Refund of RCM service tax must be paid in cash under Section 142(3) CGST Act, holds CESTAT

CESTAT Mumbai allowed the appeal, setting aside the Commissioner (Appeals) order denying refund of input/CENVAT credit of service tax paid under RCM. Relying on prior Tribunal decisions and a Bombay HC ruling on an identical issue, it held that s.142(3) CGST Act mandates that any refundable amount accruing upon transition must be paid in cash, not merely recredited in CENVAT. As the department had no contrary appellate developments to cite, the impugned order dated 24.09.2020 was found unsustainable in law and refund in cash was directed.

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1. ISSUES PRESENTED AND CONSIDERED

(1) Whether the Tribunal has jurisdiction to entertain an appeal involving refund claims governed by Section 142(3) of the Central Goods and Services Tax Act, 2017.

(2) Whether refund in cash of input/CENVAT credit arising from service tax paid under reverse charge mechanism is admissible under Section 142(3) of the Central Goods and Services Tax Act, 2017 read with Section 11B of the Central Excise Act, 1944.

(3) Whether the bar against refund of unutilised CENVAT credit, as laid down in the judgment in Gauri Plasticulture, applies to refund claims arising under Section 142(3) of the Central Goods and Services Tax Act, 2017.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (1): Tribunal's jurisdiction in matters under Section 142(3) of the CGST Act, 2017

Interpretation and reasoning

The Tribunal noted the submission that a Larger Bench has already settled that disputes relating to refund under Section 142(3) of the CGST Act are within the Tribunal's jurisdiction. Proceeding to examine the refund claim on merits without recording any contrary view, the Tribunal implicitly accepted its competence to adjudicate such appeals.

Conclusion

The Tribunal assumed and exercised jurisdiction over the appeal concerning refund governed by Section 142(3) of the CGST Act, 2017.

Issue (2): Refund of service tax paid under reverse charge as input/CENVAT credit under Section 142(3) read with Section 11B

Legal framework

The Tribunal examined Section 142(3) of the CGST Act, 2017, which provides that every claim for refund of any amount of CENVAT credit, duty, tax, interest or any other amount paid under the existing law, filed before, on or after the appointed day, shall be disposed of in accordance with the provisions of the existing law, and that any amount eventually accruing shall be paid in cash, notwithstanding anything contrary in the existing law other than Section 11B(2) of the Central Excise Act, 1944. The provisos to Section 142(3) regarding lapse of rejected CENVAT credit and bar where credit has been carried forward were also noted. Section 11B of the Central Excise Act, 1944, as made applicable to service tax by Section 83 of the Finance Act, 1994, including clause (d) of the proviso to Section 11B(2) concerning refund in cash where incidence has not been passed on, was invoked.

Interpretation and reasoning

(a) The Tribunal recorded that the appellant had paid service tax on reverse charge on imported services, initially to the extent disclosed, and subsequently, on discovering under-reporting as per transfer pricing regulations, paid additional service tax by GAR Challan. Such tax, though eligible as input service credit, could not be transitioned into the GST regime via TRAN-1; hence refund was claimed under Section 11B read with Section 142(3).

(b) Referring to its own earlier decision in NSSL Private Limited, the Tribunal reiterated that where no assessment/adjudication order determining tax liability under the erstwhile law exists, the case falls under Section 142(3), not Section 142(8)(a). Section 142(3) explicitly permits refund of CENVAT credit after the appointed day, to be processed under the erstwhile law, with the eventual amount to be paid in cash.

(c) It was noted that the authorities below had not disputed the entitlement of the appellant to CENVAT credit under the erstwhile regime; the rejection was solely on the ground that refund of such credit was not permissible under Section 11B. The Tribunal, following its prior reasoning, held that refund claims of this nature merit consideration under Section 142(3), entitling the claimant to refund of the service tax paid.

(d) The Tribunal accepted the appellant's contention that the incidence of tax had not been passed on, as the tax was paid on reverse charge by the appellant itself, and that a Chartered Accountant's certificate had been produced showing that the amount was not carried forward as transitional credit. This brought the case within clause (d) of the proviso to Section 11B(2), permitting refund in cash where unjust enrichment is not attracted.

(e) The Tribunal relied extensively on the judgment of the High Court in Combitic Global Caplet, which interpreted Section 142(3) as widely worded, covering "CENVAT credit" and "any other amount paid", and held that any amount eventually accruing must be refunded in cash, even for voluntary deposits, and that the Government cannot retain amounts without authority of law. The High Court had directed that the refundable duty be paid in cash, notwithstanding contrary provisions of the existing law except Section 11B(2).

(f) The Tribunal also took note that in earlier similar matters decided by it (including NSSL Private Limited and Lupin Limited), where identical issues of refund of credit/service tax under Section 142(3) were decided in favour of the assessees, the department had accepted those decisions and not preferred appeals, as confirmed by communications from jurisdictional Commissioners. This consistent departmental acceptance reinforced the Tribunal's view that the issue was settled.

Conclusion

The Tribunal held that refund of the amount of service tax paid under reverse charge, representing eligible CENVAT credit that could not be transitioned into GST, is admissible in cash under Section 142(3) of the CGST Act, 2017, read with Section 11B of the Central Excise Act, 1944. The impugned order rejecting the refund was set aside, and the appeal was allowed with consequential relief.

Issue (3): Applicability of the bar on refund of unutilised CENVAT credit as per Gauri Plasticulture

Interpretation and reasoning

The Revenue relied on the High Court judgment in Gauri Plasticulture to contend that there is no provision for refund of CENVAT credit under Section 11B. The Tribunal, referring to its earlier analysis in Lupin Limited, noted that Gauri Plasticulture dealt with refund of unutilised CENVAT credit in the context of the erstwhile law, not with transitional refund claims under Section 142(3) of the CGST Act. In contrast, both the Tribunal's prior decisions and the later High Court judgment in Combitic Global Caplet specifically addressed Section 142(3) and mandated cash refund of amounts eventually accruing, notwithstanding contrary provisions of the existing law other than Section 11B(2). On this basis, the Tribunal treated Gauri Plasticulture as distinguishable and not a bar to refund in transitional situations governed by Section 142(3).

Conclusion

The restriction on refund of unutilised CENVAT credit in Gauri Plasticulture was held inapplicable to refund claims arising under Section 142(3) of the CGST Act, 2017. The assessee's claim for cash refund of the service tax/CENVAT credit in question was therefore maintainable and liable to be sanctioned.

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