2025 (2) TMI 1173 - AT - Central Excise

Entitlement to refund of the closing balance of Education Cess and Secondary Higher Education Cess (SHE Cess) lying as on 30.06.2017 which could not be transitioned as input credit under the Goods and Services Tax (GST) regime - sub-sections (3) and (9) of Section 142of the CGST Act 2017 read with Section 11B of the Central Excise Act 1944 - HELD THAT - The provisions of Sections 142(3) and 142(9)(b) of the CGST Act is a transitional arrangement wherein it has been specifically provided that such provisions apply as a non-obstanate clause whereby such provisions will have overriding effect if anything to the contrary is contained under the provisions of existing law i.e. Central Excise Act 1944 except for the provisions of sub-section (2) of section 11B ibid. Thus all the conditions of the requirements of Section 11B ibid as it remained under the existing law other than those relating to Unjust Enrichment clause contained in Section 11B(2) ibid would apply only if they are not contradictory to the provisions of Section 142(9)(b) of the CGST Act 2017 in dealing with refund of CENVAT credit . Further upon introduction of GST regime the transitional arrangements have been provided under Section 142 of CGST Act to enable the CENVAT credit if refundable to be paid in cash to the eligible persons as there was no way that such excess CENVAT credit could be used by the assessee in payment of tax on output service or duty on final products. I also find that the proviso (c) to Section 11B(2) ibid cannot be read to state that refund of such excess CENVAT credit has not been provided under Rule 5 of the CCR as the entire arrangement of refund of excess CENVAT credit is arising as a transitional arrangement by moving from Excise duty/Service Tax regime to GST regime. There are merit in the argument of the learned Counsel for the appellants that they are eligible for refund of duty in cash under Section 11B(2)(d) ibid inasmuch as the phrase duty of excise used in Section 11B(2)(d) ibid refers to duties of excise leviable under Section 3 of the Central Excise Act 1944 and it also includes CENVAT credit which is nothing but such duty of excise paid on inputs or service tax paid on input services which have been allowed for taking credit in terms of Rule 3 of the CCR - the impugned order is not legally sustainable and the appellants are eligible for refund of excess CENVAT credit paid by them and specifically allowed to be refunded in terms of Section 142(9)(b) of the CGST Act 2017. When the Central Excise Act 1944 amongst other laws relating to old tax regime was repealed by Section 174 of the CGST Act 2017 and that the CCR is also being superseded vide Notification No.20/2017-C.E. (N.T.) dated 30.06.2017 by the Central Government for smooth implementation of transfer to GST regime in indirect taxation the provisions of Section 142 of the CGST Act 2017 are sufficient to provide for the tax administration for sanction of cash refund in circumstances stated therein and there is no need and it is not legally feasible to make any specific provision in CENVAT statute itself for enabling cash refund of excess CENVAT credit relating to earlier regime while moving to the new GST regime. In the case of Dhyan Networks and Technologies Pvt. Ltd. Vs. Commissioner of GST and Central Excise Chennai 2022 (10) TMI 1009 - CESTAT CHENNAI the Tribunal has held that cash refund is required to be given to the assessees in terms of Section 142 of the CGST Act 2017. The Co-ordinate Bench of this Tribunal in the case of Emami Cement 2022 (3) TMI 1254 - CESTAT NEW DELHI have held that rejection of refund of accumulated balance amount of credit on education cess secondary and higher education cess and Krishi kalyan cess by original authority and upheld by the Commissioner (Appeals-Thane) cannot be legally sustained and set aside the impugned order of rejecting the appeal filed by the appellants in that case. Conclusion - There are no merits in the impugned order passed by the learned Commissioner (Appeals) to the extent it has rejected the refund of excess CENVAT credit which is contrary to the legal provisions of Section 142(3) and Section 142(9)(b) of the CGST Act 2017 and thus it does not stand the scrutiny of law. Therefore by setting aside the impugned order dated 12.11.2021 the appeal is allowed in favour of the appellants with consequential relief with respect to refund of excess CENVAT credit of Rs. 4, 82, 561/- payable to the appellants. The impugne dorder is set aside - appeal allowed.

Summary

The core legal questions considered in this appeal revolve around the entitlement to refund of the closing balance of Education Cess and Secondary & Higher Education Cess (SHE Cess) lying as on 30.06.2017, which could not be transitioned as input credit under the Goods and Services Tax (GST) regime. Specifically, the issues are:

1. Whether the appellants are entitled to refund of the CENVAT credit balance of Education Cess and SHE Cess under the transitional provisions of the CGST Act, 2017, read with Section 11B of the Central Excise Act, 1944.

2. The interpretation and applicability of Section 142(3) and Section 142(9)(b) of the CGST Act, 2017 concerning refund claims of CENVAT credit paid under the "existing law."

3. Whether the refund claim for the CENVAT credit of the impugned cesses can be rejected on the ground that such cesses are not eligible duties and taxes under Section 140 of the CGST Act, 2017, and that no provision exists for refund of cess credit under the CGST Act.

4. The legal effect of the retrospective amendment to Section 140(1) of the CGST Act, 2017, and the circular dated 02.01.2019, which disallowed transition of cess credit to the GST regime.

5. The applicability of judicial precedents regarding the vested right to credit under the CENVAT Credit Rules and entitlement to refund of unutilized credit.

Issue-wise Detailed Analysis:

1. Entitlement to Refund of CENVAT Credit of Education Cess and SHE Cess under Transitional Provisions

The appellants filed a refund claim for Rs. 4,82,561/- representing the closing balance of Education Cess and SHE Cess as on 30.06.2017, which could not be transitioned to the GST regime. The department rejected the refund application, holding that the refund was not permissible under Section 142(3) of the CGST Act, 2017, as the amount was paid under the Central Excise Act, 1944 and not under the CGST Act.

The appellants contended that the term "existing law" as defined in Section 2(48) of the CGST Act, 2017 includes the Central Excise Act, 1944, and hence refund claims under Section 142(3) of the CGST Act must be disposed of in accordance with the provisions of the existing law, including the Central Excise Act. They argued that the refund claim is maintainable and payable in cash under Section 11B of the Central Excise Act, 1944, as applied to service tax matters under Section 83 of the Finance Act, 1994.

The Court noted that the phrase "existing law" indeed covers laws such as the Central Excise Act, 1944, and that Section 142(3) of the CGST Act mandates disposal of refund claims in accordance with the existing law and payment of any amount accruing in cash. The Court found the departmental rejection on the ground that the refund claim was under the Central Excise Act and not the CGST Act to be contrary to the legal provisions.

Thus, the Court held that the appellants are entitled to claim refund of the unutilized CENVAT credit of Education Cess and SHE Cess under the transitional provisions and the refund must be paid in cash.

2. Interpretation of Section 142(3) and Section 142(9)(b) of the CGST Act, 2017

Section 142(3) provides that any refund claim for CENVAT credit, duty, tax, interest, or any other amount paid under the existing law shall be disposed of according to the provisions of the existing law, and the amount accruing shall be paid in cash, notwithstanding anything to the contrary in the existing law except sub-section (2) of Section 11B of the Central Excise Act.

Section 142(9)(b) deals with revised returns filed under the existing law and directs refund of any admissible amount in cash under the existing law, subject to certain conditions.

The appellants argued that these provisions create a distinct right to refund of CENVAT credit which is separate from the transitional credit provisions under Section 140 of the CGST Act. The Court agreed, observing that the provisions under Section 142 are a transitional mechanism to ensure that credit validly earned under the old regime is not lost merely due to the transition to GST.

The Court rejected the contention that refund under Section 142(3) is limited to amounts paid under the CGST Act only, emphasizing that the "existing law" includes the Central Excise Act, 1944, and that the refund claim must be processed accordingly.

3. Effect of Amendment to Section 140(1) of the CGST Act and Circular dated 02.01.2019

The appellants initially transitioned the credit through Form TRAN-1 but reversed the credit after the retrospective amendment to Section 140(1) of the CGST Act, 2017, which disallowed transition of cess credit to the GST regime. The circular clarified that credit of cess was not eligible for transition.

The Court acknowledged the amendment but noted that the appellants reversed the credit as a precaution and subsequently sought refund under Section 142(3), which is a separate and distinct right from transitional credit under Section 140. Therefore, the amendment to Section 140(1) does not preclude refund under Section 142(3).

4. Applicability of Judicial Precedents on Vested Right to Credit and Refund

The appellants relied on Supreme Court decisions in Eicher Motors Ltd. and Samtel India Ltd. which held that credit earned under the CENVAT Credit Rules is a vested right and cannot be taken away except by specific provisions.

The Court found these precedents persuasive, emphasizing that the credit of Education Cess and SHE Cess was validly earned and the appellants have a vested right to claim refund of the unutilized credit.

Further, decisions of various benches of the Tribunal were cited, including those in Bharat Heavy Electricals Ltd., Emami Cement Ltd., and Clariant Chemicals India Ltd., which upheld the entitlement to refund of unutilized cess credits under transitional provisions.

The Court also distinguished the decision in Gauri Plasticulture Ltd., which dealt with different factual and legal circumstances, particularly denial of refund on account of surrender of registration and small scale exemption issues.

5. Treatment of Competing Arguments on Refund under CENVAT Credit Rules and CGST Act

The Revenue argued that refund of CENVAT credit of Education Cess and SHE Cess in cash is not permissible under Rule 5 of the CENVAT Credit Rules, and that the impugned order is sustainable in law.

The Court observed that the CENVAT Credit Rules were superseded by the GST regime and the Central Excise Act, 1944 was repealed with effect from 01.07.2017. Therefore, the transitional provisions under Section 142 of the CGST Act provide the legal framework for refund of unutilized credit, overriding the provisions of the existing law to the extent inconsistent.

The Court held that a narrow interpretation restricting refund only to situations explicitly provided under the CENVAT Credit Rules is not legally sustainable, especially in the context of transition to GST. The refund must be allowed in cash as per Section 142(3) of the CGST Act.

6. Application of Law to Facts and Final Conclusions

The appellants had complied with the procedural requirements under the CENVAT Credit Rules and filed the refund claim within the prescribed time. There was no dispute on the eligibility of the credit or on the issue of unjust enrichment.

The Court concluded that the appellants are entitled to refund of the unutilized CENVAT credit of Education Cess and SHE Cess lying as on 30.06.2017, payable in cash under Section 142(3) read with Section 11B of the Central Excise Act, 1944.

The impugned orders rejecting the refund claim were set aside, and the appeal was allowed with consequential relief.

Significant Holdings:

"The phrase 'existing law' as defined under Section 2(48) of the CGST Act, 2017 includes the Central Excise Act, 1944, and therefore, refund claims under Section 142(3) of the CGST Act must be disposed of in accordance with the provisions of the existing law, including the Central Excise Act."

"Section 142(3) of the CGST Act, 2017 mandates that any claim for refund of CENVAT credit, duty, tax, interest or any other amount paid under the existing law shall be paid in cash, notwithstanding anything to the contrary contained in the provisions of existing law except sub-section (2) of Section 11B of the Central Excise Act, 1944."

"The retrospective amendment to Section 140(1) of the CGST Act, 2017 disallowing transition of cess credit does not preclude the right to claim refund of unutilized cess credit under Section 142(3) of the CGST Act."

"Credit earned under the CENVAT Credit Rules is a vested right and cannot be taken away except by specific provisions; hence, the appellants are entitled to refund of the unutilized credit of Education Cess and SHE Cess."

"The transitional provisions under Section 142 of the CGST Act, 2017 provide the legal framework for refund of unutilized CENVAT credit post repeal of the Central Excise Act, 1944 and supersession of the CENVAT Credit Rules, and therefore, refund in cash is permissible even if the CENVAT Credit Rules do not expressly provide for it."

"The impugned orders rejecting the refund claim on the ground that refund is not permissible under the CGST Act or CENVAT Credit Rules are not legally sustainable and are set aside."

"The appellants are entitled to refund of Rs. 4,82,561/- being the unutilized CENVAT credit of Education Cess and Secondary & Higher Education Cess lying as on 30.06.2017."