Ocean freight service tax refund allowed after audit payment under reverse charge mechanism

CESTAT Ahmedabad allowed the appeal regarding service tax refund on ocean freight paid under reverse charge mechanism. The appellant paid service tax on ocean freight only upon audit party's insistence, despite the levy being debatable with ongoing litigation that ultimately established ocean freight was not liable to service tax. The revenue rejected the refund claiming suppression of facts under Rule 9(1)(bb) of Cenvat Credit Rules, 2004. The tribunal held no suppression occurred as no show cause notice was issued for extended period demand, and suppression allegations were based on assumptions. Following precedent, the appellant was entitled to Cenvat credit and consequential refund with interest, plus additional interest under Section 11BB for delayed refund processing.

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Issues Involved:
1. Entitlement to Cenvat credit and refund of service tax paid on ocean freight.
2. Allegation of suppression of fact under Rule 9(1)(bb) of Cenvat Credit Rules, 2004.
3. Applicability of Rule 9(e) of Cenvat Credit Rules, 2004 for availing credit.
4. Entitlement to interest on the refund amount.

Summary:

Issue 1: Entitlement to Cenvat credit and refund of service tax paid on ocean freight
The appellant paid service tax on ocean freight for the period January 2017 to June 2017 on the insistence of the audit party. They claimed a refund under \u/s 142(3) of the CGST Act, 2017, which was rejected by the Adjudicating Authority and upheld by the Commissioner (Appeals). The appellant argued that there was no suppression of fact, and thus, the refund should not be denied.

Issue 2: Allegation of suppression of fact under Rule 9(1)(bb) of Cenvat Credit Rules, 2004
The lower authorities rejected the refund claim on the grounds of suppression of fact, invoking Rule 9(1)(bb) of Cenvat Credit Rules, 2004. However, it was found that the service tax was paid by the appellant due to the audit party's insistence amid ongoing litigation on the taxability of ocean freight. No show cause notice was issued for the extended period, indicating no suppression of fact.

Issue 3: Applicability of Rule 9(e) of Cenvat Credit Rules, 2004 for availing credit
The Tribunal referenced the case of Pacific Harish Industries and other precedents, concluding that Rule 9(1)(bb) does not apply to payments made under reverse charge mechanism. Instead, Rule 9(e) is applicable, which allows for Cenvat credit based on bank challans as proof of payment. The Tribunal held that the appellant rightfully availed Cenvat credit under Rule 9(e).

Issue 4: Entitlement to interest on the refund amount
The Tribunal ruled that the appellant is entitled to a refund of the service tax along with interest. Since there was a delay in processing the refund, the appellant is also entitled to interest on the refund amount in terms of \u/s 11BB of the Central Excise Act, 1944, from three months after filing the refund claim until the date of sanction, as upheld by the Supreme Court in Ranbaxy Laboratories Vs. Union of India.

Conclusion:
The Tribunal set aside the impugned order and allowed the appeal with consequential relief, including interest on the refund amount.

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