Procedural delay in credit reversal not disentitles assessee from claiming refund

Chariot International Pvt. Ltd. Vs Commissioner of Central Tax (CESTAT Bengalore)

The Hon’ble CESTAT, Bengaluru set aside the order passed by the Commissioner (Appeals) disallowing the refund claims of the assessee on the ground that credit reversal in Form GSTR-3B pertains to GST credit and not CENVAT credit. Held that, procedural delay will not disentitle the assessee from claiming refund when credit had been reversed in Form GSTR-3B.

Facts:

M/s Chariot International Pvt. Ltd. (“the Appellant”) is engaged in the manufacture and export of granite slabs and tiles classifiable under Chapter sub-heading 68022390 of Central Excise Tariff Act, 1985 (“the CETA”) and avails the Central Value Added Tax (“the CENVAT”) credit of service tax paid on input services used in the manufacture of their finished goods under the provisions of CENVAT Credit Rules, 2004 (“the CCR”).

The Appellant had filed three refund applications for refund of CENVAT credit under Rule 5 of the CCR read with Notification No. 27/2012-CE (NT) dated June 18, 2012 (“Notification No. 27”), for which a Show-Cause Notice (“SCN”) was issued to the Appellant, rejecting the refund claims on the ground that the Appellant has not debited the amount in the CENVAT register as required under para 2(h) of the Notification No. 27, for which, the Appellant filed reply to the SCN and submissions before the Assistant Commissioner (“the Adjudicating Authority”/ ”A.A.”)

Subsequently, the A.A. vide Order-in-Original (“OIO”) sanctioned the refund claim filed by the Appellant, but the Revenue Department filed three appeals against OIO, before the Commissioner(Appeals) (“the Respondent”), wherein, an order dated December 16, 2019 (“the Impugned Order”) was passed setting aside the OIO and disallowed the refund claims of the Appellant on the ground that credit reversal in Form GSTR-3B pertains to GST credit and not CENVAT credit by invoking Section 142(3) and Section 142(4) of the Central Goods and Services Tax Act, 2017 (“the CGST Act”).

Being aggrieved, the Appellant has filed this appeal.

Issue:

• Whether procedural delay in reversing the credit in Form GSTR-3B will disentitle the Appellant from claiming the refund?

Held:

The Hon’ble CESTAT, Bengaluru, in Central Excise Appeal No. 20158 of 2020 dated June 17, 2021, held as under:

• Noted that, the A.A. allowed the refunds by holding that non-reversal of the credit at the time of filing refund claims is only a minor procedural lapse and reversal is ensured before sanctioning of the refund; hence the delay was condoned. Further noted that, the Appellant is eligible to claim refund and has debited the amount claimed in the Form GSTR-3B.
• Observed that, the Hon’ble Tribunal has consistently held that credit reversed without being utilized considered as if credit has not been taken. Hence the credit reversed in GSTR-3B tantamount to not been taken credit in Section 142(1) of the CGST Act.
• Stated that, the A.A. in OIO has held that the belated debit was only a procedural lapse and technical in nature, but the Respondent in the Impugned Order has not considered this aspect and has simply quoted few judgments of the courts holding that exemption notification should be construed strictly.
• Opined that, the Respondent failed to examine whether the conditions violated by the Appellant is a procedural condition of a technical nature or a substantive condition.
• Relied on the judgement of the Hon’ble CESTAT, Mumbai in the case of Sandoz Pvt. Ltd. CCE, Belapur [2015(325) ELT 387 (Tri. Mum.) and held that the Impugned Order rejecting the refunds is not sustainable in law.
• Held that, the Appellant has reversed the credit in the GSTR-3B, but there was only a delay in debiting the CENVAT credit and this delay is procedural delay and will not disentitle the Appellant from claiming the refund.

Relevant Provisions:

Para 2(h) of the CCR read with Notification No. 27:

“2.0 Safeguards, conditions and limitations.- Refund of CENVAT Credit under rule 5 of the said rules, shall be subjected to the following safeguards, conditions and limitations, namely:-

(h) the amount that is claimed as refund under rule 5 of the said rules shall be debited by the claimant from his CENVAT credit account at the time of making the claim.”

Section 142 (1), Section 142(3) and Section 142(4) of the CGST Act:

“142.Miscellaneous transitional provisions.

142. (1) Where any goods on which duty, if any, had been paid under the existing law at the time of removal thereof, not being earlier than six months prior to the appointed day, are returned to any place of business on or after the appointed day, the registered person shall be eligible for refund of the duty paid under the existing law where such goods are returned by a person, other than a registered person, to the said place of business within a period of six months from the appointed day and such goods are identifiable to the satisfaction of the proper officer:

Provided that if the said goods are returned by a registered person, the return of such goods shall be deemed to be a supply.”

“(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.)

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

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.”

“(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:

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

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.”

FULL TEXT OF THE CESTAT BANGALORE ORDER

The present appeal is directed against the common impugned order dt. 16/12/2019 passed by the Commissioner of Central Tax (Appeals), Bangalore whereby the Commissioner has accepted the three departmental appeals against the decision of the original authority and set aside the refunds granted by the Assistant Commissioner in favour of the appellant.

2. Briefly, the facts of the present case are that the appellants are engaged in the manufacture and export of granite slabs and tiles classifiable under Chapter sub-heading 68022390 of CETA, 1985 and are availing the cenvat credit of service tax paid on input services used in the manufacture of their finished goods under the provisions of Cenvat Credit Rules, 2004(CCR). Appellant had filed three refund applications for refund of cenvat credit under Rule 5 of CCR, 2004 read with Notification No. 27/2012-CE(NT) dt. 18/06/2012. The details of various refund are given herein below:-

Thereafter the appellant received a show-cause notice proposing to reject the refund claims on the ground that the appellant has not debited the amount in the cenvat register as required under para 2(h) of the Notification No. 27/2012. Appellant filed reply to the show-cause notice and submitted that on 30.06.2017, they had a cenvat credit balance of Rs.31,55,064/- and the same was carried forward in the TRAN1 under GST on 26.12.2017. They have also submitted that the amount claimed as refund has been debited in the GSTR3B for the period December 2017. After following due process, the original authority sanctioned the refund. Aggrieved by the sanctioning of the refund, the Department filed three appeals before the Commissioner(Appeals) who passed the impugned order allowing all the three appeals filed by Department against the order sanctioning the refund granted by the original authority. Hence the present appeal.

3. Heard both sides and perused the material on record as well as various decisions relied upon by the parties in support of their submissions.

4. The issue involved in the present case is in a narrow compass. The adjudicating authority allowed the refunds by holding that non-reversal of the credit at the time of filing refund claims is only a minor procedural lapse and reversal is ensured before sanctioning of the refund; hence the delay was condoned. The Department filed appeals before the learned Commissioner(Appeals) who set aside the Orders-in-Original and disallowed the refunds on the ground that credit reversal in GSTR3B pertains to GST credit and not cenvat credit and by invoking Section 142(3) and Section 142(4), he disallowed the refunds. On perusal of the documents on record, I find that eligibility of the appellant to claim refund is not disputed and it is also not disputed that the appellant has debited the amount claimed in the GSTR3B. I also find that the Tribunal has consistently held that credit reversed without being utilized considered as if credit has not been taken. Hence the credit reversed in GSTR-3B tantamounts to not been taken credit in clause 1. Further in the case of JCT Limited Vs. CCE, Jalandhar and Ludhiana [2015(2) TMI 600- CESTAT NEW DELHI), this Tribunal relying upon the judgment of the Hon’ble Allahabad High Court in the case of Hello Minerals Water (P) Ltd. Vs. UOI [2004(7) TMI 98] which was based on the Hon’ble Apex Court judgment in the case of Chandrapur Magnet Wire (P) Ltd. Vs. CC, Nagpur [1996(81) ELT 3 (SC)], held that since the cenvat credit initially taken was reversed without being utilized by the assesse, it is to be treated as if the assesse has not taken the cenvat credit and hence would be eligible for the exemption benefits under the exemption notification. Further I find that when the adjudicating authority has held that the belated debit is only a procedural lapse and technical in nature but the learned Commissioner(Appeals) in the impugned order has not discussed this aspect nor has given any contrary findings. I also find that the learned Commissioner(Appeals) in the impugned order has simply quoted few judgments of the courts holding that exemption notification should be construed strictly. Learned Commissioner(Appeals) failed to examine whether the conditions violated by the appellant is a procedural condition of a technical nature or a substantive condition. Further I find that the adjudicating authority had relied upon the judgment of CESTAT, Mumbai in the case of Sandoz Pvt. Ltd. CCE, Belapur [2015(325) ELT 387 (Tri. Mum.)] wherein the Tribunal has held as under:-

“The appellants are in appeal before us against the said order of Commissioner(Appeals). The short question to be decided is if the refund can be granted to the appellants when they have debited the amount not on the date of filing refund claim but on a later date. It is seen that the conditions prescribed in the notification having met although on a later date. The failure to debit on the date of filing the refund claim is not such a lapse that it would debar the appellants from the refund. On the day of debiting the cenvat account they have fulfilled the conditions of the notification. In that event they become entitled to refund on that date. In view of the above, the impugned order is set aside, the appeal is allowed with consequential benefit. ….. ”

5. In view of my discussion above, I find that the appellant has reversed the credit in the GSTR-3B; but there was only a delay in debiting the same and this delay is procedural delay and will not disentitle the appellant from claiming the refund. By following the ratio of the Tribunal in the case of Sandoz Pvt. Ltd. cited supra, I am of the opinion that the impugned order rejecting the refunds is not sustainable in law and I set aside the same by allowing the appeal of the appellant with consequential relief.

(Order was pronounced in Open Court on 17/06/2021)

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