2024 (10) TMI 383 - AT - Service Tax

Refund of service tax paid under RCM - denial of refund claimed under Section 142(3) of CGST Act on the premise that the amount paid after audit objections was not eligible to be availed as credit under Rule 9(1)(bb) of the CENVAT Credit Rules, 2004 - levy of penalty - Transition of credit - HELD THAT - It is seen from the Rule that since tax is paid under RCM, the relevant provision is Rule 9(1)(e) ibid and not Rule 9(1)(bb), as evoked in the OIO and credit cannot be denied. In M/s Polygenta Technologies 2018 (2) TMI 804 - CESTAT, MUMBAI a similar matter was examined by CESTAT Mumbai, where it was held that ' it is apparent that Rule 9(i)(bb) is applicable to supplementary invoice, bill or challan issued by provider of output service and Rule 9(i)(e) is applicable, inter alia, to a person liable to pay service tax under Rule 2(1)(d) of Service Tax Rules, 1994. It is apparent that the appellant is not service provider and therefore Rule 9(i)(bb) would not be applicable to them. The appellant is paying service tax on reverse chare basis in terms of Rule 2(1)(d) of Service Tax Rules, 1994 and therefore credit can be availed in terms of Rule 9(i)(e) of Cenvat Credit Rules. Since Rule 9(i)(bb) is not applicable to the appellant, the credit cannot be denied.' Imposition of equal penalty under sec. 78 of the Finance Act, 1994 - HELD THAT - Assumptions and presumptions cannot lead to a charge of suppression of facts and replace actual proof of intention to evade tax, more so when the appellant was eligible to take credit of tax paid on RCM basis instantly. Similarly holding that non-payment of Rs.3,750/- on expenditure incurred towards cafeteria charges viz. the license fee paid to the Revenue Department, Government of Tamil Nadu for running such cafeteria, amounts to evasion of duty merits to be rejected. The imposition of penalty must hence be set aside. Transition of credit - HELD THAT - The transition provisions contained under section 142(3) of CGST Act 2017 allows refund of any amount of CENVAT credit, duty, tax or interest paid under the existing law. As per section 140 of the GST Act, 2017, the appellant was eligible to transfer the amount as TRAN-1 credit. However, since the amount was paid on 31/07/2020 and the last date for availment as TRAN-1 credit was on 27/12/2017, the appellant was unable to carry forward the Cenvat Credit to the GST regime - since the duty was paid after the GST Act came into force, CENVAT Credit could not be availed in the appellants books before 01.07.2017. However, once the credit is found eligible, it is to be refunded in cash. In such a situation the appellant is eligible for refund as per section 142 of CGST Act 2017. The impugned order rejecting the refund claims is not proper. The same is hence set aside. The appeal is allowed.

Summary

Issues Involved:
1. Eligibility of refund claim under Section 142(3) of the CGST Act, 2017.
2. Applicability of CENVAT Credit under Rule 9(1)(e) versus Rule 9(1)(bb) of the CENVAT Credit Rules, 2004.
3. Imposition of penalty under Section 78 of the Finance Act, 1994.
4. Transition of credit under GST regime.

Detailed Analysis:

1. Eligibility of Refund Claim under Section 142(3) of the CGST Act, 2017:

The appellant, engaged in 100% export of services, filed a refund claim for service tax paid under the Reverse Charge Mechanism (RCM) after audit objections. The lower authorities denied the refund on the grounds that the amount paid was not eligible for credit under Rule 9(1)(bb) of the CENVAT Credit Rules, 2004. However, the tribunal found that since the tax was paid under RCM, Rule 9(1)(e) was applicable, which allows for credit. The tribunal held that the refund should be allowed as the tax was not tainted by fraud or suppression of facts, and since the duty was paid after the GST Act came into force, the appellant was eligible for a refund in cash under Section 142 of the CGST Act, 2017.

2. Applicability of CENVAT Credit under Rule 9(1)(e) versus Rule 9(1)(bb) of the CENVAT Credit Rules, 2004:

The tribunal examined the applicability of Rule 9(1)(e) and Rule 9(1)(bb) of the CENVAT Credit Rules, 2004. It was concluded that Rule 9(1)(e) was applicable to the appellant since they paid service tax under RCM, and not as a service provider. Rule 9(1)(bb) pertains to supplementary invoices issued by service providers and is inapplicable in this context. The tribunal cited the case of M/s Polygenta Technologies Ltd., which supported the appellant's position, and thus, credit could not be denied under Rule 9(1)(bb).

3. Imposition of Penalty under Section 78 of the Finance Act, 1994:

The tribunal assessed the imposition of an equal penalty under Section 78 of the Finance Act, 1994. It was noted that the appellant had paid the service tax along with interest upon being pointed out by the audit, and there was no deliberate intention to evade tax. The tribunal found that mere omission to pay duty does not constitute suppression of facts with intent to evade tax. The imposition of penalty was deemed inappropriate, and the tribunal set aside the penalty, stating that assumptions and presumptions cannot replace actual proof of intention to evade tax.

4. Transition of Credit under GST Regime:

The tribunal addressed the issue of transition of credit, noting that the appellant was unable to carry forward the CENVAT Credit to the GST regime due to the timing of the payment. However, Section 142(3) and (8) of the CGST Act, 2017, allow for the refund of any amount of CENVAT credit, duty, tax, or interest paid under the existing law in cash. The tribunal concluded that since the credit was found eligible, it should be refunded in cash, supporting the appellant's eligibility for a refund under the transitional provisions of the CGST Act, 2017.

Conclusion:

The tribunal set aside the impugned order rejecting the refund claims, allowing the appeal with consequential relief as per law. The tribunal found that the appellant was eligible for a refund under Section 142 of the CGST Act, 2017, and the imposition of penalty was unwarranted. The appeal was disposed of accordingly, with the order pronounced in open court on October 8, 2024.