2021 (12) TMI 675 - AT - Service Tax

Refund of CENVAT Credit - refund claim was rejected by the adjudicating authority stating that the tax has been voluntarily paid and that no credit is eligible in the GST regime - reverse charge mechanism - HELD THAT - It is brought out that appellant has paid the service tax voluntarily under self-assessment. The tax is paid under reverse charge mechanism for the services received by them from foreign service provider. On perusal of para 6.4 of the OIO, it is seen that the adjudicating authority has denied refund of credit holding that the service tax has been paid voluntarily and also that no credit is available in GST regime. Section 174 (2) of the GST Act - It is clear that the liability, if any, under the erstwhile law of Finance Act, 1994 to pay service tax would continue even after the introduction of GST. Conversely, the right accrued under the said Act in the nature of credit available under CCR 2004 also is protected. If the assessee has to pay service tax even after the introduction of GST, their right to avail the credit on the same cannot be denied. The Hon ble jurisdictional High Court in the case of TARA EXPORTS VERSUS THE UNION OF INDIA, GOODS AND SERVICE TAX COUNCIL, THE PRINCIPAL COMMISSIONER OF CGST AND CENTRAL EXCISE, THE PRINCIPAL SECRETARY/COMMISSIONER OF COMMERCIAL TAXES, THE ASSISTANT COMMISSIONER (ST) , THE CENTRAL GST OFFICER AND THE ASSISTANT COMMISSIONER, CGST AND CENTRAL EXCISE 2018 (9) TMI 1474 - MADRAS HIGH COURT has held that GST laws contemplate seamless flow of tax credits on all eligible inputs. In various decisions, it has been held that substantive right of credit cannot be denied on account of procedural grounds. Section 142 (3) of GST Act provides how to deal with claims of refund of service tax of tax and duty / credit under the erstwhile law. It is stated that therein that such claims have to be disposed in accordance with the provisions of existing law and any amount eventually accruing has to be paid in cash - In the present case, there is no allegation that the credit is not eligible to the appellant. It is merely stated that tax has been paid voluntarily and therefore credit is not available under the GST regime. Though credit is not available as Input Tax Credit under GST law, the credit under the erstwhile Cenvat Credit Rules is eligible to the appellant. Such credit has to be processed under Section 142 (3) of GST Act, 2017 and refunded in cash to the assessee. The rejection of refund claim cannot be justified - appeal allowed - in favor of appellant.

Summary

Issues:
Refund of service tax paid under reverse charge mechanism in the pre-GST regime; Eligibility of Cenvat credit post-GST regime; Interpretation of Repeal and Savings Provision under Section 174(2) of the GST Act; Disposal of refund claims under Section 142(3) of the GST Act.

Analysis:
The appellants, engaged in valve manufacturing, paid service tax under reverse charge mechanism for software imports from January 2017 to June 2017 in March 2019. They sought a refund post-GST regime as they couldn't avail Cenvat credit due to the cessation of the Cenvat account. The refund claim was rejected by the adjudicating authority and the Commissioner (Appeals), leading to the appeal before the Tribunal.

The consultants argued that the service tax was paid voluntarily under self-assessment and should be eligible under the Cenvat Credit Rules. They highlighted Rule 9(1)(e) of CCR 2004, emphasizing the challan as the prescribed document for claiming credit. The consultants referenced the Repeal and Savings Provision in Section 174(2) of the GST Act, protecting the right of credit despite the repeal of previous tax laws.

The Tribunal noted that the denial of the refund claim was based on the voluntary payment of service tax and the notion that no credit is available in the GST regime. However, Section 174(2) of the GST Act safeguards rights accrued under previous tax laws, ensuring the continuity of liabilities and privileges. The Tribunal cited judicial precedents like Adfert Technologies Pvt. Ltd. and Tara Exports, emphasizing the protection of transitional credits and seamless flow of tax credits under GST laws.

Further, Section 142(3) of the GST Act dictates the disposal of refund claims related to amounts paid under the existing law, ensuring cash refunds. The Tribunal clarified that while Input Tax Credit is unavailable under the GST law, the credit under Cenvat Credit Rules remains valid for the appellant. Consequently, the Tribunal set aside the impugned order, allowing the appeal and granting consequential relief.

In conclusion, the Tribunal's decision was based on the protection of vested rights, the interpretation of statutory provisions, and established legal principles regarding the continuity of tax credits and refund mechanisms under the GST regime. The judgment underscored the importance of honoring accrued rights and ensuring fairness in tax refund processes.