Service Tax refund cannot be denied merely on account of procedural lapse of filing TRAN-1

[CA Bimal Jain]

The Chennai Bench of Customs, Excise and Service Tax Appellate Tribunal (“CESTAT”) in the matter of M/S. BHARAT HEAVY ELECTRICALS LTD. VERSUS COMMISSIONER OF GST & CENTRAL EXCISE, CHENNAI [2021 (12) TMI 671 - CESTAT CHENNAI] held that, right to claim Service Tax refund cannot be denied merely on account of procedural lapse of filing TRAN-1 before December 27, 2017.

Facts:

M/s. Bharat Heavy Electricals Ltd. (“the Appellant”) is engaged in manufacture of boiler auxiliaries namely electrostatic precipitator, air pre-heaters, fans etc. and are registered with the Central Excise Department. They also have Service Tax registration as they are service providers as well as recipient of service. After introduction of GST, they migrated to GST and obtained necessary registration.

The Appellant received various inputs and input services into their factory for the use in their manufacturing activity.

As per the provisions under CENVAT Credit Rules, 2004, as amended in 2015, the Appellants were eligible to avail credit of the duty / tax paid on inputs and input services within a period of one year. However, they had not availed the credit on such inputs and input services till June 30, 2017. Since credit on the inputs /input services could not be availed before June 30, 2017, the same was not reflected in the ER-1 returns filed by them. It could not be carried forward through TRAN-1 to new GST regime. They later filed an application for refund of the credit. After due process of law, the original authority rejected the claim stating that they ought to have taken the credit within 90 days of the appointed day and submit a declaration electronically informing GST TRAN-1 in accordance with Rule 117 of Central Goods and Services Tax Rules, 2017 ("CGST Rules”).

Issue:

Whether right to claim Service Tax refund can be denied for procedural requirement of filing TRAN-1 before December 27, 2017?

Held:

The CESTAT, Chennai in M/S. BHARAT HEAVY ELECTRICALS LTD. VERSUS COMMISSIONER OF GST & CENTRAL EXCISE, CHENNAI [2021 (12) TMI 671 - CESTAT CHENNAI] held as under:

• Clearly stated that, the Appellant would be eligible to avail the credit but for the introduction of new GST law.
• The said right cannot be frustrated by pressing on the procedural requirement of filing TRAN-1 before December 27, 2017. The accounting practice adopted by the Appellant allows to avail credit only after making payments to the vendors which has made it impossible to carry forward the credit as set out in the GST law. When the credit is eligible, the same cannot be denied by stating procedural requirements.    
• The Court relied on the case Adfert Technologies Pvt. Ltd. Versus Union of India And Ors. - 2019 (11) TMI 282 - PUNJAB AND HARYANA HIGH COURT, it is held that transitional credit being vested right cannot be taken away on procedural or technical ground. This decision was upheld by the Hon'ble Supreme Court as reported in UNION OF INDIA & ORS. VERSUS ADFERT TECHNOLOGIES PVT. LTD. [2020 (3) TMI 188 - SC ORDER]. Hence, it is a settled legal position that substantive credit cannot be denied on procedural grounds.          
• The rejection of the refund claim was held to be not justified and the impugned order was set aside.     

Relevant Provision:

Rule 117 of CGST Rules:

“117. Tax or duty credit carried forward under any existing law or on goods held in stock on the appointed day.-

(1) Every registered person entitled to take credit of input tax under section 140 shall, within ninety days of the appointed day, submit a declaration electronically in FORM GST TRAN-1, duly signed, on the common portal specifying therein, separately, the amount of input tax credit of eligible duties and taxes, as defined in Explanation 2 to section 140, to which he is entitled under the provisions of the said section:

Provided that the Commissioner may, on the recommendations of the Council, extend the period of ninety days by a further period not exceeding ninety days.

Provided further that where the inputs have been received from an Export Oriented Unit or a unit located in Electronic Hardware Technology Park, the credit shall be allowed to the extent as provided in sub-rule (7) of rule 3 of the CENVAT Credit Rules, 2004.”

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