2024 (7) TMI 541 - AT - Central Excise

Cash refund of CENVAT credit on CVD and SAD amounts allowed under Section 142(3) and 142(5) of CGST Act

CESTAT New Delhi upheld the Commissioner (Appeals) decision allowing cash refund of CENVAT credit on CVD and SAD amounts paid under existing law. The ... Refund of CENVAT credit in cash on the amount of CVD and SAD paid under the existing law under the provisions of section 142(3) of the CGST Act - HELD THAT:- Shakti Pumps is entitled to cash refund of CENVAT credit on the amount of CVD and SAD paid even after 01.07.2017. The Commissioner (Appeals), therefore, committed no illegality in granting this relief to Shakti Pumps. In GRANULES INDIA LTD VERSUS COMMISSIONER OF CENTRAL TAX HYDERABAD [2024 (2) TMI 1375 - CESTAT HYDERABAD], the Division Bench after placing reliance upon the Larger Bench decision of the Tribunal in M/S. BOSCH ELECTRICAL DRIVE INDIA PRIVATE LIMITED VERSUS COMMISSIONER OF CENTRAL TAX, CHENNAI [2023 (12) TMI 1145 - CESTAT CHENNAI-LB] held 'Section 142(3) read with 142(5) of the GST act, provides that every claim for refund 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 the 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 provision of sub-section (2) of section 11B of the Central Excise Act (unjust enrichment).' The present appeal that has been filed by the department to assail the order passed by the Commissioner (Appeals) would, therefore, have to be dismissed and is dismissed. The primary legal question considered by the Tribunal was whether the appellant was entitled to claim refund in cash of CENVAT credit paid on Countervailing Duty (CVD) and Special Additional Duty (SAD) under the existing law, specifically under section 142(3) of the Central Goods and Services Tax Act, 2017 (CGST Act), despite the payment being made post-implementation of the CGST regime on 01.07.2017.Additional issues addressed included:The applicability and interpretation of transitional provisions under the CGST Act, particularly sections 139, 140, 142, 173, and 174.The definition and scope of 'existing law' under section 2(48) of the CGST Act and its relevance to CVD and SAD payments made under the erstwhile regime.The entitlement to CENVAT credit of duties paid due to non-fulfillment of export obligations under the Advance Authorization (AA) Scheme governed by the Foreign Trade Policy (FTP) and related notifications.The legitimacy of refund claims for CENVAT credit on duties paid suo motu after the CGST Act came into force.The role of unjust enrichment verification in sanctioning refunds.The relevance and application of judicial precedents, including decisions of the Supreme Court and various Tribunal benches.The correctness of the department's contention that CVD and SAD paid post-01.07.2017 do not qualify as duties paid under the 'existing law' and hence do not attract refund provisions under the CGST Act.Issue-wise Detailed Analysis1. Entitlement to Refund of CENVAT Credit on CVD and SAD Paid Post-Implementation of CGST ActLegal Framework and Precedents: Section 142(3) of the CGST Act mandates that claims for refund of any amount of CENVAT credit or duty paid under the existing law shall be disposed of in accordance with the provisions of the existing law, and any amount accruing shall be paid in cash. The term 'existing law' is defined in section 2(48) of the CGST Act as any law relating to levy and collection of duty or tax on goods or services passed before the commencement of the CGST Act.Section 174 of the CGST Act preserves proceedings under the repealed Acts, including the Central Excise Act, 1944, and section 173 omits Chapter V of the Finance Act, 1994, except as otherwise provided.Rule 3 and Rule 9 of the CENVAT Credit Rules, 2004, allowed credit of duties paid on inputs and input services prior to the CGST implementation.Judicial precedents, including decisions by the Tribunal and the Supreme Court, were cited, notably the Larger Bench decision in Bosch Electrical Drive India Pvt. Ltd. which upheld refund claims under section 142(3) even when payment was made after 01.07.2017.Court's Interpretation and Reasoning: The Tribunal held that CVD and SAD paid by the appellant due to non-fulfillment of export obligations under the AA Scheme were indeed paid under the existing law, as these duties are leviable under the Customs Tariff Act and collected under the Customs Act. The AA Scheme merely provided exemption subject to conditions, and failure to fulfill these conditions triggered payment of CVD and SAD with interest.The Tribunal rejected the department's argument that these duties were not paid under the existing law because they were paid post-implementation of the CGST Act. It reasoned that the duties were leviable under the existing law and that the refund claim must be disposed of under the provisions of that law, as mandated by section 142(3).Key Evidence and Findings: The appellant had suo motu paid CVD and SAD with interest due to shortfall in export obligations. The Commissioner (Appeals) found that the appellant was entitled to CENVAT credit under the 2004 Credit Rules, which was not disputed by the Assistant Commissioner except on the ground of timing of payment.Application of Law to Facts: Since the appellant was entitled to CENVAT credit under the erstwhile law, and the CGST Act's transitional provisions preserve rights and liabilities under the existing law, the appellant's claim for refund in cash was valid. The refund was subject to verification of unjust enrichment, which was duly carried out and found in favor of the appellant.Treatment of Competing Arguments: The department argued that the refund claim was not maintainable as the duties were paid after 01.07.2017 and that the CENVAT credit could not be claimed as per the notification and rules. The Tribunal rejected these contentions, holding that the timing of payment post-GST implementation does not negate the entitlement under the existing law. The department's reliance on certain judicial decisions was distinguished on facts or held inapplicable.Conclusion: The appellant was entitled to cash refund of CENVAT credit on CVD and SAD paid post-implementation of the CGST Act under section 142(3), subject to unjust enrichment verification.2. Applicability of Transitional Provisions and Definitions under the CGST ActLegal Framework: Sections 139, 140, and 142 of the CGST Act provide for migration of taxpayers, credit of eligible duties carried forward, and miscellaneous transitional provisions respectively. Section 142(3) specifically deals with refund claims of CENVAT credit or duties paid under existing law.Section 2(48) defines 'existing law' as laws in force before the CGST Act's commencement.Court's Interpretation and Reasoning: The Tribunal found that the transitional provisions preserve rights under the existing law and allow for refund claims to be adjudicated as per the earlier law. The repeal of the Central Excise Act and CENVAT Credit Rules did not extinguish rights accrued prior to repeal.Key Findings: The appellant could not claim CENVAT credit under the CGST Act or carry forward such credit via Form GST TRAN-1 because the payments were made after the CGST Act's commencement. Hence, the remedy was refund under section 142(3).Application of Law to Facts: The appellant's refund claims were correctly filed under section 142(3) and were rightly allowed by the Commissioner (Appeals).Competing Arguments: The department contended that transitional provisions apply only when credit was taken before 30.06.2017. The Tribunal rejected this, relying on the Larger Bench decision in Bosch Electrical which held that refund claims under section 142(3) are maintainable even if duties were paid after 01.07.2017.Conclusion: Transitional provisions under the CGST Act allow refund claims of CENVAT credit paid under the existing law, irrespective of whether payment was made before or after the appointed day, provided the claim is filed under section 142(3).3. Validity of Department's Contentions Regarding Eligibility and Notification ConditionsLegal Framework: The notification dated 01.04.2015 exempts duties subject to conditions including execution of bonds and fulfillment of export obligations. Rule 3 and Rule 9 of the 2004 Credit Rules govern eligibility for CENVAT credit.Court's Reasoning: The Tribunal held that eligibility for CENVAT credit arises from the 2004 Credit Rules and is not negated by absence of express provision in the notification allowing credit for duties paid due to default. The appellant was entitled to credit under the rules, and the notification's conditions do not preclude credit where duty is paid due to non-fulfillment of export obligations.Key Findings: The department's reliance on a judgment of the Delhi High Court in Rai Agro Industries was found misplaced as that case dealt with interest on deferential customs duty under a different scheme and facts. Similarly, reliance on the Supreme Court decision in Ind-Swift Laboratories was distinguished as it concerned interest on wrong availment of credit, not refund of credit paid due to default.Application of Law to Facts: The appellant complied with the 2004 Credit Rules and was entitled to CENVAT credit. The department did not contest compliance with these rules in the show cause notice or adjudication.Competing Arguments: The department argued that allowing credit for duties paid due to default would reward breach of conditions. The Tribunal rejected this, emphasizing that the appellant paid the duties and interest suo motu and is entitled to credit and refund under the law.Conclusion: The appellant's entitlement to CENVAT credit and refund thereof is supported by the 2004 Credit Rules and is not negated by the notification or department's contentions.4. Role of Unjust Enrichment VerificationLegal Framework: Section 11B(2) of the Central Excise Act bars refund where unjust enrichment is established. Section 142(3) of the CGST Act excludes provisions of sub-section (2) of section 11B from overriding refund in cash.Court's Reasoning: The Commissioner (Appeals) allowed refund subject to verification of unjust enrichment. The sanctioning authority conducted this verification and granted refund accordingly.Conclusion: The procedural safeguard of unjust enrichment verification was duly observed, ensuring the refund was lawful and justified.5. Applicability of Section 142(6)(a) and Assessment ProceedingsLegal Framework: Section 142(6)(a) relates to proceedings of appeal, review, or reference concerning claims for CENVAT credit under existing law.Court's Reasoning: The Tribunal noted that refund was granted under section 142(3) and that reference to section 142(6)(a) was a mistake in the Commissioner (Appeals) order. The department's argument that no assessment or adjudication proceedings existed to invoke section 142(8)(b) was accepted but irrelevant to the refund claim under section 142(3).Conclusion: Section 142(6)(a) was not applicable to the refund claim, and the refund was correctly granted under section 142(3).6. Judicial Precedents and Conflicting DecisionsThe Tribunal examined various decisions, including those by Division Benches and Larger Benches of the Tribunal, Supreme Court judgments, and High Court rulings. It distinguished or overruled decisions inconsistent with the Larger Bench ruling in Bosch Electrical, which was held to be authoritative on the issue of refund claims under section 142(3) post-GST implementation.The Tribunal rejected the department's reliance on decisions such as CAD Vision Engineers Pvt. Ltd. and Servo Packaging Ltd., which were contrary to the Larger Bench's findings.Significant Holdings'CVD and SAD paid by the appellant due to non-fulfillment of export obligations under the Advance Authorization Scheme are duties paid under the existing law and are eligible for refund in cash under section 142(3) of the CGST Act, notwithstanding the fact that payment was made post-implementation of the CGST Act.''The transitional provisions under the CGST Act preserve rights and liabilities under the existing law, allowing refund claims for CENVAT credit paid even after 01.07.2017, subject to verification of unjust enrichment.''Eligibility for CENVAT credit arises under the CENVAT Credit Rules, 2004, and is not negated by absence of express provision in notifications for credit of duties paid due to default.''The department cannot deny refund on the ground that the appellant failed to avail credit via Form GST TRAN-1 or that the payment was made post-GST implementation, as the law permits refund under section 142(3) in such circumstances.''Verification of unjust enrichment is a necessary condition precedent for sanctioning refund but does not preclude the right to claim refund where credit was legitimately available under the existing law.''Section 142(6)(a) of the CGST Act is not applicable to refund claims filed under section 142(3), and any reference to the same in this context is erroneous.''The Larger Bench decision in Bosch Electrical Drive India Pvt. Ltd. is authoritative and supersedes conflicting decisions on the issue of refund of CENVAT credit post-GST implementation.''The appeal filed by the department against the Commissioner (Appeals) order allowing refund was dismissed.'