refund of cenvat credit of service tax under Rule 5 of Cenvat Credit and Notification no 27/2012 by servive provider., Goods and Services Tax - GST

[bk r]

We are service provider and engaged in exporting our entire services and claim refund regularly quarterly for cenvat credit availed in respect of inputs service used for providing output service under Rule 5 of the Cenvat Credit Rules read with notification No. 27/2012 CEx and department was providing service tax refund. But after GST we submitted the refund claim for the Q.E.12/2016 on 25/09/2017, for Q.E 03/2017 on 26/12/2017 and for Q.E. 06/2017 on 27/03/2018. All claims were filed after GST implementation i.e. after 01/07/2017. We were having Cenvat Credit Balance of ₹ 92 lacs as on 30.06.2017 and the same was also shown in ST 3 return for the period of April 2017 to June 2017 as a closing balance. but this amount was not carried forward by us in the GST under Trans-1 or other wise. We took opening balance of ITC zero as on 01.07.2017 and no ITC claimed in respect of balance Cenvat credit available on 30.06.2017 during 01/07/2017 to till date. But in our purchase/cenvat register maintained manually the above /said ₹ 92 lacs was showing as closing balance as on 01.07.2017 and as per the condition of claiming refund the refund amount to be claimed was required to be reversed before filing refund claim, therefore, we reversed the cenvat amount of ₹ 32 lacs on 23/09/2017 for the refund of Q.E 12/2016, ₹ 30 lacs reversed from the Cenvat Account on 23/12/2017 for claiming refund of Q.E 03/2017 and ₹ 30 lacs was also reversed from the Cenvat Account on 26/03/2018 for claiming refund for the Q.E. 06/2017. After 26/03/2018 our closing balance of cenvat credit was zero as all the amount was reversed upto 26/03/2018. But the department is not granting the refund on the ground that after 30/06/2017 there was no provision to maintain manual cenvat credit account and we cannot reverse the amount claimed as refund from cenvat account after GST implementation. and the cenvat credit lying as on 01/07/2017 get lapsed. The Department also asked for the copy of return whereunder it has been shown that the amount claimed as refund has been reversed but after GST we filed GSTR-3B /GSTR-1 and in this returns no debit entry made as the cenvat credit balance as on 30/06/2017 was not carried forward in ITC of GST. We also cannot file any return under Service Tax. What we can do now. whether the department contention is right? and they reject my refund claim on these grounds.

Posts / Replies

[KASTURI SETHI]

The department is absolutely right in this approach. You have committed Himalayan blunder by not carrying forward the balance in TRANS-1. The department extended the date for filing TRANS -1 in the interest of asseessees. Now you are on a warm wicket legally. But there is still hope for you. You should apply for refund and let the department reject it. You can get relief only through litigation only. Try your luck. Must fight. Path is tough but do not surrender before fighting These are my views. Case laws can help.

[Ganeshan Kalyani]

Closing balance of eligible tax credit in pre GST can be carry forward to GST regime thru tran1. This was the only option to take benefit of service tax to GST. The due date of filing tran1 was extended multiple time and last date was December 2017.

I agree with Sri Kasturi Sir 's reply. The only way to get the benefit is to fight out. Thanks.

[Alkesh Jani]

Sir,

In this regards, my view is that, you need to file refund claim under existing law i.e. Central Excise Act, in Form-R, mentioning proper grounds for refund. Let department issue SCN for rejection. The fliers clarifying transitional provision is as under:-

“GST law has become operational w.e.f. 1st July, 2017 and existing laws have been repealed. Elaborate provisions have been made to save the pending as well future claims relating to existing law made before, on or after the appointed day i.e. 1st July, 2017. Such proceedings may pertain to refund claims of CENVAT credit/VAT or export related rebate or service tax, such proceedings may either result in recovery of tax or refund. All such cases would be disposed of under the existing law. If any claim for refund of CENVAT credit is fully or partially rejected, the amount so rejected shall lapse. Refund of CENVAT credit shall be paid in cash. There will be no refund of CENVAT if already carry forwarded. If any amount becomes recoverable, the same shall be recovered as arrear of tax under GST Act. Statutory provisions relating to transition are contained in chapter XX (section 139 to 142) of the CGST Act, 2017, SGST Act(s), 2017 and Rule 117 to 121 of the CGST Rules, 2017”.

Based on above, the intention of the government is clear that right of the tax payer is not deprived. If one was not able to carry forward the credit, does not mean that credit may lapse. Please also note that credit will lapse only when it is rejected by order. Please take the advice of expert before filing the refund claim.

Our experts may correct me if mistaken.

Thanks

[KASTURI SETHI]

Excellent job done by Sh.Alkesh Jani Ji. Timely reply has a great value.

[Alkesh Jani]

Sh. Kasturiji Sir,

Thanks for motivational words.

[bk r]

Thanks to everyone for your valuable advise. But I have already filed the refund claim as per detail mentioned in the original querry. the department is asking for reversal entry of refund amount from my ITC credit. I submitted the manually maintained register showing detail of Cenvat credit availed and debit entry made for claim of refund. But the department is not accepting it and asked the copy of return/copy of credit ledger where debit entry in this regard has been made. As I do not made any debit entry in any return/credit ledger , therefore I am unable to submit this.

[Alkesh Jani]

Sir, Have you filed refund claim under Section11 B (2) (d) of the Central Excise Act, 1944?

Thanks.

[bk r]

Sir I filed the refund under Rule 5 of the Cenvat Credit rules 2004 alongwith Notification No. 27/2012 CE (NT) dated 18.06.2012.

Thanks sir

[Alkesh Jani]

Sir,

Under Rule 5 of the Cenvat Credit Rules, you are required to reverse the Cenvat credit. This is the reason department is insisting for the same. In the whole scenario, my suggestion is that, withdraw you claim and again filed the refund claim under Section 11B of the Central Excise Act, with proper grounds, if SCN has not been issued. Here, please note that Central Excise Act, 1944 has been repealed, but saved otherwise and also mentioned in Circulars is Section11B(2) of the said Act.

Our experts may correct me if mistaken.

Thanks

[KASTURI SETHI]

Cenvat Credit Rules and Central Excise Rules are not independent of Central Excise Act. Any refund or rebate filed under Central Excise Rules or Cenvat Credit Rules, Section 11 B of Central Excise is applicable. Conditions and restrictions prescribed under Section 11 B are applicable to Rule 5 of Cenvat Credit Rules.

[KASTURI SETHI]

Refund represents Central Excise duty paid on inputs etc. For refund of Central Excise duty , Section 11 B is clearly applicable. Otherwise also Act is to be preferred to Rules, for the sake of more clarity. Refund filed under Rule 5 is to be treated as filed under Section 11 B.

[bk r]

Thanks very much again.

What should I do now as my three refund claim amounting to ₹ 9000000/- is pending with the Department.

[KASTURI SETHI]

Route is through appellate channel only, if the department rejects. In such like cases the department does not give relief in the first instance. Wait for the outcome of your claims.

[YAGAY and SUN]

You may file writ on the basis of technical snags in GSTN. There is many judgment on this matter now.

[Ankur Jain]

This issue has created an analogy, the return for the period April-June 2017 was filed in August and by that time no refund application was filed. The refund claims were filed in the month of September and just by not carrying forward the refund amount in Tran-1, the Cenvat Credit shall deemed to be reversed as it has happened in one of our very own case. It was not a mandate to reverse the Credit claimed in the last return filed during the existing law but it was certainly a mandate that Cenvat Credit of refund claimed must not be transitioned in GST regime (which you have correctly done in present case). There is no infirmity as per the law in your refund claims and that must be allowed. In case the Adjudicating authority rejects the refund claim with lack of understanding of laws, I am very much sure that the refund shall be granted during the appellate proceedings.

[BalKrishan Rakheja]

Thanks for your reply Jain ji,

Please refer to Notification No. 20/2017- Central Excise (N.T.)New Delhi, the 30th June, 2017 where under cenvat credit rules 2017 has been notified after supersession of old cenvat rules 2004. As per para 15 the assesse has to transfer his entire credit in GST Regimeas detailed below

15. Transitional Provisions.-

(1) A person registered under the Central Goods and Services Tax Act, 2017 (12 of 2017) shall transfer the entire CENVAT credit available under the CENVAT Credit Rules, 2004 relating to the period ending with the day immediately preceding the 1st day of July, 2017 in his electronic credit ledger as per Chapter XX of the Central Goods and Services Tax Act, 2017 (12 of 2017) and the rules made thereunder, and any CENVAT credit which is not eligible for such transfer shall not be retained as CEN VAT credit unless eligible under these rules.

Department is objecting that as per Para 15 above that entire credit was to be transferred by us. Now what should I do. please clarify.

[KASTURI SETHI]

The department is right but you will get relief only through appellate channel. No Govt. Officer would take risk.

[Alkesh Jani]

Sir,

Have you received any Notice for rejecting the claim? If so, please mention full grounds for which rejection is purposed.

Thanks

[bk r]

Sir I have not received the SCN yet but I read out the draft SCN put up to the higher authorities by the technical wing and as I memories the issue is taken on the following groind.

1. That the notice was not eligible to retain cenvat credit lying balance as on 30.06.2017 under cenvat credit rules 2004, as there is no provisions under GST Law regarding retaining of Cenvat credit balance lying as on 30.06.2017

2. That as per Rule 15 of the Cenvat Credit Rules 2017 notified after supersession of Cenvat Credit rules 2004 the assess was required to transfer his entire cenvat credit to the Electronic credit ledger, but in this case the assessee has not transfer his entire credit to the electronic credit ledger therefore it is clear that he can not retain the cenvat credit in their private records and cenvat credit lying balance as on 30.06.2017 which was not transferred in the electoronic credit leger get lapsed.

3.It is mandatory to reverse the amount equal to the cenvat credit claimed under rules 5 of the Cenvat credit rules 2004 from the availalbe cenvat credit on the date of filing the refund claim and in this case the notice was not available to retain the Cenvat credit therefore entry made on 30.03.2018 regarding reversal of cenvat credit from his private record as not as per the law as the Cenvat credit was not transferred get lapsed.

That the assessee has not inform to the Department in any statuatory return regarding reversal of this amount and it is also possibility that he can claim ITC later on through the court.

these are the main point which I memorise during reading of draft show cause notice .

Please guide whether the department contention is right. Is there any another way to avoid SCN as my huge amount will be blocked.

[Alkesh Jani]

Sir,

There is no way to avoid SCN. the only way out is to contest the SCN. Please wait till SCN is issued finally, because proposition and supposition may not help any way.

Thanks

[ROSHAN PRADHAN]

GST law allows Refund claim filed in respect of Cenvat Credit even after 1st July 2017 (appointed date), the same has to be disposed under existing law.

Since law allows to process refund of cenvat credit under existing law, the requirement of transfer of credit to GST does not arise.

If cenvat credit in respect of ₹ 92 lakhs meets the basic condition of claiming cevnat credit, there should be any problem ( Input suppliers payment to be made within the allowed time period ) and refund claim filed should be within time limit of 1 years

Department is contending with procedural issues arising for maintaining/updation of entry in cenvat credit register. post 1st July 17.

Cenvat credit register post 1st July 2017 can be updated on the premise that refund claim can be filed within a time period of one year. For any relevant refund claim quarter, updation can be done in Cenvat credit register within the time limit of one year. Filing of refund claim amounts to Utilisation of cenvat credit under Rule 5 and therefore such utilisation must be reversed in Cenavt Credit Register. Such reversal can be done post 1st July 2017 and technically last updation can be done upto 30th June 2018

Provision of CGST Act

Refund claim filed as per existing law before, on or after appointed day in respect of amount Cenvat Credit, Duty, tax, interest or any other amount paid under the existing law– To be refunded in Cash and such claim to be disposed as per existing law

Sec 142 (3) Every claim for refund filed by any person before, on or after the appointed day, for refund of any amount of CENVAT credit, duty, tax, interest or any other amount paid under the existing law, shall be disposed of in accordance with the provisions of existing law and any amount eventually accruing to him shall be paid in cash, notwithstanding anything to the contrary contained under the provisions of existing law other than the provisions of sub-section (2) of section 11B of the Central Excise Act, 1944 (1 of 1944) :

If such claim for Cenvat Credit is fully or partially rejected – Amount so rejected shall lapse

Provided that where any claim for refund of CENVAT credit is fully or partially rejected, the amount so rejected shall lapse :

No refund of Cenvat if the same is carried forward as ITC under GST Act

Provided further that no refund shall be allowed of any amount of CENVAT credit where the balance of the said amount as on the appointed day has been carried forward under this Act.

Refund claimed filed after the appointed date for refund of any duty/tax paid in respect of goods or services exported under existing law before or after the appointed day – To be disposed of in accordance with the provisions of existing law

Sec 142 (4) Every claim for refund filed after the appointed day for refund of any duty or tax paid under existing law in respect of the goods or services exported before or after the appointed day, shall be disposed of in accordance with the provisions of the existing law :

No refund of Cenvat if the same is carried forward as ITC under GST Act

Provided that where any claim for refund of CENVAT credit is fully or partially rejected, the amount so rejected shall lapse :

No refund of Cenvat if the same is carried forward as ITC under GST Act

Provided further that no refund shall be allowed of any amount of CENVAT credit where the balance of the said amount as on the appointed day has been carried forward under this Act