2022 (5) TMI 480 - AT - Service Tax

Tribunal grants appeal for CENVAT credit refund under GST regime

The tribunal allowed the appeal filed by a manufacturing company regarding the denial of CENVAT credit on Service Tax paid during the GST regime under ... Refund of CENVAT credit under transitional provisions - reverse charge mechanism on import of services - continuation of proceedings under repealed Acts by saving clause - maintainability of appeal before CESTAT for pre-GST CENVAT refund - cash refund in lieu of unutilised CENVAT credit - prohibition of conditioning refund on payment of GSTContinuation of proceedings under repealed Acts by saving clause - maintainability of appeal before CESTAT for pre-GST CENVAT refund - Appeal against rejection of refund of CENVAT credit instituted under the pre-GST law is maintainable before CESTAT despite commencement of GST Act. - HELD THAT: - The Tribunal examined Section 174(2)(f) (saving clause) which provides that repeal of the earlier Acts shall not affect any proceedings, including appeals, instituted before, on or after the appointed day and such proceedings shall be continued under the repealed Acts as if the GST Act had not come into force. Applying that saving provision, the Tribunal held that proceedings and appeals relating to claims for CENVAT credit initiated under the existing law continue to be governed by the existing law and its appellate mechanism. Prior decisions holding that GST appellate fora would hear transitional disputes were considered, but the saving clause was found decisive and was not addressed in those decisions. Consequently the CESTAT is competent to entertain the present appeal which arises from a refund claim filed under the earlier law and pursued through the appellate process available under that law. [Paras 6, 7]The appeal is maintainable before CESTAT and this Bench is competent to decide the refund claim instituted under the existing law.Refund of CENVAT credit under transitional provisions - cash refund in lieu of unutilised CENVAT credit - prohibition of conditioning refund on payment of GST - reverse charge mechanism on import of services - Whether the appellant is entitled to refund of CENVAT credit paid as service tax (including amounts paid under reverse charge) when such refund proceedings were instituted under the pre-GST law. - HELD THAT: - The Tribunal noted that Section 142(3) contemplates that any amount of CENVAT credit found admissible shall be refunded in cash in accordance with the existing law. The appellant had paid service tax under reverse charge for services received from associated enterprises and filed refund claims under the pre-GST regime. The Commissioner (Appeals) rejected the refund on the ground that GST was payable because final booking in the accounts occurred post-appointed day. The Tribunal held that rejection on the sole ground that GST was payable and absence of GST payment evidence was erroneous because the refund application instituted under the existing law must be dealt with under that law and any recovery under the GST Act can be pursued by competent authorities without making payment of GST a pre-condition for the grant of refund under the earlier law. Applying these principles, the Tribunal found the appellant entitled to cash refund of the admitted CENVAT credit paid as service tax, including amounts paid under reverse charge. [Paras 7, 8]The Commissioner (Appeals) order is set aside; appellant is entitled to refund of the CENVAT credits paid as service tax and the Department is directed to pay the refund with interest.Final Conclusion: The appeal is allowed: the CESTAT is competent to decide refund proceedings instituted under the pre GST law by virtue of the saving clause, and the appellant is entitled to cash refund of the CENVAT credit paid as service tax (including reverse charge payments); the order of the Commissioner (Appeals) is set aside and the refund with applicable interest is directed to be paid. Issues:Denial of CENVAT credit on Service Tax paid during GST regime under Reverse Charge Mechanism by manufacturing company; Confirmation of denial by Commissioner of Central Tax (Appeals-I); Jurisdiction of CESTAT to review legality of Commissioner's order under Section 142 of CGST Act.Analysis:1. The case involved the denial of CENVAT credit on Service Tax paid during the GST regime by a manufacturing company, which was required to pay service tax under Reverse Charge Mechanism. The Commissioner of Central Tax (Appeals-I) confirmed the denial, leading to the appeal before the tribunal.2. The appellant, covered under Rule 7 of Point of Taxation Rules, 2011, filed a refund application within the limitation period seeking refund of Service Tax paid post-GST regime onset. The rejection of the refund application was based on the ground that GST was payable on recorded transactions, despite the services being rendered prior to the GST regime.3. During the appeal hearing, the appellant's counsel cited relevant provisions of the CGST Act and judicial decisions by various Tribunal benches to support the claim for CENVAT credit. The counsel argued that the appellant was eligible for the credit as input services were used for manufacturing activities, and the expiration of carrying forward CENVAT credit to the GST regime necessitated cash refund under Section 142(3) of the CGST Act.4. The Respondent-Department's Authorized Representative supported the Commissioner's order and objected to CESTAT's jurisdiction to review the legality of the order under Section 142 of the CGST Act. Referring to a previous CESTAT order, the representative argued that appeals against such decisions should be made to the GST Appellate Tribunal once constituted.5. The tribunal analyzed the provisions of Section 142(3) and Section 174 of the CGST Act regarding the refund of CENVAT credit paid under the existing law. The tribunal deliberated on the jurisdictional issue and the conflicting views presented by the appellant's counsel and the Respondent-Department's representative. The tribunal concluded that the appeal was maintainable before CESTAT as the order was passed under the existing law and not the GST Act.6. The tribunal highlighted the saving Clause 2(f) of Section 174, emphasizing that proceedings, including appeals, initiated under the repealed Act would continue as if the GST Act had not come into force. The tribunal held that the denial of refund solely based on the payment of GST was erroneous, as recovery provisions under the GST Act could be utilized instead of imposing a pre-condition of GST payment for refund under the Central Excise Act.7. Consequently, the tribunal allowed the appeal, setting aside the Commissioner's order and directing the Respondent-Department to refund the CENVAT credits with applicable interest. The tribunal affirmed its competence to decide the issue and rejected the objections raised regarding its jurisdiction.8. The order was pronounced in favor of the appellant on 05.05.2022, granting the refund of CENVAT credits and emphasizing the tribunal's authority to adjudicate on the matter.