Madura Micro Finance Ltd. Vs Commissioner of GST & Central Excise (CESTAT Chennai)
Summary: The Customs, Excise & Service Tax Appellate Tribunal, Chennai allowed the appeal filed by Madura Micro Finance Ltd. against rejection of its refund claim concerning Service Tax paid under the Reverse Charge Mechanism. The appellant, a non-banking financial company, had paid Rs.40,13,483/- towards Service Tax following audit objections for April 2012 to June 2017, including Rs.20,11,196/- under reverse charge. It claimed 50% of the latter amount, i.e. Rs.10,05,598/-, as eligible CENVAT credit/refund after being unable to avail or carry forward the credit into the GST regime. The Department rejected the claim by invoking Rule 9(1)(bb) of the CENVAT Credit Rules, 2004. The Tribunal held that Rule 9(1)(e), and not Rule 9(1)(bb), was the relevant provision because the appellant had paid Service Tax under reverse charge and the prescribed document was a challan evidencing payment by the person liable to pay Service Tax. Relying on Polygenta Technologies Ltd., the Tribunal held that Rule 9(1)(bb) concerned supplementary invoices, bills or challans issued by a provider of output service and could not be applied to deny credit to a recipient paying tax under reverse charge. On transition into GST, the Tribunal found that Section 142 of the CGST Act, 2017 permitted the eligible amount to be refunded in cash where the credit could not be availed after the GST regime commenced. It noted that the Service Tax was paid on 18.12.2017, after GST came into force, and that the appellant had applied within the stipulated period for TRAN-1 credit. No fraud, collusion, wilful misstatement, suppression or intent to evade Service Tax had been alleged through a show cause notice. The Tribunal therefore held that the rejection on the ground of non-declaration in Service Tax returns was hyper-technical. It also relied on Adfert Technologies Pvt. Ltd. and the Supreme Court order concerning Adfert Technologies in support of the principle that transitional credit could not be denied on procedural or technical grounds. The impugned order was set aside and the appeal was allowed with consequential relief, as per law.
Cases Discussed
- M/s. Asiatic Drugs and Pharmaceuticals Pvt. Ltd. Vs. Commissioner, CGST, Alwar dated 25.7.2022 — cited by the appellant in support of eligibility for credit.
- M/s. Global Analytics India Pvt. Ltd. Vs. CGST & CE dated 22.7.2019 — cited by the appellant in support of eligibility for credit.
- Polygenta Technologies Ltd. Vs. Commissioner of Central Excise, Nasik-I, 2018 (2) TMI 804-CESTAT, Mumbai — relied upon for holding that Rule 9(1)(e), rather than Rule 9(1)(bb), governs credit based on Service Tax paid under reverse charge.
- Adfert Technologies Pvt. Ltd. Vs. UOI, 2020 (32) GSTL 726 (P&H) — relied upon concerning transitional credit and procedural or technical grounds.
- UOI & Ors. Vs. Adfert Technologies Pvt. Ltd., 2020 (34) GSTL J138 (S.C.) — cited as the Supreme Court decision concerning Adfert Technologies.
FULL TEXT OF THE ORDER OF CESTAT, CHENNAI
This appeal is filed by Madura Micro Finance Ltd. against Order in Appeal No. 22/2022 (CTA – II) dated 12.5.2022 passed by the Commissioner of GST & Central Excise (Appeals – II), Chennai (impugned order).
2. Brief facts of the case are that the appellant is engaged in the business of Non-banking Financial Services. During the course of audit by the Audit – II Commissionerate for the period from April 2012 to June 2017, the audit raised certain objections involving non/short payment of service tax by the appellant totaling to Rs.40,13,483/- which was paid by the appellant on 18.12.2017. Out of the above amount, Rs.20,11,196/- was paid as service tax under reverse charge mechanism. The appellant submitted in their letter dated 26.9.2018 that they being a non-banking financial company, they are eligible for CENVAT credit of 50% of the amount paid as service tax. As they could neither take CENVAT credit of the same nor carry forward in TRAN-1, they wrote to the Range Superintendent for refund of Rs.10,05,598/- being 50% of the service tax paid under reverse charge mechanism. Department rejected the refund claim vide communication dated 26.4.2021 to the appellant. Since the appellant requested for personal hearing, the same was granted and vide Order in Original dated 25.6.2021 the lower authority rejected the refund claim. In appeal, the Ld. Appellate Authority upheld the adjudication order. Hence the present appeal.
3. Shri K. Manimaran, learned Chartered Accountant appeared for the appellant and Smt. Anandalakshmi Ganeshram, learned Authorized Representative appeared for the respondent.
3.1 The learned Chartered Accountant (CA) for the appellant submitted that on being pointed out by the Tax Audit wing of the department, they made payment of Service Tax under RCM for the period from April 2012 to June 2017 on 18.12.2017. Meanwhile GST had been introduced on July 1, 2017. They hence filed a Tran I application on 23/08/2017 well within the stipulated deadline. Which was rejected on 15/11/2022. The Appellant submitted a revised Tran 1 application to claim eligible Input Tax Credit, which was again rejected on 21/02/2023 citing non-declaration of the amount in Service Tax returns. He stated that the service tax paid under RCM qualifies as eligible input tax credit and that non-declaration of the amount in Service Tax returns was because the Service tax returns had been filed on August 23, 2017, well before the Service Tax audit was conducted. To support the submission for eligibility for credit, the Appellant refers to the following decisions:
i. CESTAT Delhi – M/s. Asiatic Drugs and Pharmaceuticals Pvt. Ltd. Vs. Commissioner, CGST, Alwar dated 25.7.2022.
ii. CESTAT Chennai – M/s. Global Analytics India Pvt. Ltd. Vs. CGST & CE, dated 22.7.2019.
The Ld. C.A. further prayed that the impugned order be set aside with consequential relief.
3.2 The learned Authorized Representative stated that the refund claim was rejected because the amount paid under RCM is not admissible Rule 9(1)(bb) of CENVAT Credit Rules 2004 and was hence not eligible to be transited as input tax credit in the GST regime as stated in section 142(8)(a) of CGST Act. It was further held that the Service Tax paid by the claimant is not falling under the category of excess paid or erroneously paid tax in terms of 11(B) of Central excise Act 1944 hence the amount paid cannot be refunded as per section 142 of the CST Act 2017. She further reiterated the findings of the lower authorities and prayed that the appeal may be rejected.
4. I have heard both sides. Since the amount paid under RCM is held to be not admissible as per Rule 9(1)(bb) of CENVAT Credit Rules 2004, in the impugned order, the relevant portion of Rule 9 is reproduced below for easy reference;
“RULE 9. Documents and accounts.
(1) The CENVAT credit shall be taken by the manufacturer or the provider of output service or input service distributor, as the case may be, on the basis of any of the following documents, namely:
. . . . .
(bb) a supplementary invoice, bill or challan issued by a provider of output service, in terms of the provisions of Service Tax Rules, 1994 except where the additional amount of tax became recoverable from the provider of service on account of non-levy or non- payment or short-levy or short-payment by reason of fraud or collusion or wilful mis statement or suppression of facts or contravention of any of the provisions of the Finance Act or of the rules made thereunder with the intent to evade payment of service tax
. . . . .
(e) a challan evidencing payment of service tax by the person liable to pay service tax under sub-clauses (iii), (iv), (v) and (vii) of clause (d) of sub-rule (1) or rule 2 of the Service Tax Rules, 1994.”
It is seen from the Rule that since tax is paid under RCM, the relevant provision is Rule 9(1)(e) ibid and not Rule 9(1)(bb), as evoked in the OIO and the impugned order and hence credit cannot be denied. In M/s Polygenta Technologies Ltd. Vs. Commissioner of Central Excise, Nasik-I (2018 (2) TMI 804-CESTAT, Mumbai) a similar matter was examined by CESTAT Mumbai. The relevant portion of the judgment is reproduced below:-
“5. From the above, it is apparent that Rule 9(1)(bb) is applicable to supplementary invoice, bill or challan issued by provider of output service and Rule 9(i)(e) is applicable, inter alia, to a person liable to pay service tax under Rule 2(1)(d) of Service Tax Rules, 1994. It is apparent that the appellant is not service provider and therefore Rule 9(i)(bb) would not be applicable to them. The appellant is paying service tax on reverse chare basis in terms of Rule 2(1)(d) of Service Tax Rules, 1994 and therefore credit can be availed in terms of Rule 9(i)(e) of Cenvat Credit Rules. Since Rule 9(i)(bb) is not applicable to the appellant, the credit cannot be denied.” (emphasis added)
5. As regards the issue of transition of credit, I find that the transition provisions contained under section 142 of CGST Act 2017 allows refund of any amount of CENVAT credit, duty, tax or interest paid under the existing law. As per section 140 of the GST Act, 2017, the appellant was eligible to transfer the amount as TRAN-1 credit.
Further the amount was paid on 18/12/2017 and the last date for availment as TRAN-1 credit was on 27/12/2017, the appellant had applied within time. No fraud etc. was alleged, by issuing a SCN, hence the error of non-payment of tax was inadvertent in nature. The rejection of the claim on 21/02/2023 citing non-declaration of the amount in Service Tax returns was hyper technical as the tax was paid after being pointed out by Audit, by which time the CGST law had come into force on 01/07/2017.
The issue hence gets covered under 142 of the CGST Act. The relevant portion of the miscellaneous provisions for transition of credit under GST Act under Section 142 reads as follows:-
“Section 142 of GST Act 2017: Miscellaneous Transitional Provisions (CHAPTER XX– TRANSITIONAL PROVISIONS)
(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:
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.
. . . . .
(8) (a) where in pursuance of an assessment or adjudication proceedings instituted, whether before, on or after the appointed day, under the existing law, any amount of tax, interest, fine or penalty becomes recoverable from the person, the same shall, unless recovered under the existing law, be recovered as an arrear of tax under this Act and the amount so recovered shall not be admissible as input tax credit under this Act;
(b) where in pursuance of an assessment or adjudication proceedings instituted, whether before, on or after the appointed day, under the existing law, any amount of tax, interest, fine or penalty becomes refundable to the taxable person, the same shall be refunded to him in cash under the said law, notwithstanding anything to the contrary contained in the said law other than the provisions of sub-section (2) of section 11B of the Central Excise Act, 1944 and the amount rejected, if any, shall not be admissible as input tax credit under this Act.”
6. Section 142(8)(b) also makes it clear that where in pursuance of an assessment or adjudication proceedings instituted, whether before, on or after the appointed day, under the existing law, any amount of tax, interest, fine or penalty becomes refundable to the taxable person, the same shall be refunded to him in cash under the said law. I find that in the facts of the case the amount of tax after assessment paid under RCM was not hit by the taint of fraud or collusion or wilful mis-statement or suppression of facts or contravention of any of the provisions of the Finance Act or of the rules made thereunder with the intent to evade payment of service tax, as no such notice was issued to the appellant alleging the same. Hence since the duty was paid after the GST Act came into force, CENVAT Credit could not be availed in the appellants books before 01/07/2017. However, once the credit is found eligible, it is to be refunded in cash. In such a situation the appellant is eligible for refund as per section 142 of CGST Act 2017. This legal position is also supported by the judgments cited by the appellant above.
7. In the case of Adfert Technologies Pvt. Ltd. Vs UOI and Others [2020 (32) GSTL 726 (P&H)], it has been held that transitional credit being a vested right, it cannot be taken away on procedural or technical grounds. This order has been upheld by the Hon’ble Supreme Court in the case of UOI & Ors. Vs. Adfert Technologies Pvt. Ltd.[2020 (34) GSTL J138 (S.C.)].
8. In the circumstances, the impugned order rejecting the refund claim is not proper. The same is hence set aside. The appeal is allowed with consequential relief, as per law. The appeal is disposed of accordingly.
(Order pronounced in open court on 15.10.2024)
