2021 (12) TMI 671 - AT - Central Excise

Refund of CENVAT Credit - refund claim has been rejected merely stating that the appellant has not availed the credit and carried forward to GST regime by filing TRAN-1 - HELD THAT - There is no allegation raised by the department that the appellant is not eligible to avail credit of the duties / taxes paid on the inputs / input services. To put it more clearly, the appellant would be eligible to avail the credit but for the introduction of new GST law. It is also explained by the appellant that they are able to avail credit only after they make the full payment to the vendors. The appellants have cleared payments to vendors of the impugned invoices during the period from 5.7.2017 to 4.10.2017. The provisions of CENVAT Credit Rules, as it stood during the disputed period (March to June 2017), allowed the appellant to avail credit within a period of one year. They could not avail the credit only because of the introduction of GST law by which the CENVAT account has ceased to exist. In the case of ADFERT TECHNOLOGIES PVT. LTD. VERSUS UNION OF INDIA AND ORS. 2019 (11) TMI 282 - PUNJAB AND HARYANA HIGH COURT , it is held that transitional credit being vested right cannot be taken away on procedural or technical ground. In the present case, the appellant would be eligible to avail credit but for the introduction of GST law. The said right cannot be frustrated by pressing on the procedural requirement of filing TRAN-1 before 27.12.2017. The accounting practice adopted by the appellant allows to avail credit only after making payments to the vendors which has made it impossible to carry forward the credit as set out in the GST law. When the credit is eligible, the same cannot be denied by stating procedural requirements - In PUJAN BUILDERS ENGINEERS CONTRACTORS VERSUS C.C.E. S.T. -VADODARA-II 2021 (2) TMI 512 - CESTAT AHMEDABAD , the Tribunal allowed the refund even though initially the credit was carried forward to TRAN-1 and later reversed, after which the claim for refund was filed. The rejection of refund claim cannot be justified - Appeal allowed - decided in favor of appellant.

Summary

Issues:
- Eligibility to avail credit under CENVAT Credit Rules, 2004 and GST regime
- Rejection of refund claim due to non-fulfillment of procedural requirements
- Interpretation of Section 142(3) of CGST Act, 2017
- Precedents supporting refund of unutilized credit
- Unjust enrichment and entitlement to refund

Analysis:

1. Eligibility to avail credit under CENVAT Credit Rules, 2004 and GST regime:
The appellants, engaged in manufacturing activities, received inputs and input services during a specific period but did not avail credit on these items before the introduction of GST. The CENVAT Credit Rules allowed credit within a year, but the transition to GST prevented the carry-over of this credit. The appellant's accounting practice required payment to vendors before availing credit, causing a delay that led to the inability to reflect the credit in their returns.

2. Rejection of refund claim due to non-fulfillment of procedural requirements:
The original authority and Commissioner (Appeals) rejected the refund claim, citing the failure to file TRAN-1 within the specified time frame. The appellant argued that the right to credit should not be denied due to procedural lapses, especially when the credit was eligible but for the introduction of GST.

3. Interpretation of Section 142(3) of CGST Act, 2017:
Section 142(3) mandates processing refund claims under the erstwhile law. The Tribunal emphasized that the rejection of refund based on procedural grounds was unjustified, as the appellant's right to credit could not be frustrated by technical requirements like filing TRAN-1 before a specific date.

4. Precedents supporting refund of unutilized credit:
Various legal precedents were cited to support the appellant's claim for refund of unutilized credit. The decisions highlighted that if an assessee is unable to utilize accrued credit, it should be refunded. The Tribunal referenced specific cases where refunds were granted due to unutilized credit under similar circumstances.

5. Unjust enrichment and entitlement to refund:
The appellant argued that they were entitled to a refund as the tax element on inputs was not passed on to another party, ensuring no unjust enrichment. The Tribunal referred to cases where refunds were allowed when the credit could not be utilized, emphasizing the principle that substantive credit should not be denied on procedural grounds.

In conclusion, the Tribunal allowed the appeal, setting aside the rejection of the refund claim. The decision was based on the appellant's eligibility for credit, the unjustified denial of refund based on procedural requirements, and legal precedents supporting the refund of unutilized credit. The judgment emphasized the importance of ensuring that substantive credit rights are upheld, even in the context of procedural challenges posed by the transition to the GST regime.