Ganges International Private Ltd. Vs Assistant Commissioner of GST & Central Excise (Madras High Court)
The Honorable Madras High Court allowed Credit of Service Tax Paid under RCM which could not be availed as Transitional Credit under GST following the Principle of Doctrine of Necessity.
In a very important and path-breaking judgment, on the matter relating to Refund of taxes paid, the Honorable Madras High Court has allowed the Credit of Service Tax Paid under Reverse Charge Mechanism which could not be availed as Transitional Credit under the GST regime in the case of Ganges International Private Ltd & others* vs Asst Commissioner of GST & C.Ex., Puducherry under Writ Petition No: W.P.Nos.528, 1092 & 1160 of 2019.
The brief litigation involved in this case is that the petitioners (1) Ganges International Private Ltd, (2) SRC Projects Private Ltd and (3) Supreme Petrochemicals Ltd, (“The Petitioners”) were engaged in providing various construction services to Government/Private parties and were registered under the erstwhile Service Tax Provisions with the Department and were holding Service tax Registration. From 01.07.2017 as the GST regime has come into effect, “The Petitioners” were migrated into the GST regime from that date. They had filed the last service tax return (Form ST3) in the erstwhile regime for the quarter from April to June 2017 on 15.08.2017. However, they had paid the due service tax in one case only on 30.12.2017 as it had attracted levy under Reverse Charge Mechanism, belatedly though, after the due date for filing GST-Tran-1 application had lapsed on 27-12-2017. Having paid the tax under the GST regime, the Service tax paid could not be taken as CENVAT Credit at the material time as the said provisions were rescinded.
In order to get the benefit of the said amount, as, service tax paid, on Reverse Charge Mechanism (RCM) which, is purely an input tax, credit could not be taken by the petitioner under erstwhile Cenvat Credit Rules, 2004 nor under GST regime directly. Therefore, they had made an application for a refund of the tax so paid, of course within the time limit prescribed by the existing law with the Department. The said application seeking a refund was rejected on the ground that though “The Petitioners” are eligible for taking Cenvat credit of the amount so paid under CENVAT Credit Rules 2004, there was no provision in the new regime (GST) to allow as an input tax credit (ITC) in Electronic cash ledger. The eligibility of the petitioners otherwise to claim the Cenvat Credit under normal circumstances under the erstwhile law prior to 30.06.2017 is not in much dispute. However, it is the vehement contention on the part of the Department was that what are all the eligible Taxes for which, credit can be taken by the petitioners during the transitional period was to be taken by the petitioners as on 30.06.2017 and thereafter the ensuing payments made shall not form part of the credit accrued on 30.06.2017. Therefore, the subsequent amount paid cannot be treated as an input tax credit for the purpose of making the claim in the transitional period even for carrying forward the same to the electronic credit ledger under the GST regime, leave alone Cash refunds.
In the absence of any specific provision, such kind of refund made by “The Petitioners” under the pretext of the subject of Transitional Credit, refund of the input tax credit cannot be considered and therefore, the claim was held untenable, and accordingly, it was rejected by the proper officer. Further, pointing out a reason, it was argued for the department that, under the Cenvat Credit Rules 2004 since the petitioners become eligible to claim the credit and if the credit is accrued in the account of the petitioners only as of 30.06.2017, certainly, the petitioners could have made a claim under 140(1) of the Act by making a GST TRAN-1 application. However, since the service tax itself was paid only after 01.07.2017 and it was paid only after 27.12.2017, the chance of making an application in GST TRAN-1 under Section 140(1) of the GST Act 2017 could not have been possible for “The Petitioners” in view of the legislative circumstances. The refund application ultimately stood rejected.
Aggrieved by the said order, a writ petition was filed in the Honorable Madras High Court by “The Petitioners”. While allowing the petition, a Single Judge bench observed that “in these kinds of special situations, for which, the provision if not Section 142(3), no other eligible provision is available. The provisions of Section 142(3) of the CGST Act, 2017 reads thus:-
Section 142 (3) Every claim for refund filed by any person before, on, or after the appointed day, for a 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:
It was argued that the existing law is nothing but the law which was prevailing prior to 01.07.2017 before the introduction of GST. Here in the case on hand, under the Cenvat Credit Rules, 2004, if the petitioners are eligible to claim credit, the petitioners would also be eligible to make an application for a refund under sub-section (3) of Section 142 of CGST Act 2017. The kind of application under Section 140(1) cannot be made in these cases, because, the condition imposed under Section 140(1) is that, the registered person opting to pay tax shall be entitled to eligible duties carried forward in the return relating to the period ending with the day immediately preceding the appointed day (i.e., 30-06-2017). This could not happen. In fact, if those opening is not made available to the persons like the one in the present situation who are placed in a peculiar situation, where, they could not make an application under Section 140 (1) of CGST Act 2017by way of GST TRAN-1. Those assessees or applicants have to be necessarily dealt with under Section 142(3) of the Act alone. This kind of situation is necessarily to be met with by the Legislation, for which, these transitional provision has been brought in, in the Statute Book, there can be no impediment for invoking Section 142(3) of the Act by invoking the ‘Doctrine of Necessity.
The “Doctrine of Necessity” has been best explained in (1996) 4 SCC 104, Election Commission of India and another Vs. Dr. Subramaniam Swamy and another and also in (2006) 3 SCC 276 in State of U.P. Vs. Sheo Shanker Lal Srivastava and others. The term Doctrine of Necessity is a term used to describe the basis on which administrative actions by the administrative authority, which are designed to restore order, are found to be constitutional.
The Court also held in this case that, “normally, the theory of “Doctrine of Necessity” could be invoked when there is a dire necessity with regard to the forum, before whom, the issue has to be referred to and disposed and decided by such forum. Earlier the view was that it would apply only to judicial matters but in the case of Mohapatra and Company and another Vs. The state of Orissa and another, it was held that “the doctrine of necessity applies not only to judicial matters but also to quasi-judicial and administrative matters”. While relying on many case laws, the honorable Court also added that The “Doctrine of Necessity” though would be applied only with regard to the forum or the authority by whom it shall be decided, here, since it is a transitional period from the erstwhile tax regime to the present GST regime, where, the available provisions are to be best utilized by the taxpayers, it becomes imperative in order to meet the special situation like the one discussed above, to have a forum, for which, the available legal provision of the Act viz., GST Act, 2017 can very well be invoked. Therefore, though normally the “Doctrine of Necessity” would only be invoked for want of forum, here in the case, it also can be construed that, if Section 142(3) is not permitted to be invoked in meeting situations like this, that situation would render that taxpayer remediless, hence, here the “Doctrine of Necessity” can be invoked, in the interest of justice to the “The Petitioners” opined of the Court.
The Court having convinced itself of invoking the Doctrine of Necessity also directed the GST Department to pass the necessary orders within a period of six weeks from the date of receipt of a copy of this order following the principles of Natural Justice, where the petitioners can put forth their case by providing all necessary inputs to the satisfaction of the authorities to take a decision in the right direction.
FULL TEXT OF THE JUDGMENT/ORDER OF MADRAS HIGH COURT
Since the issue raised in these writ petitions is common, with the consent of the learned counsel appearing for the parties, all these writ petitions were heard together and are being disposed of by this common order.
2. For the sake of convenience, the facts mentioned in W.P.No.1092 of 2019 is taken up and traversed.
3. The petitioner is engaged in providing various construction services to Government/Private parties and was registered with the erstwhile Service Tax Department. From 01.07.2017 as the GST regime has come into effect, the petitioner has shifted to GST regime from that date. The petitioner had filed last service tax return in the erstwhile regime for the quarter from April to June 2017 by 15.08.2017.
4. During the course of audit of accounts conducted by CERA Audit party for the erstwhile regime, it was pointed out that, the petitioner is liable to pay service tax under reverse charge on services rendered at two quarries, for which, royalty had been paid by the petitioner to the Government of Tamil Nadu for mining stones since such royalty payments are liable to service tax consequent to the issuance of Notification No.22/2016 ST dated 13.04.2016 with effect from 01.04.2016. In view of the amendment to Section 66 D(a) of the Finance Act, 1994, all services provided by Government or local authority to business entities have been made liable to service tax, subject to certain exemptions introduced by Notification 22/2016 dated 13.04.2016 and amending Notification 25/2012 dated 20.06.2012.
5. Since the petitioner had been prompted by the Department to pay the service tax, the petitioner had paid the appropriate service tax for an amount of Rs.26,88,460/- for the royalty paid to the Government for mining the stones for the period from 01.04.2016 to 31.07.2017 along with applicable interest amount of Rs.3,99,625/-.
6. Since it is an input service and the petitioner is a service recipient and has paid the service tax as stated above, therefore, he is entitled for credit of service tax paid under reverse charge since the service has been used by the petitioner for providing output service. While so, consequent upon the introduction of GST with effect from 01.07.2017, the relevant enactments pertaining to Central Excise and Service Tax have been repealed. The Cenvat Credit Rules, 2004 also has been superseded by new Cenvat Credit Rules, 2017 vide Notification 20/2017 dated 30.06.2017. Various transitional provisions were enacted under the CGST Act, 2017 to avail Input Tax Credit on transitional basis vide Section 140 to 142 of the CGST Act and the Rules. It is to be noted that, for the purpose of claiming various transitional credits, a return in form GST TRAN-1 has to be filed by every tax payer, claiming transitional credit. Though the said period for claiming transitional credit was given 90 days from the date of introduction of GST, i.e., 01.07.2017, considering the technical glitches and other difficulties faced by the tax payer, it was further extended by various orders issued in this regard and ultimately the extension went upto 27.12.2017, before which, the TRAN-1 claim should have been made.
7. When that being so, insofar as the case of the petitioner is concerned, for the payment of service tax for the period prior to 30.06.2017 since it was not immediately paid i.e., immediately after the availment of the service by the petitioner and it was paid only in December 2017 as the petitioner was prompted to pay the same by the Revenue, by the time since there has been change to GST regime and that has come into effect from 01.07.2017, whereby, the transitional provision has been made as stated, the petitioner could not make any application under GST TRAN-1 seeking for transfer of credit to the electronic credit ledger under the GST regime.
8. This is the peculiar situation faced by the petitioner as he paid the service tax only on 30.12.2017. In order to get the refund of the said amount, because, the said service tax paid is purely an input tax, for which, credit can be taken by the petitioner under erstwhile Cenvat Credit Rules, he had made an application, of course within the time limit to the respondent/Revenue. However, the said application seeking for refund filed by the petitioner, having been considered, was rejected through the Order-in-Original No.19/2018 dated 24.09.2018.
9. In the said order, though the respondent has found that, the assesee is eligible for taking Cenvat credit of the amount so paid under Service Tax Rules, since there was no provision in the new regime to allow as input tax credit in GST/credit in Electronic cash ledger/payment in cash and in the absence of any specific provision, such kind of plea made by the petitioner for refund of the input tax credit cannot be considered and refunded, therefore, the claim was untenable and accordingly, it was rejected. Aggrieved by the said order, the present writ petition has been filed.
10. Almost similar facts are projected in other two cases also and in order to have a quick reference, the relevant dates and the facts in respect of all those cases are provided under in the following table:
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