CASH PAID ON WRONG RCM

[KERAGODEGOPALARAO ANANTHARAO]

We have RCM on expenses which are not covered under GST. We availed credit of RCM paid as it's paid in cash. In audit it's an objection as wrongly claimed as such to the extent of RCM claimed to be paid again. Is it correct?

[KASTURI SETHI]

The department's audit objection is undoubtedly /indisputably correct. Correct procedure has to be followed. No other escape route.

[Shilpi Jain]

If you actually see the situation is revenue neutral. Something which is paid wrongly is being adjusted - though not by way of adjustment of liability as provided in circular 25 but by way of taking of credit. So at the most it can be argued to be a disclosure error. This should not lead to demand of RCM credit availed.

[KASTURI SETHI]

The issue is not litigation-free. However, case laws are in favour of assessee on the issue of revenue neutrality.

[KERAGODEGOPALARAO ANANTHARAO]

Can we prefer appeal sir.

[KASTURI SETHI]

Have you received show cause notice ? If so, whether the same has been adjudicated ?

If you prefer to appeal against the Adjudication Order (supposing not decided in your favour), chances of decision in your favour are bright.

[KERAGODEGOPALARAO ANANTHARAO]

Thank you sir

[Amit Agrawal]

In my view, ITC against taxes wrongly paid under RCM is available to you.

In this regard, your attention is invited to the case of BAJAJ ALLIANZ GENERAL INSURANCE CO. LTD. Versus COMMR. OF C. EX., PUNE-III as reported in 2014 (8) TMI 787 - CESTAT MUMBAI wherein in Para 7.5, it is held that as under:

"From the above discussion, it is very much clear that the insurance auxiliary services provided by the agents in the State of Jammu & Kashmir are not taxable. Therefore, the appellants are not liable to pay Service Tax for the said services of the insurance agents. In these terms, whatever credit is taken by the appellant is nothing but the refund of tax erroneously paid by them. Similar issue came before the Hon’ble Supreme Court in the case of CIT v. Mahalakshmi Textile Mills Ltd. - 1967 (5) TMI 4 - SUPREME COURT wherein the Hon’ble Supreme Court held that -

“5. By the first question the jurisdiction of the Tribunal to allow a plea inconsistent with the plea raised before the departmental authorities is canvassed. Under sub-s. (4) of s. 33 of the Indian IT Act, 1922, the Tribunal is competent to pass such orders on the appeal “as it thinks fit”. There is nothing in the IT Act which restricts the Tribunal to the determination of questions raised before the departmental authorities. All questions whether of law or of fact which relate to the assessment of the assessee may be raised before the Tribunal : If for reasons recorded by the departmental authorities in rejecting a contention raised by the assessee, grant of relief to him on another ground is justified, it would be open to the departmental authorities and the Tribunal, and indeed they would be under a duty to grant that relief.”

Furthermore, in Para 7.6 of above-said order, it was also held as follows:

"We further find that in the case of Nitco Tiles Ltd. v. CCE, Mumbai -2007 (8) TMI 542 - CESTAT, MUMBAI, this Tribunal observed as under :-

“Further, the bar of unjust enrichment will also not apply in the present case. The appellants have taken credit of the tax paid by them; therefore the same cannot be said to be passed on to the customers.”

In these circumstances we hold that the Cenvat Credit taken by the appellant is nothing but refund of the Service Tax paid by them on the services on which they were not required to pay Service Tax."

You can reach me at [email protected]

[KASTURI SETHI]

Although above judgement pertains to Service Tax period, yet the rationale equally applies for GST period. Very useful case law posted by Sh.Amit Agrawal Ji.

[Shilpi Jain]

Thank u Mr.Amit for readily making available the case laws.

[Amit Agrawal]

Thank you very much for your kind words, Sh Kasturi Sethi Ji and Ms. Shilpi Jain.

[KASTURI SETHI]

Sh. Amit Agrawal Ji,

Pl. contribute regularly on TMI. I wish to relish your knowledge in this forum.

AI Summary

Input tax credit on wrongly paid reverse charge: treatable as refund or credit preserving revenue neutrality, subject to procedure and appeal. Cash paid under the reverse charge mechanism for supplies later found non-taxable raises whether input tax credit may be claimed; one line in the discussion accepts audit objection and stresses procedural correction, while others argue that such credit functions as a refund of erroneously paid tax preserving revenue neutrality, relying on precedent and recommending appeal when adjudication is adverse.