2022 (11) TMI 149 - AT - Service Tax

Cash Refund of CENVAT Credit - Ocean Freight - duty paying documents - denial of refund on the ground of suppression of facts in terms of Rule 9(1)(bb) of Cenvat Credit Rules - HELD THAT - Though the appellant have paid the Service Tax on Ocean freight on the instruction of audit, but no Show Cause Notice was issued for demand of such Service Tax. In absence of any proceedings with respect to the demand of Service Tax, the charge of suppression of fact does not exist, for holding that there is a suppression of facts on the part of the appellant. It is necessary that the said charge is adjudicated by issuing a Show Cause Notice and adjudication process, which is absent in the present case. Therefore, the contention of the Lower Authorities that there is a suppression of fact is only based on assumption and presumption, hence, the same is not sustainable. Since, there is no suppression of fact, Rule 9(1)(bb) is not applicable - the cash refund of the said amount, even though there is no provision under Section 11B but as per special provision under Section 142(3) of CGST Act, the appellant are prima facie entitled for cash refund. The issue of taxability on Ocean freight has now been decided in the case of MESSRS SAL STEEL LTD. 1 OTHER (S) VERSUS UNION OF INDIA 2019 (9) TMI 1315 - GUJARAT HIGH COURT where it was held that The Notification Nos.15/2017- ST and 16/2017-ST making Rule 2(1)(d)(EEC) and Rule 6(7CA) of the Service Tax Rules and inserting Explanation-V to reverse charge Notification No.30/2012-ST is struck down as ultra vires Sections 64, 66B, 67 and 94 of the Finance Act, 1994; and consequently the proceedings initiated against the writ applicants by way of show cause notice and enquiries for collecting service tax from them as importers on sea transportation service in CIF contracts are hereby quashed - Since this judgment was not available before the Lower Authority as this judgment was passed after the orders in this case passed by the Lower Authorities, the issue of taxability is also kept open and the appellant has liberty to raise this issue also before the Adjudicating Authority. The appeals are allowed by way of remand to the Adjudicating Authority.

Summary

Issues:
1. Entitlement to Cenvat credit and refund claim for service tax on Ocean freight.
2. Allegation of suppression of fact leading to denial of Cenvat credit.
3. Applicability of Rule 9(1)(bb) of Cenvat Credit Rules, 2004.
4. Interpretation of Section 11B in the context of cash refund claim.
5. Consideration of special provision under Section 142(3) of CGST Act.
6. Effect of recent judgment on taxability of Ocean freight by Hon'ble Gujarat High Court.

Analysis:

1. The case involved the appellant's claim for Cenvat credit and refund of service tax paid on Ocean freight. The appellant initially paid the tax but later sought a refund due to inability to avail Cenvat credit under the GST regime. The Adjudicating Authority rejected the refund claim citing suppression of fact, leading to the denial of Cenvat credit and refund. The Commissioner (Appeals) upheld this decision, prompting the appellant to file the present appeal.

2. The appellant's counsel argued that the charge of suppression of fact was not proven, thus challenging the denial of Cenvat credit under Rule 9(1)(bb) of Cenvat Credit Rules, 2004. The counsel relied on various judgments to support their argument. They contended that Section 11B, which governs cash refund claims, was incorrectly deemed inapplicable in this case.

3. Upon careful consideration, the judge found that the suppression of fact charge was unsubstantiated as no Show Cause Notice was issued regarding the demand for Service Tax on Ocean freight. The judge emphasized the necessity of an adjudication process to establish suppression of facts. Consequently, the denial of Cenvat credit based on suppression of fact was deemed unsustainable. The judge also noted that Rule 9(1)(bb) did not apply in the absence of suppression of fact, as supported by the cited judgments.

4. Regarding cash refund, although Section 11B did not provide for it, the judge highlighted the potential entitlement to cash refund under the special provision of Section 142(3) of the CGST Act. The judge also referenced a recent judgment by the Hon'ble Gujarat High Court on the taxability of Ocean freight, which was not available to the Lower Authorities during the initial proceedings. As a result, the issue of taxability was left open for the appellant to raise before the Adjudicating Authority.

5. Consequently, the impugned orders were set aside, and the appeals were allowed by remanding the case to the Adjudicating Authority for further proceedings. The judgment emphasized the importance of due process in establishing charges of suppression of fact and clarified the potential entitlement to Cenvat credit and cash refund under relevant legal provisions and precedents.