2021 (10) TMI 531 - AT - Service Tax

Claim of Refund - Post GST, on demand, appellant paid service tax under reverse charge basis and claim refund as the same is eligible as Input Tax Credit under the erstwhile law - denial of credit on the ground that the payment made by the appellant is consequent to an assessment/adjudication proceeding and therefore, when recovered as an arrears of tax, the appellant is not admissible for the input tax credit - transitional provisions under GST for claim of refund - HELD THAT - It is not in dispute that the appellants have been called upon to pay service tax under reverse charge mechanism. During the process of audit it was noticed that they have made certain foreign remittances and that they are liable to pay service tax for the input services received from their parent company. Consequently, they are eligible for credit. However, the said omission or default for not paying the tax under the reverse charge mechanism came to the knowledge of the appellant only after the Audit Officers pointed out the same. They immediately paid the amount on 22.01.2018. Though they were eligible for credit since the time to carry forward the Cenvat Credit to the GST regime had expired on 27.12.2017, the appellant could not follow the procedure to carry the Cenvat Credit to the GST regime. They then applied for refund of the said credit. On bare perusal of Section 142 (8), it can be seen that this sub-section (8) provides for recovery of arrears of tax after the implementation of GST Act, 2017. It deals with the provisions for assessment/adjudication proceedings that are carried out under the erstwhile law after introduction of GST. The section states that in such proceedings for recovery of arrears, the assessee will not be getting the benefit of any input credit for adjustment under GST Act. 2017. In the present case, there is no credit that requires to be adjusted to the GST Act, 2017. The entire tax paid is claimed as credit under the existing law. The sub-section states that input tax credit will not be available under GST Act. It does not say that credit is not eligible under existing law (erstwhile law). This means in consequent to recovery of arrears in assessment/adjudication proceedings no input credit can be availed under GST Act, 2017. To be more clear, if there are any arrears to be recovered under the existing law, the same can be recovered by invoking the transitional provisions of the GST Act, however, input tax credit will not be admissible under the GST Act. Section 142 (3) is the transitional provision for claim of refund after the introduction of GST Act, 2017. It says that refund claims of any amount paid under the erstwhile law have to be disposed according to the provisions of the erstwhile law and the amount has to be paid in cash. The appellants have paid the tax under the erstwhile law. In the present case, the claim is only for refund and not proceedings for assessment or adjudication. In such a scenario, only sub-section (3) of section 142 will be attracted. Rejection of the refund claim by referring to sub-section (8) of Section 142 of CGST Act, 2017 is mis-placed - appeal allowed - decided in favor of appellant.

Issues Involved:
1. Eligibility for refund of service tax paid under Reverse Charge Mechanism (RCM) after the implementation of the CGST Act, 2017.
2. Applicability of Section 142(8)(a) of the CGST Act, 2017.
3. Admissibility of input tax credit under the erstwhile law and its transition to the GST regime.
4. Procedural compliance and the right to claim transitional credit.

Detailed Analysis:

1. Eligibility for Refund of Service Tax Paid under RCM:
The appellant, engaged in the manufacture and export of mining machinery, paid service tax under RCM for services received from their parent company in the USA. They sought a refund for the service tax paid, arguing that they were eligible for Cenvat Credit, which they could not carry forward due to the expiration of the TRAN-1 filing date post-GST implementation. The original authority and Commissioner (Appeals) rejected the refund claim based on Section 142(8)(a) of the CGST Act, 2017, stating that credit is not admissible and therefore not eligible for a cash refund.

2. Applicability of Section 142(8)(a) of the CGST Act, 2017:
The appellant contended that Section 142(8)(a) applies only if the amount is recovered pursuant to assessment or adjudication proceedings. In this case, the payment was made following an audit spot memo, not through assessment or adjudication proceedings. Therefore, the appellant argued that the situation falls outside the scope of Section 142(8)(a). The Tribunal agreed, noting that the spot memo issued by audit officers does not constitute adjudication or recovery of arrears.

3. Admissibility of Input Tax Credit under the Erstwhile Law and its Transition to the GST Regime:
The appellant argued that they were eligible for Cenvat Credit if the service tax was paid before the introduction of the GST Act, 2017. They cited several judicial precedents affirming that transitional credit is a vested right and cannot be denied on procedural grounds. The Tribunal concurred, stating that the credit should have been refunded in cash since the appellant could not carry it forward to the GST regime due to the expiration of the TRAN-1 filing date.

4. Procedural Compliance and the Right to Claim Transitional Credit:
The Tribunal emphasized that the appellant's inability to carry forward the credit to the GST regime was due to procedural lapses and not substantive non-compliance. The Tribunal cited various cases, including Adfert Technologies Pvt. Ltd. and Tara Exports, which upheld the principle that substantive input credits cannot be denied due to procedural issues. The Tribunal also referred to Section 142(3) of the CGST Act, 2017, which mandates that refund claims for amounts paid under the erstwhile law should be disposed of according to the provisions of the existing law and paid in cash.

Conclusion:
The Tribunal set aside the impugned order, allowing the appeal with consequential reliefs. It concluded that the rejection of the refund claim by referring to Section 142(8) of the CGST Act, 2017, was misplaced, as the appellant's payment did not fall under recovery of arrears through assessment or adjudication proceedings. The Tribunal directed that the refund be processed in accordance with Section 142(3) of the CGST Act, 2017.

Order Pronounced:
The appeal was allowed with consequential reliefs as per law, with the order pronounced in the Open Court on 11.10.2021.

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