2026 (3) TMI 507 - AT - Service Tax

Refund of Cenvat Credit: VCES payment does not bar refund of legitimately admissible input credit to exporters.

Refund of unutilised Cenvat credit where underlying service tax was paid under the Voluntary Compliance Encouragement Scheme (VCES) is permissible if the ... Denial of Refund of Cenvat credit availed on tax paid under Voluntary Compliance Encouragement Scheme, 2013 (VCES) - admissibility of Cenvat credit governed by the Cenvat Credit Rules - providing services concerning Information Technology Software taxable under section 65 (105) (zzzze) of the Finance Act, 1994 to its clients outside India. Refund of Cenvat credit availed on tax paid under VCES - HELD THAT:- The Tribunal held that the question of refund concerned the Cenvat credit legally admissible under the Cenvat Credit Rules and not the tax paid under the VCES Scheme itself. The CBEC FAQs (Circular Nos. 169/4/2013-ST and 170/5/2013-ST) clarify that admissibility of Cenvat credit is to be determined under the Cenvat Credit Rules and that Rule 6(2) of the VCES Rules only prohibits utilization of Cenvat credit for payment under the scheme. Applying Rule 5 of the Cenvat Credit Rules, and following the Tribunal's earlier decisions (including the appellant's own earlier order and the decision in M/s. Oxygen Bio Research P Ltd.[2018 (9) TMI 175 - CESTAT AHMEDABAD]), the denial of refund because the underlying tax was paid under VCES was held not to be applicable where the credit itself is legally admissible and refundable to an exporter. [Paras 5, 6, 7] Denial of refund of the Cenvat credit of Rs. 10,87,454/- was set aside and the appellant was directed to be granted the refund with applicable interest. Final Conclusion: The Tribunal allowed the appeal, holding that Cenvat credit attributable to service tax paid under VCES is refundable to the exporter under the Cenvat Credit Rules, set aside the Commissioner (Appeals) denial, and directed payment of the refund with interest. Issues: Whether refund of unutilised Cenvat credit availed on the basis of service tax paid under the Voluntary Compliance Encouragement Scheme (VCES) is admissible to an exporter under the Cenvat Credit Rules, 2004.Analysis: The Tribunal examined whether the bar on refund in Section 109 of the Finance Act, 1994 (as enacted for VCES) applies to denial of refund of Cenvat credit that accrued after payment of tax under VCES. The Tribunal considered the statutory scheme of Cenvat Credit Rules, 2004, in particular Rule 5 (refund to exporters) and Rule 9(1)(bb) and 9(1)(e) (documents evidencing payment and admissibility of credit), and the clarifications issued by the Board in Circulars/FAQs (Circular No. 169/4/2013-ST dated 13.05.2013 and Circular No. 170/5/2013-ST dated 08.08.2013) which state that admissibility of Cenvat credit is to be determined under the Cenvat Credit Rules. The Tribunal relied on its prior decisions, including an earlier order in the same appellant's matter and the decision in Oxygen Bio Research P Ltd, which held that service tax paid under VCES does not ipso facto negate the availability of Cenvat credit or the refund of unutilised credit where the credit is otherwise legally admissible under the Cenvat Credit Rules. Applying these authorities and the Board's clarification, the Tribunal concluded that the non-refund language of Section 109 relates to the tax paid under the VCES scheme itself and does not operate to deny refund of legitimately accrued Cenvat credit to exporters under Rule 5 of the Cenvat Credit Rules, 2004.Conclusion: The denial of refund of Cenvat credit of Rs. 10,87,454/- solely because the underlying service tax was paid under VCES is not sustainable; the appellant is entitled to refund of the said Cenvat credit with applicable interest.