2022 (1) TMI 765 - AT - Service Tax

100% EOU - Refund claim of unutilised input service tax credit - Rule 5 of Cenvat Credit Rules, 2004 read with Notification No. 27/2012-CE (NT) dated 18.06.2012 - quarter April, 2017 to June, 2017 - HELD THAT - A perusal of clause (g) of Notification No.27/2017 shows that it speaks of closing balance of credit available with assessee, and nowhere in entire notification, there is any mention that the closing balance is to be considered as the amount shown as closing balance in ER2 Return. The objection of department is solely on the basis of closing balance declared in ER2 Return. The stand of department that since the appellant did not opt for filing revised return within the given time, they could claim refund of the amount as declared in ER2 Return only. But, there has been no objection to the submissions made by the appellant from the very beginning - the denial of refund claim in part, solely on the basis that the same was to be given in respect of closing balance of credit as declared in the return for the Month of June 2017, is not legal and proper, as substantive benefit cannot be denied on technical reasons, all the more, when there was no such condition in Notification No.8/2016-CE (NT) dated 01.03.2016. The original authority is directed to sanction the balance refund claim of ₹ 30,19,866/- along with interest from three months after the date of filing of refund claim, till the date of sanction of refund, within 45 days from the date of receipt or service of this order - Appeal allowed - decided in favor of appellant.

Summary

Issues:
- Refund claim of unutilised input service tax credit under Rule 5 of Cenvat Credit Rules rightly rejected in part for ?30,19,866.

Analysis:
1. The appellant, a 100% EOU engaged in manufacturing jewelry, applied for a refund of ?1,44,62,563 for the quarter April to June 2017. However, a show cause notice was issued as discrepancies were found in the cenvat credit amounts declared in the ER-2 returns. The department restricted the refund claim to ?1,14,42,697 based on the closing balance of unutilised cenvat credit. The appellant's claim of ?30,19,866 was deemed inadmissible due to excess credit debited without revision, leading to a sanctioned amount of ?1,06,59,940.

2. The appellant argued that a clerical error led to incorrect credit amounts declared in the returns, which was brought to the department's notice before filing the refund claim. The appellant's contention was that the actual closing balance should be considered as ?1,44,42,750, and the denial of the refund claim based on the ER-2 return was unjustified.

3. The Tribunal considered the facts that the appellant was eligible for the refund, had promptly informed the department of the error, and had maintained the correct credit balance in their records. The Tribunal held that denying the refund based solely on technical grounds was improper, citing legal precedents where substantive benefits cannot be denied due to procedural lapses.

4. The Tribunal found that the denial of the refund claim was not legally justified, as there was no specific condition in the relevant notification requiring the closing balance to be based on the ER-2 return. Therefore, the Tribunal allowed the appeal, directing the original authority to sanction the balance refund claim of ?30,19,866 along with interest within 45 days.

5. The judgment highlights the importance of substantive benefits over technicalities in refund claims, emphasizing that procedural errors should not lead to the denial of legitimate claims. The Tribunal's decision ensures fairness and adherence to legal principles in dealing with refund claims under the Cenvat Credit Rules.