CESTAT allows Cash Refund for CENVAT Credit Post-GST  

Dhyan Networks and Technologies Pvt. Ltd Vs Commissioner of G.S.T. and Central Excise (CESTAT Chennai)

Chennai: The Chennai bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has ruled that a taxpayer is entitled to a cash refund of CENVAT credit that was initially re-credited before the implementation of the Goods and Services Tax (GST) regime, but could not be utilized afterwards due to the discontinuation of the CENVAT credit mechanism. The tribunal found that directing the assessee to merely take re-credit had become impractical after the advent of GST and ordered the refund in cash, citing provisions of the Central Goods and Services Tax (CGST) Act, 2017, and a precedent set by the Bangalore bench of CESTAT.

The case involved M/s. Dhyan Networks and Technologies Pvt. Ltd., a company engaged in providing Business Support Services to foreign clients. The company, registered with the tax department, had filed a refund claim amounting to ₹6,28,141 for the period from July 2014 to September 2014. The claim was made under Rule 5 of the CENVAT Credit Rules, 2004, read with Notification No. 27/2012-C.E (N.T.) dated June 18, 2012, which governs the refund of unutilized CENVAT credit to exporters of services.

Upon processing the refund claim, the Original Authority, vide an Order-in-Original dated August 11, 2016, sanctioned a partial refund of ₹3,34,714 in cash. However, a portion of the claim, amounting to ₹2,93,427, was not sanctioned as a cash refund. Instead, the Original Authority held that the appellant could take re-credit of this amount in their CENVAT account, citing paragraph 2(i) of Notification No. 27/2012.

Aggrieved by the rejection of the cash refund for ₹2,93,427, Dhyan Networks filed an appeal before the Commissioner (Appeals). The Commissioner (Appeals), through an order dated December 29, 2017, upheld the decision of the Original Authority, concurring that the appellant should take re-credit of the disputed amount. This order was passed after the nationwide implementation of GST on July 1, 2017.

Dhyan Networks subsequently appealed the Commissioner (Appeals)’ order to CESTAT Chennai.

Before the tribunal, the appellant’s counsel explained that the amount of ₹2,93,427 represented CENVAT credit from earlier periods (April to June 2013 and July to September 2013) for which refund claims had been filed but were subsequently withdrawn by the company. The company had then taken re-credit of this amount in their CENVAT account during the July 2014 to September 2014 quarter. When filing the refund claim for this latter quarter, they had debited this re-credited amount from their CENVAT account as required by the relevant notification.

The appellant argued that the lower authorities had wrongly denied the cash refund on the premise that this amount represented re-credited credit, not credit originally ‘availed’ during the refund period. The counsel submitted that Rule 5(1)(B) of the CENVAT Credit Rules, 2004, defines “Net CENVAT credit” as the credit availed during the relevant period. He contended that once the re-credit was taken, it became part of the CENVAT credit ‘availed’ during that period, and there should be no artificial distinction between initial credit and re-credit for the purpose of refund eligibility.

A significant point raised by the appellant was the impracticality of the direction to take re-credit after the introduction of GST. The counsel highlighted that the Commissioner (Appeals)’ order was passed on December 29, 2017, five months after GST came into effect. By this time, the CENVAT credit mechanism under the old law had ceased to operate, and the CENVAT account no longer existed in the same form. Therefore, the relief granted by the lower authorities – the ability to take re-credit – was rendered meaningless in the post-GST scenario, especially since the matter was under litigation during this transition period.

To support their plea for cash refund in the post-GST era for pre-GST credit issues, the appellant relied on the decision of the CESTAT Bangalore bench in M/s. Veer-o Metals Pvt. Ltd. v. Commr. of C.T., Bengaluru South Commissionerate, [2021 (51) G.S.T.L. 315 (Tribunal – Bangalore)]. The appellant’s counsel argued that in a similar situation, the Bangalore Tribunal had held that after the introduction of GST, the appellant was entitled to a cash refund as per sub-section (3) and sub-section (6)(a) of Section 142 of the CGST Act.

The Learned Authorized Representative for the Revenue supported the findings of the impugned order, maintaining that the rejection of the cash refund and the direction for re-credit were correct.

CESTAT Chennai heard both sides and reviewed the case records. The tribunal acknowledged the appellant’s grievance that the direction to take re-credit for the amount of ₹2,93,427 had become impractical following the implementation of GST. The tribunal then specifically considered the precedent cited by the appellant, M/s. Veer-o Metals Pvt. Ltd.

The CESTAT Chennai order reproduced relevant paragraphs from the Veer-o Metals judgment. In Veer-o Metals, the issue also involved a claim for cash refund of unutilized CENVAT credit. The Bangalore Tribunal in Veer-o Metals had referred to its earlier decision in Wave Mechanics Pvt. Ltd. v. CCT, Bangalore [2019 (370) E.L.T. 291 (Tri. – Bang.)], which had held that cash refund was not admissible under Rule 5 of CENVAT Credit Rules read with Notification No. 27/2012 for clearances made by one Export Oriented Unit (EOU) to another on an Inter-Unit Transfer (IUT) basis. However, Wave Mechanics had also held that the appellant was entitled to take re-credit of the debited CENVAT credit.

The Veer-o Metals judgment then examined the provisions of Section 142 of the CGST Act, 2017. Section 142(3) of the CGST Act states that every claim for refund filed by any person before, on, or after the appointed day (July 1, 2017) 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 the existing law, and any amount eventually accruing to him shall be paid in cash, notwithstanding anything to the contrary in the existing law (with certain exceptions).

Section 142(6)(a) of the CGST Act further provides that every proceeding of appeal, review, or reference relating to a claim for CENVAT credit initiated whether before, on, or after the appointed day under the existing law shall be disposed of in accordance with the provisions of the existing law, and any amount of credit found to be admissible to the claimant shall be refunded to him in cash, notwithstanding anything to the contrary in the existing law (with certain exceptions).

The Bangalore Tribunal in Veer-o Metals concluded that since the appellant had already debited the amount in their CENVAT account under a bona fide belief that cash refund would be sanctioned, and the CENVAT credit itself was never disallowed, the credit lying in the balance was liable to be refunded in cash as per Section 142(3) or 142(6)(a) of the CGST Act. It held that this issue was no longer res integra (a matter not previously decided) and was settled by various decisions.

Applying the ratio of the Veer-o Metals decision to the present case, CESTAT Chennai observed that since the appellant had been allowed to take re-credit but was unable to do so due to the introduction of GST, they were entitled to a cash refund of the said amount. The tribunal found that the situation was covered by the principles laid down in Veer-o Metals, which interpreted the CGST Act provisions to mandate cash refunds for admissible pre-GST credit claims pending disposal or in appeal after the appointed day.

Based on its analysis and following the precedent, CESTAT Chennai concluded that the appellant was eligible for a cash refund of ₹2,93,427.

The tribunal set aside the impugned order passed by the Commissioner (Appeals) and allowed the appeal filed by Dhyan Networks and Technologies Pvt. Ltd. The order directs that consequential reliefs, if any, be granted as per law. The judgment clarifies that directions for re-credit of CENVAT credit issued in orders passed after the GST implementation are ineffective, and the taxpayer is entitled to receive such admissible credit as a cash refund under the provisions of the CGST Act dealing with transitional matters.

FULL TEXT OF THE CESTAT CHENNAI ORDER

Brief facts are that the appellants are engaged in providing Business Support Services to their foreign clients and are also registered with the Department. They filed a refund claim for Rs.6,28,141/- for the period from July 2014 to September 2014 under Rule 5 of the CENVAT Credit Rules, 2004 read with Notification No. 27/2012-C.E (N.T.) dated 18.06.2012.

2. After due process of law, the Original Authority vide Order-in-Original No. 103/2016(R) dated 11.08.2016 sanctioned the refund of Rs.3,34,714/- to the appellant. The refund of Rs.2,93,427/- was not sanctioned to the appellant, but however, it was held that the appellant could take re-credit of the same in view of paragraph 2(i) of Notification No. 27/2012. Aggrieved by the partial rejection of refund of Rs.2,93,427/- in cash, the appellant filed appeal before the Commissioner (Appeals), who vide order impugned herein upheld the order passed by the Original Authority. Hence, this appeal.

3.1 On behalf of the appellant, Shri T.R. Ramesh, Learned Counsel, appeared and argued the matter. He submitted that the appellant had initially filed refund claim for a sum of Rs.1,20,468/- and Rs.1,72,959/- (totaling Rs.2,93,427/-) pertaining to the periods from April to June 2013 and July to September 2013 respectively. These refund claims were subsequently withdrawn by the appellant and they took re-credit during the quarter July 2014 to September 2014. Thereafter, the appellant had opted to file refund claim of this amount also and thereby made debit of this amount in its CENVAT account as required under the Notification. It is submitted by him that the authorities below have taken an erroneous view that as the appellant has taken re-credit of this amount, it cannot be considered as credit taken during the refund period; the refund of the said amount was not allowed to the appellant and instead, the appellant has been directed to take re-credit of the same.

3.2 He submitted that the authorities below have thoroughly failed to appreciate that Rule 5(1)(B) of the CENVAT Credit Rules, 2004 defines “Net CENVAT credit” as the credit availed during the relevant period. He argued that when it is not in dispute that the appellant has availed the credit of Rs.2,93,427/- during the quarter covering the relevant refund period, the appellant ought to have been given refund of this unutilized CENVAT Credit; the refund has been rejected on an erroneous assumption that Rule 5(1)(B) covers only the credit availed by the appellant in the normal course and not the re-credit that has been taken. He submitted that the credit availed and the re-credit taken has been artificially differentiated by rejecting the refund of the amount which was taken as re-credit.

3.3 It is pointed out by the Learned Counsel for the appellant that both the authorities below have allowed the appellant to take re-credit and have denied the cash refund. The order passed by the Adjudicating Authority allowing the appellant to take re-credit is dated 11.08.2016; the appellant had preferred an appeal before the Commissioner (Appeals) who upheld the view that the appellant ought to take re-credit and that therefore, the rejection of refund did not require interference. The said impugned order was passed on 29.12.2017, which is after the introduction of G.S.T. He submitted that since the matter was under litigation, the appellant could not take re-credit as directed in these orders. That the said relief granted to the appellant to avail re-credit is of no practical use after the introduction of G.S.T. as there is no CENVAT account in existence at present.

3.4 The Learned Counsel for the appellant relied upon the decision of the Tribunal in the case of M/s. Veer-o Metals Pvt. Ltd. v. Commr. of C.T., Bengaluru South Commissionerate [2021 (51) G.S.T.L. 315 (Tribunal – Bangalore)] to argue that in a similar situation, the Tribunal had held that after the introduction of G.S.T., the appellant is entitled to cash refund as per sub-section (3) and sub-section (6)(a) of Section 142 of the C.G.S.T. Act.

3.5 He prayed that the refund may be sanctioned in cash as it is not practical for the appellant to take re-credit after the introduction of G.S.T.

4. The Learned Authorized Representative for the respondent, Shri M. Ambe, supported the findings in the impugned order.

5. Heard both sides.

6. From the facts narrated above, it can be seen that the grievance of the appellant is that the amount of Rs.2,93,427/- was not sanctioned to the appellant in cash and instead, was directed to take re-credit of the said amount. Whatever the reasons may be for rejection of cash refund, it has to be seen that after the introduction of G.S.T., the said direction to take re-credit has become impractical for the appellant. The Tribunal in the case of M/s. Veer-o Metals Pvt. Ltd. (supra) had considered a situation as to whether refund in cash can be allowed when credit cannot be availed by the assessee. The relevant paragraphs are noted as under:-

“5.1 Learned Counsel for the appellant submitted that the impugned order is not sustainable in law as the same has been passed without properly appreciating the facts and the law. He further submitted that there is no dispute about the fact that the appellants are 100% EOU and holders of a valid letter of permission issued by the Development Commissioner. He further submitted that the conclusion arrived by the original authority that appellant had not physically exported their goods but cleared the same to another EOU which is not equivalent to physical export. He further submitted that the main ground taken by the lower authorities for rejection of the cash refund is that insertion of clause (1A) in Explanation to Rule 5 of Cenvat Credit Rules effective from 1-3-2015 that “export goods” means any goods which are to be taken out of India to a place outside India and that in the present case, the appellant had not exported the goods but had cleared the goods to another EOU and hence they are not entitled to cash refund. He further submitted that the issue as to whether the cash refund of unutilized Cenvat credit in respect of clearances made to EOU on IUT basis is admissible or not is no more res integra and is covered by the decision of the Bangalore CESTAT in the case of Wave Mechanics Pvt. Ltd. v. CCT, Bangalore [2019  (370) E.L.T. 291 (Tri. – Bang.)] wherein it was inter alia held that cash refund is not admissible under Rule 5 of CCR read with Notification No. 27/2012-C.E., dated 18-6-2012 in respect of clearances made by one EOU to another on IUT basis. It was also held in the said case that the amounts in respect of which cash refund had been claimed by the said appellant were debited in the Cenvat credit at the time of filing the refund claim as required by the then Notification No. 27/2012-C.E., dated 18-6-2012 and hence the appellant was entitled to take re-credit of the Cenvat credit for which the claims were filed. He further submitted that in the present case while claiming cash refund, the present appellants had already debited the entire Cenvat credit in respect of which the claims had been filed as required under the then Notification No. 27/2012-C.E., dated 18-6-2012 and the said fact is clearly recorded in each of the OIO passed by the Deputy Commissioner. He further submitted that the following amounts were lying in balance at the time the Goods and Services Tax regime came to be implemented w.e.f. 1-7-2017.

8. Further I find that this Tribunal in the case of Wave Mechanics Pvt. Ltd.[2019 (370) E.L.T. 291(Tribunal)] cited supra has held that cash refund is not admissible under Rule 5 of Cenvat Credit Rules read with Notification No. 27/2012-C.E., dated 18-6-2012 in respect of clearances made by one EOU to another EOU on IUT basis. It was also held that the amounts in respect of cash refund has been claimed were debited in the Cenvat credit account at the time of filing the refund claim as required under the said notification and the appellant was entitled to take recredit of the Cenvat credit. Further after going through the sub-section (3) of Section 142 of CGST Act, I find that as per the said sub-section, 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. Further it is very clear that as per sub-section (6)(a) of Section 142, every proceeding of appeal, review or reference relating to a claim for Cenvat credit initiated whether before, on or after the appointed day under the existing law shall be disposed of in accordance with the provisions of existing law, and any amount of credit found to be admissible to the claimant shall be refunded to him 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. Further I find that the appellant had already debited the entire amount in their Cenvat account and the said amount was debited under a bona fide belief that the cash refund would be sanctioned to them and the very fact that Cenvat credit was never disallowed, hence the Cenvat credit lying in the balance of Cenvat account are liable to be refunded in cash to the appellant as per the provisions of sub-section (3) or sub-section (6)(a) of Section 142 of CGST Act. This issue is no more res integra and has been held in favour of the appellant by various decisions cited supra. Hence, by following the ratio of the said decisions, I am of the considered view that the impugned order denying the cash refund is not sustainable in law and the appellant is entitled to cash refund as per sub-section (3) and sub-section (6)(a) of Section 142 of CGST Act. All the three appeals are accordingly allowed.”

7. As the appellant has been allowed to take re-credit and is not able to do the same due to the introduction of G.S.T., I am of the view that he has to be given refund of the said amount in cash. From the discussions made above and also following the decision as cited above, I am of the view that the appellant is eligible for refund of the amount of Rs.2,93,427/-.

8. The impugned order is set aside.

9. The appeal is allowed with consequential reliefs, if any, as per law.