Circor Flow Technologies India Private Ltd. Vs Principal Commissioner of GST & Central Excise (CESTAT Chennai)
Chennai bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has ruled in favour of Circor Flow Technologies India Private Ltd., allowing their appeal for a refund of service tax paid under the reverse charge mechanism for the period before the Goods and Services Tax (GST) regime came into effect. The tribunal set aside the order of the adjudicating authority and the Commissioner (Appeals) who had rejected the refund claim.
The appellant, a manufacturer of valves, had imported software between January 2017 and June 2017, incurring a service tax liability under the reverse charge mechanism. This tax was paid belatedly in March 2019, after the implementation of GST on July 1, 2017. Under the erstwhile Cenvat Credit Rules, 2004, the company was eligible to avail credit for this service tax payment. However, with the advent of GST, the Cenvat credit mechanism ceased to exist, preventing the appellant from utilizing the credit. Consequently, they filed a refund claim for the tax paid.
The adjudicating authority rejected the refund claim, stating that the tax was paid voluntarily and no credit was admissible under the GST regime. This decision was upheld by the Commissioner (Appeals).
Appearing for the appellant, Mr. Paul Thangam and Mr. Aravind Thangam, Ld. Consultants, argued that the service tax was paid voluntarily under self-assessment and was indeed eligible for credit under the Cenvat Credit Rules, 2004. They pointed to Rule 9(1)(e) of the CCR 2004, which stipulated that a challan evidencing service tax payment by the service recipient liable under the reverse charge mechanism served as the prescribed document for claiming credit. The consultants emphasized that while the payment was made after the GST implementation, the liability pertained to the pre-GST period, and the appellant could not avail the credit due to the cessation of the Cenvat account.
The Ld. Consultants further drew the tribunal’s attention to Section 174(2)(c) of the GST Act, which contains repeal and savings provisions. This section states that the repeal of the previous Acts would not affect any right, privilege, obligation, or liability acquired, accrued, or incurred under the repealed Acts. They argued that the right to avail credit, accrued under the Finance Act, 1994 and the Cenvat Credit Rules, was protected by this provision.
Moreover, they cited Section 142(3) of the GST Act, a non-obstante clause, which mandates that refund claims filed before, on, or after the appointed day for any amount of Cenvat credit, duty, tax, interest, or any other amount paid under the existing law must be disposed of in accordance with the provisions of the existing law. The consultants contended that this section unequivocally required the refund to be processed under the erstwhile law and disbursed in cash.
They also highlighted that the jurisdictional Range Officer, as noted in the Order-in-Original (OIO), had acknowledged the correctness of the tax payment and confirmed that it would have been adjusted as credit under the pre-GST regime. The Ld. Consultants relied on several judicial precedents, including the CESTAT Bangalore’s decision in Bannari Aman Sugars [2019 (9) TMI 578], CESTAT New Delhi’s ruling in NRK Homes Pvt. Ltd. [2020 (4) TMI 344], and CESTAT Chennai’s own order in Terex India Private Ltd. [2021 (10) TMI 531].
Ms. K. Komathi, Ld. A.R. appearing for the Revenue, supported the findings of the impugned order.
After hearing both sides, the CESTAT Chennai bench, comprising [mention member names if available in a longer version of the order], observed that the appellant had indeed paid the service tax voluntarily under self-assessment for services received from a foreign service provider under the reverse charge mechanism. The tribunal noted that the adjudicating authority had denied the refund solely on the grounds that the tax was paid voluntarily and no credit was available under the GST regime.
The tribunal emphasized the significance of Section 174(2)(c) of the GST Act, reiterating that rights accrued under the repealed Acts remained unaffected. It reasoned that if an assessee was still liable to pay service tax even after the introduction of GST (as in the case of belated payment for pre-GST services), their corresponding right to avail credit for that tax could not be denied.
The CESTAT Chennai bench also referred to the decision of the Punjab & Haryana High Court in Adfert Technologies Pvt. Ltd. Vs UOI [2020 (32) GSTL 726], which held that transitional credit was a vested right and could not be taken away on procedural or technical grounds. The Supreme Court had upheld this order [2020 (34) GSTL J138 (SC)]. The tribunal further cited the Madras High Court’s ruling in Tara Exports Vs UOI [2019 (20) GSTL 321], which affirmed the principle of seamless flow of tax credits under the GST regime for eligible inputs. The tribunal also noted the Madras High Court’s decision in Leo Prime Comp. Pvt. Ltd. Vs Dy. Commissioner of Central Excise Puducherry 2020 (373) ELT 820 (Mad.), which stated that accumulated credit does not lapse.
The CESTAT Chennai bench specifically addressed Section 142(3) of the GST Act, stating that it clearly outlines the procedure for dealing with refund claims of service tax or duty/credit under the previous law. The section mandates that such claims be disposed of according to the existing law, and any resulting amount should be paid in cash.
In the present case, the tribunal highlighted the absence of any allegation that the credit was inherently ineligible to the appellant. The denial was solely based on the voluntary nature of the payment and the non-availability of credit under the GST regime. The CESTAT Chennai bench concluded that while the credit could not be availed as Input Tax Credit under the GST law, the credit under the erstwhile Cenvat Credit Rules remained valid and had to be processed under Section 142(3) of the GST Act, 2017, with the refund being granted in cash to the assessee.
Based on these discussions and the cited judicial precedents, the CESTAT Chennai bench found the rejection of the refund claim unjustified and accordingly set aside the impugned order, allowing the appeal with any consequential relief.
FULL TEXT OF THE CESTAT CHENNAI ORDER
