2024 (8) TMI 1468 - AT - Central Excise

Refund of the Service Tax paid on Scientific and Technical Consultancy Service and legal service on which Service Tax was belatedly paid under reverse charge mechanism, in terms of Section 142(3) of CGST Act, 2017 read with Section 11(B) of Central Excise Act, 1944 - rejection of refund on the ground that the payment of Service Tax was made after 01.07.2017 during GST regime for the period prior to 01.07.2017 - Whether Section 142(8)(a) puts any bar for granting the refund of Cenvat credit in terms of Section 142(3) of CGST Act, 2017? HELD THAT - From the plain reading of the Section 142(3), it is observed that the said Section deals with the eventualities when the assesse is not in a position to avail the Cenvat credit. Therefore, the amount of Cenvat credit is refunded in cash, under the said provision. The Section 142(3) also deals with the amount which is accrued prior to GST regime. Accordingly, the situation arose in the present case is exactly the same for which provision of Section 142(3) was enacted. The amount of service tax was pertaining to the period prior to 01.07.2017 which is payable under the existing law. Subsequently, the said amount became admissible as a Cenvat credit under existing law and since the same cannot be availed as Cenvat credit after 01.07.2017, the only option is to refund the same in terms of Section 142(3). Section 142(8)(a) of CGST Act, 2017 provides that any amount of tax which was recoverable under the existing law before 01.07.2017 and the same is recovered, the amount recovered shall not be admissible as input tax credit under this Act. There is no ambiguity in the provision that any amount of tax paid under the existing law as was done in the present case no input tax credit is admissible - Both the lower authorities have gravely erred in interpreting the input tax credit as if the same is Cenvat credit. Therefore, the finding of both the lower authorities dealing with the Section 142(8)(a) of the CGST Act, 2017, for rejecting the present refund claim is absurd and absolutely illegal. Therefore, on this ground also refund could not have been rejected. As regard the contention of the lower authorities that since the amount of service tax was paid on pursuance by the audit party, the refund is inadmissible. In this regard, it is found that neither any show cause notice for recovery of the service tax invoking any extended period was issued nor adjudication of such proceeding was done. Therefore, in not paying the service tax, no mala fide intention or suppression of fact is involved. Therefore, merely because the appellant have paid the service tax on pursuance by the audit will not be a reason for denying the refund under Section 142 - except the grounds for rejection no other issues have been dealt by the sanctioning authority such as admissibility of the input service for Cenvat credit, unjust enrichment and relevant documents verification. Accordingly, the matter deserves to be remanded to the adjudicating authority only for the limited purpose. The impugned order is set aside - Appeal is allowed by way of remand to the adjudicating authority.

Summary

Issues:
1. Entitlement for refund of Service Tax paid on 'Scientific and Technical Consultancy Service' and legal service under reverse charge mechanism.
2. Rejection of refund based on payment of Service Tax after 01.07.2017 during GST regime.
3. Interpretation of Section 142(8)(a) regarding granting refund of Cenvat credit.

Analysis:
The judgment addressed the issue of whether the appellant is entitled to a refund of Service Tax paid on specific services under reverse charge mechanism. The appellant argued that even though the tax was paid post-GST implementation, refund for the period before 01.07.2017 should be allowed based on Cenvat credit rules. The Lower Authorities rejected the claim citing Section 142(8)(a) of the CGST Act, 2017, which the appellant contended was not applicable to the present case. The judge referred to precedents supporting the appellant's position, emphasizing the distinction between input tax credit and Cenvat credit, ultimately ruling in favor of the appellant.

The judge analyzed Section 142(3) of the CGST Act, 2017, which governs refund claims for amounts paid under the existing law. The judge noted that the provision allows for cash refunds when Cenvat credit cannot be availed, especially for amounts accrued before the GST regime. In this case, the Service Tax paid pre-GST became admissible as Cenvat credit under the existing law, necessitating a refund post-GST implementation. The judge highlighted the relevance of Section 142(3) in situations like the present case, where the tax amount predates the GST regime.

Regarding the Lower Authorities' reliance on Section 142(8)(a) to reject the refund claim, the judge clarified the provision's scope. Section 142(8)(a) concerns the recovery of taxes under the existing law and does not pertain to Cenvat credit. The judge emphasized the erroneous interpretation by the Lower Authorities, distinguishing between input tax credit and Cenvat credit. The judge deemed the rejection of refund based on Section 142(8)(a) as illegal and unfounded, further supporting the appellant's position.

The judge also addressed the argument that the refund was inadmissible due to the payment of Service Tax prompted by an audit, emphasizing the absence of mala fide intentions or suppression of facts. The judge highlighted the need for a comprehensive review by the adjudicating authority on issues like input service admissibility, unjust enrichment, and document verification. Consequently, the judge set aside the impugned order, allowing the appeal for remand to the adjudicating authority for further examination on specific grounds as discussed in the judgment.