2022 (2) TMI 934 - HC - GST

Refund of input service Credit - transitional provision under Section 142(3) of Central Goods and Service Tax Act, 2017 read with Section 11-B of Central Excise Act, 1944 and Rule 2(l) and Rule 3 of the CENVAT Credit Rules, 2004 - HELD THAT - In a recent judgement of the Hon ble Supreme Court, in the case of UNION OF INDIA ORS. VERSUS VKC FOOTSTEPS INDIA PVT LTD. 2021 (9) TMI 626 - SUPREME COURT , the Hon ble Supreme Court dealt with the provision of refund of tax under Section 54 of the CGST Act and has extensively dealt with the principles of refund in the matter of taxation. In the said case, the Hon ble Supreme Court was dealing with the conflicting view of Hon ble Gujarat High Court and Hon ble Madras High Court on the point of validity of Rule 89 (5) which provided a formula for a refund of ITC and the case of refund on account of inverted duty structure under sub-Section 3 and Section 54 inter alia dealing with credit accumulation on account of rate of tax on inputs being higher than the rate of tax on output supplies. The Hon ble Supreme Court ultimately held that refund is statutory right and the extension of the benefit of refund only to the unutilised credit that accumulates on account of rate of tax on input goods being higher than the rate of tax on output supplies, by excluding unutilised input tax credit that accumulated on account of input services, is a valid classification and a valid exercise of legislative power. Though in the instant case we are not dealing with section 54 of CGST Act but are concerned with transitional provisions dealing with refund under section 142(3) of the CGST Act in cash under certain circumstances in connection with taxes suffered under the previous regime. However, the fundamental concepts and the interpretation of law relating to refund would still be the same and what is to be seen is whether the petitioner qualifies for entitlement of refund under section 142(3) of CGST Act in the light of the facts and circumstances of this case. In the instant case the petitioner has failed to follow the prescribed procedure to avail such a credit and consequently having lost such a right, he cannot claim revival of such a right and claim refund of the same by virtue of transitional provisions under Section 140(3) of the CGST Act. The facts involved in the present case would demonstrate that the petitioner had no existing right on the date of coming into force of CGST Act to avail credit of the service tax paid on port services as CENVAT Credit and accordingly, the provision of Section 140(3) of the CGST Act cannot be construed to have conferred such a right which never existed on the date of coming into force of CGST Act. From the entire records of the case this court does not find any explanation from the side of the petitioner as to under what circumstances the Bill dated 23.05.2017 was received by them as late as on 20.09.2017 (although as per the petitioner the port services were availed and the payment including service tax was made to the port authorities in the month of April 2017), except the statement that delayed receipt of the bill was beyond their control. The provision of section 142(3) does not entitle a person to seek refund who has no such right under the existing law or where the right under the existing law has extinguished or where right under the new CGST regime with respect to such claim has not been exercised in terms of the provision of CGST, Act and the rules framed and notifications issued. Meaning thereby, section 142(3) does not confer a new right which never existed under the old regime except to the manner of giving relief by refund in cash if the person is found entitled under the existing law in terms of the existing law - the argument of the petitioner by referring to second proviso to section 142(3) of CGST Act that it indicates that section 142(3) would apply to the situations where the assessee has failed to take transitional credit under section 140(1), is also devoid of any merits. The second proviso only indicates that if the assessee has taken transitional credit he will not be entitled to refund. Certainly, an assessee cannot simultaneously claim transitional credit as well as refund of the same amount. The second proviso to section 143(2) cannot be said to be an eligibility condition to claim refund but is only a condition which governs refund as an assessee cannot be permitted to have transitional credit as well as refund of the same tax amount. It is apparent from the impugned orders that the specific case of the respondent is that the petitioner had claimed CENVAT Credit under ST-3 return thereby treating the services involved in the present case as their input services used for providing output service, whereas they are not output service provider and the same cannot be used for providing output services. Therefore, it cannot be their input services under Rule 2 (l) of CENVAT Credit Rules, 2004 - the authority has rightly held that petitioner had wrongly claimed Credit of the impugned service tax under ST-3 return and omitted to claim the impugned service tax as CENVAT Credit in ER-1 Return. The authorities have held in the impugned orders that in the instance case, the timeline for claiming CENVAT Credit qua the service tax paid on port services was not followed by the petitioner, although the services were availed, the entire payment was made and the bill was also generated in the month of April/May, 2017. Further, it has also been held in the impugned orders that the petitioner not only failed to claim the CENVAT Credit as per law, but illegally claimed the credit of the same while filing service tax return although the petitioner was not entitled to do so as the petitioner was not registered as a service provider. The authorities have also held that the service tax paid on port service was not eligible for refund under the existing law as the said services were not utilised for export - the petitioner never had a right to claim refund under the existing law and had failed to exercise their right to claim CENVAT Credit as per law and wrongly claimed the impugned amount as credit in Service Tax Return (S.T. 3 return). There are no reason to interfere with the findings and reasons assigned by the adjudicating authority as well as the appellate authority rejecting the application for refund filed by the petitioner under section 11B of Central Excise Act read with Section 142(3) and 174 of CGST Act - petition dismissed.

Summary

Issues Involved:
1. Legitimacy of the refund claim under Section 142(3) of the CGST Act.
2. Applicability of Section 140(5) of the CGST Act for transitional credit.
3. Compliance with procedural requirements under the existing law for claiming CENVAT Credit.
4. Interpretation of transitional provisions and vested rights under the CGST Act.

Detailed Analysis:

1. Legitimacy of the Refund Claim under Section 142(3) of the CGST Act:
The petitioner sought a refund of CENVAT Credit for service tax paid on "port services" under Section 142(3) of the CGST Act. The court examined whether the petitioner was entitled to such a refund under the existing law. Section 142(3) stipulates that refund claims should be disposed of per the existing law, and any amount accruing should be paid in cash. However, the court found that the petitioner did not have an existing right to claim a refund under the previous law, as the service tax paid on "port services" was not utilized for export, which is a prerequisite under Rule 5 of the CENVAT Credit Rules, 2004.

2. Applicability of Section 140(5) of the CGST Act for Transitional Credit:
The petitioner argued that under Section 140(5) of the CGST Act, they should be allowed to carry forward the CENVAT Credit. Section 140(5) allows credit for inputs or input services received after the appointed day if the tax was paid under the existing law and recorded in the books within 30 days. However, the court noted that the services were received in April 2017, and the invoice was generated in May 2017, making Section 140(5) inapplicable. The petitioner failed to claim this credit in their ER-1 return and thus could not carry it forward in TRAN-1.

3. Compliance with Procedural Requirements under the Existing Law for Claiming CENVAT Credit:
The court highlighted that the petitioner did not claim the CENVAT Credit in their ER-1 return due to the late receipt of the original invoice. The petitioner acknowledged this omission and instead claimed the credit in their ST-3 return, which was incorrect as they were not an output service provider. The court emphasized that the petitioner’s failure to comply with procedural requirements under the existing law resulted in the loss of the right to claim the credit.

4. Interpretation of Transitional Provisions and Vested Rights under the CGST Act:
The petitioner relied on various judgments to argue that transitional provisions should be purposefully construed to preserve accrued rights. The court agreed with the principle but found that the petitioner did not have an accrued right to the refund on the appointed day. The court also clarified that Section 142(3) does not create new rights but preserves existing ones, and the petitioner had no existing right to refund under the previous regime.

Conclusion:
The court concluded that the petitioner failed to claim the CENVAT Credit as per the existing law and wrongly claimed it in their ST-3 return. The petitioner was not entitled to a refund under Section 142(3) of the CGST Act as they did not meet the procedural requirements, and the service tax paid was not for export services. The writ petition was dismissed, and the impugned orders were upheld as well-reasoned and legally sound.