Refund of service tax credit available as on 30.6.2017

[Lalitha Krishnamurthy]

Our client providing Business Support service had unutilized credit of service tax as on 30.6.2017, because of exports and was desirous of claiming refund of the same.He did not carry it forward to the opening balance of GST credit on 1.7.2017 because of the provisions of Section 142(3) of the CGST Act, which contains the following proviso:

'Provided further that no refund shall be allowed of any amount of CENVAT credit where the balance of the said amount as on the appointed day has been carried forward under this Act'.

When he applied for refund of the accumulated Cenvat credit, under Notification no. 27/2012- CE(NT) dated 18.6.2012, it was rejected on the sole ground that the said amount has not been debited from the assesee's CENVAT credit account as required under the said Notification. Neither the adjudicating Authority nor the first appellate authority appreciated the fact that since the credit was not formally carried forward, it could not be formally debited also. But the availability of credit is not in dispute since the same is reflected in the Service Tax return for the period ending 30.6.2017.

Would appreciate the experts' advice on the grounds to be taken in the second appeal.

[KASTURI SETHI]

The issue is worth contesting. Not carrying forward is procedural lapse/technical lapse. You can take the shelter of case laws pertaining to procedural lapse/technical lapse.

[Ganeshan Kalyani]

The condition u/s 143 states clearly that if the credit is carry forward to GST then the refund of the same is not allowed. Since you have not carry forward the credit the refund should be allowed.

[Ganeshan Kalyani]

The Hon’ble Supreme Court of India has provided a one-time opportunity to all the aggrieved taxpayers to file Form TRAN-1/TRAN-2 and claim their transitional input tax credit in GST system. In compliance of the Hon’ble court’s directive, the facility for filing TRAN-1/ TRAN-2 or revising the earlier filed TRAN-1/TRAN-2 on the GST common portal by aggrieved taxpayers have been made available by GSTN from 01.10.2022, and as per the court’s instruction shall be available to all aggrieved taxpayers till 30.11.2022.

[Ganeshan Kalyani]

You can think of availing this benefit.

[KASTURI SETHI]

Appeal has to be filed with CESTAT. No other remedy is available in this scenario.

[Shilpi Jain]

In case you will not be able to utilise the credit now, you would have to appeal the order passed and there is a good chance of getting the refund.

However, if you can utilise the credit, then instead of getting into the legal recourse you can take the credit by taking it in the TRAN-1 window which is opened now and carry forward it into GST.

[KASTURI SETHI]

Dear Querist,

You cannot afford to skip the appeal with CESTAT. However, you can also try your luck as advised by both experts, namely, Sh.Ganeshan Kalyani Ji and Madam Shilpi Jain.

[Lalitha Krishnamurthy]

Thank you Mr. Sethi, Mr.Kalyani and Ms. Jain for your advice.

The client had discontinued his business and carrying the credit forward through TRAN -1 is not an option. In the circumstances CESTAT is the only recourse available. Since the credit available on 30.6 2017 was eligible for refund under the Service Tax regime the client had applied for the same under the provisions of Notification no. 27/2012 -CE(NT). For all practical purposes the refund amount claimed should be deemed as having been debited from his CENVAT account since it has not been carried forwarded, not utilized and not available for future utilization.

Would be grateful for any further advice/suggestions from experts. Thank you.

[KASTURI SETHI]

Dear Sir,

The following case laws will be helpful to you regarding getting refund in cash due to closure of business.

2018 (8) TMI 1169 - RAJASTHAN HIGH COURT - WELCURE DRUGS & PHARMACEUTICALS LTD. Versus COMMR. OF C. EX., JAIPUR

2010 (5) TMI 334 - HIMACHAL PRADESH HIGH COURT - COMMISSIONER OF CENTRAL EXCISE Versus DRISH SHOES LTD.

[Shilpi Jain]

Agree with Kasturi sir. Decision in the case of Slovak will help. However, it may not be a cake walk though.

[Amit Agrawal]

I do not understand how / why said Cenvat Credit was not debited while claiming refund under Notification No. 27 /2012-CE (N.T.).

It seems possible that your client has debited said amount in his Cenvat Credit Account (i.e. in his books of accounts) and transferred such amount to 'Refund Receivable Account' at the time of filing refund-claim in his books of accounts.

One may note that both these accounts-ledger (i.e. Cenvat Credit Account and Refund Receivable Account) are part of current assets in balance-Sheet.

If above is true, then, client is not at a fault for non-disclosing such debit in return (i.e. reversal being being done after 30.06.2021, at the time of filing refund-claim) as Dept. has not given any facility to file Form ST-3 to anyone for period from 01.07.2017 onwards. And, your client cannot be denied refund-claim when there is not even a procedural lapse.

Even otherwise, your client got a good case to defend on merits - in my personal view - specially when Cenvat balance was not carried forward u/s 140 by him to GST regime.

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.

AI Summary

Client Denied Refund of Unutilized Service Tax Credit Due to Procedural Lapse; Consider Appeal and Legal Precedents Under Section 142(3) CGST Act. A client providing Business Support services sought a refund of unutilized service tax credit from 30.6.2017 due to exports but did not carry it forward to GST credit on 1.7.2017, per Section 142(3) of the CGST Act. The refund was denied as the credit wasn't debited from the CENVAT account. Experts suggest appealing to CESTAT and leveraging procedural lapse case laws. The client, having ceased business, cannot use the TRAN-1 option. Suggestions include exploring legal precedents for refunds due to business closure and considering procedural defenses.