2024 (5) TMI 523 - AT - Service Tax

Service tax refund claim rejected for mixing different provisions across Central Excise and CGST Acts

M/s Cyient Limited Versus The Commissioner of Central Tax, Rangareddy- GST

CESTAT Hyderabad rejected the appellant's refund claim for service tax paid under Reverse Charge Mechanism. The appellant paid service tax after audit ... Refund of service tax paid on Reverse Charge Mechanism - It is the case of the Department that payment of service tax on RCM, availment of CENVAT credit of the same and refund of unutilized credit under Rule 5 are different and are governed by different provisions of law - HELD THAT:- On going through the records of the case, it appears that having paid the applicable service tax on being pointed out by the audit, the appellants have filed the refund claim. If the appellants are seeking refund of service tax under Section 11B of Central Excise Act, 1944, they have to satisfy the conditions of Section 11B which provides for refund of any duty. It is not clear as to why the appellants have claimed refund of duty; it is not duty which is paid in excess or under mistaken notion of law. Any claim of refund should have some basis for claiming of the same. The claim of the appellants appears to be that they have paid service tax on Reverse Charge Mechanism; they are eligible to avail CENVAT credit of the same and as they are not in a position to avail and utilize the credit, they are seeking refund under Section 142(3)of CGST Act, 2017. From the records of the case, it is seen that the case does not fall under the category of refund under Rule 5, as a refund claim for the relevant quarter has already been filed and availed by the appellant, the fact of which is not denied by them. It is found that the appellant is attempting to compress various provisions relating to refund under Central Excise Act, 1944; CENVAT Credit Rules 2004 and CGST Act 2017. The provisions of law do not permit the same. It was for the appellant to pay the applicable service tax in time; to avail CENVAT credit of the same and claim refund under the provisions of Rule 5 as the appellants are engaged in export. The appellants have paid duty on being pointed out after the implementation of GST. Thus, their claim of refund of unutilized credit has no merit. As the service tax cannot be held to have been paid without sanction of law, the appellants are also not eligible for refund of service tax as such. The appeal is rejected. ISSUES PRESENTED AND CONSIDERED 1. Whether payment of service tax under reverse charge mechanism (RCM) after the GST cut-off date entitles the taxpayer to refund of the tax paid in cash under Section 11B of the Central Excise Act, 1944 read with Section 142(3) of the CGST Act, 2017. 2. Whether an amount of service tax paid under RCM can be treated as CENVAT credit eligible for refund under Rule 5 of the CENVAT Credit Rules, 2004 when the taxpayer exports services and is unable to utilize the credit. 3. Whether Section 142(3) of the CGST Act, 2017 creates an independent entitlement to refund of unutilized pre-GST credits or directs disposal of existing refund claims strictly under the provisions of the erstwhile law. 4. Whether multiple refund claims for the same quarter may be entertained where a refund for that quarter has already been admitted and paid under the relevant notification/procedure. ISSUE-WISE DETAILED ANALYSIS Issue 1: Entitlement to cash refund of service tax paid under RCM after GST cut-off under Section 11B read with Section 142(3) Legal framework: Section 11B of the Central Excise Act, 1944 provides for refund of duty subject to conditions; Section 142(3) of the CGST Act, 2017 requires that refund claims transitional from the erstwhile law be disposed of 'in accordance with the provisions of existing law.' Precedent Treatment: The authorities and tribunal decisions cited by the parties present conflicting approaches; some decisions have permitted refund of unutilized pre-GST credits in limited circumstances, while higher court decisions and larger benches have emphasized strict adherence to the statute. Interpretation and reasoning: The Court reads Section 142(3) as a procedural bridge that mandates disposal of refund claims under the law existing prior to GST (i.e., the Central Excise Act and CENVAT Credit Rules) rather than creating a new substantive right to cash refund. Payment of tax under the Finance Act, 1994 and availability of CENVAT credit under the CCR 2004 are distinct; payment alone does not create an automatic right to a refund absent a provision permitting such refund under the existing law. The Court notes absence of any statutory or notifiable provision (prior to 01.07.2017) authorizing cash refund of service tax paid under RCM in the facts presented. Ratio vs. Obiter: Ratio - Section 142(3) does not confer an independent substantive right to cash refund of pre-GST taxes; refund must be governed by pre-existing statutory provisions (Section 11B/CCR) and applicable notifications. Obiter - observations on the policy rationale behind the separation of payment and credit. Conclusion: No entitlement to cash refund under Section 11B via Section 142(3) where existing law contains no provision authorizing refund of service tax paid under RCM in the circumstances before the Court. Issue 2: Applicability of Rule 5 CENVAT Credit Rules, 2004 for refund of service tax paid under RCM where services are exported and credit remains unutilized Legal framework: Rule 5 CCR 2004 prescribes refund of unutilized CENVAT credit subject to conditions and procedures, including observance of notification(s) that specify the claim mechanism (e.g., limitation to one claim per quarter as notified). Precedent Treatment: Prior decisions have diverged on whether unutilized CENVAT credit (including RCM-paid tax) can be refunded; some high court and tribunal rulings allowed refunds in specific factual matrices, while larger benches/higher courts have constrained such relief to what statutory provisions expressly permit. Interpretation and reasoning: The Court finds the claim does not fall within Rule 5 because the taxpayer had already filed and availed a refund claim for the relevant quarter under the prescribed procedure/notification. Rule 5 relief is conditional and procedural requirements (including notification-imposed limits such as one claim per quarter) are mandatory. The fact of export does not create an independent refund right where the procedure under CCR and notification has been exhausted for the quarter concerned. Ratio vs. Obiter: Ratio - Refund under Rule 5 is subject to strict procedural compliance and cannot be granted where the prescribed quarterly claim for that period has already been made and allowed. Obiter - remarks that the taxpayer's failure to pay timely and to follow the notified procedure undermines equity of the refund claim. Conclusion: The RCM-paid service tax cannot be refunded under Rule 5 for the quarter in question because the claimant had already filed and availed the refund for that quarter; procedural restrictions bar a second claim. Issue 3: Whether payment of service tax after being pointed out by audit converts that payment into a refundable duty Legal framework: Refund statutes require either payment in excess or payment by mistake/without authority to trigger refund; mere post-audit payment to regularize liability does not ipso facto convert the payment into refundable duty unless statutory conditions are met. Precedent Treatment: Some decisions have allowed refunds of unutilized credits where statutory interpretation favored remedial relief; other decisions at higher levels have insisted on literal statutory interpretation of fiscal law and refused refunds absent explicit provisions. Interpretation and reasoning: The Court emphasizes that the appellants paid service tax after audit observation and after GST cut-off; this payment was a compliance act to discharge liability, not an instance of payment in excess or by mistake of law that would qualify for refund under Section 11B. Payment made 'on being pointed out' lacks the requisite foundation for a Section 11B refund claim unless it satisfies the statutory grounds for refund. Ratio vs. Obiter: Ratio - Post-audit payment of tax to remedy identified liability does not create a right to refund under Section 11B absent statutory grounds (excess/mistake/unauthorized payment). Obiter - discussion that fiscal laws are to be interpreted per their text without intendment. Conclusion: The payment cannot be regarded as refundable duty merely because it was made following audit; refund is not permissible on that basis. Issue 4: Scope and effect of precedents and whether the taxpayer's relied decisions mandate a different outcome Legal framework: Binding precedent principle requires following higher court decisions; distinctions in facts or in legal basis may justify disapplication of certain decisions. Precedent Treatment: The Court notes reliance by the appellant on multiple tribunal decisions favourable to refund of RCM-paid tax, while the Department relied on decisions that emphasize statutory constraints and literal interpretation. The Court highlights larger bench and higher court pronouncements that limit refunds where statute does not permit. Interpretation and reasoning: The Court holds the appellant's cited decisions are factually distinguishable and therefore not determinative. Where higher authority and larger bench decisions have found that refunds cannot be sanctioned absent explicit statutory provision, those principles prevail. The Court also notes earlier dismissals of Special Leave applications premised on concessions do not constitute binding law establishing a substantive right to refund. Ratio vs. Obiter: Ratio - Conflicting tribunal decisions do not override binding pronouncements that interpret fiscal statutes strictly; decisions relied upon by the appellant are distinguished on facts. Obiter - commentary on the effect of SLP dismissals by concession. Conclusion: Precedents relied upon by the appellant are not applicable on the facts and do not mandate grant of refund; binding interpretations favoring strict statutory adherence prevail. Overall Conclusion The claim for refund of service tax paid under reverse charge mechanism after the GST cut-off is not maintainable: (a) Section 142(3) does not create an independent refund right and requires disposal under the existing law; (b) no provision under the erstwhile law or notification permitted cash refund in the circumstances; (c) Rule 5 relief cannot be invoked where the quarterly refund for the relevant period was already availed; and (d) payment made post-audit does not convert the payment into refundable duty. The impugned orders rejecting the refund claim are legally sustainable.