,86,186/- in cash under Section 142(3) of the CGST Act, 2017.

Significant Holdings:

"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."

"The transitional provisions under Section 142 of the CGST Act, 2017, for smooth transition from earlier indirect taxes of Central Excise Act, 1944 and Finance Act, 1994 to a new GST Act, 2017, providing refund of CENVAT credit in accordance with the provisions of existing law, cannot be interpreted to mean that the existing CENVAT Credit Rules, 2004 provided only for refund in specified situations as stated in Rule 5 ibid, and hence cash refund of CENVAT credit is not permissible."

"The denial of cash refund solely on the basis that there exists no provision under CENVAT statute for cash refund is not legally sustainable."

"The payment made by the appellant is not consequent to an assessment or adjudication proceeding and hence Section 142(8)(a) of the CGST Act, 2017 is not attracted."

"The Hon'ble Bombay High Court has held that Section 142(3) of the CGST Act very clearly states that any amount eventually accruing shall be paid in cash and directed the departmental authorities to refund the amount of duty refundable in cash instead of credit in CENVAT account."

"Judicial discipline requires that the orders of higher appellate authorities should be followed unreservedly by subordinate authorities to avoid undue harassment and chaos in administration of tax laws."

Final determination: The impugned order rejecting the refund claim is set aside. The appellant is entitled to a cash refund of Rs.12,86,186/- under Section 142(3) of the CGST Act, 2017 read with Section 11B of the Central Excise Act, 1944, notwithstanding the repeal of the Central Excise Act and supersession of the CENVAT Credit Rules.