In a major relief to Reliance Life Science Private Limited, the Customs, Excise, and Service Tax Appellate Tribunal ( CESTAT ) of Mumbai has directed a cash refund of ₹49 lakh in a case involving excess reversal of CENVAT credit during the transition from the CENVAT regime to the Goods and Services Tax ( GST ) regime.
The tribunal’s ruling resolves a long-standing dispute over the company’s entitlement to a cash refund of the excess credit under the Central Goods and Services Tax (CGST) Act, 2017.
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The assessee/appellant, Reliance Life Science, based in Navi Mumbai, is engaged in the manufacturing of both taxable and exempted goods and services, which brings it under the purview of Rule 6(3) of the CENVAT Credit Rules (CCR), 2004. This rule requires businesses that manufacture both taxable and exempted goods to reverse a proportionate amount of the CENVAT credit claimed on inputs used for exempted goods and services. For the months of April, May, and June of 2017, the assessee opted to reverse CENVAT credit on a provisional basis, as provided under Rule 6(3A) of the CCR, 2004.
At the end of the financial year 2017-2018, the assessee-company recalculated the final reversal amount, as required by the rules. Upon this recalculation, it was discovered that it had reversed excess CENVAT credit amounting to ₹49,06,962. Subsequently, a refund claim was filed for this excess credit on April 24, 2019, under Section 142(3) of CGST Act 2017 which governs transitional provisions.
The original adjudicating authority, after reviewing the documentation and procedures followed by the assessee , sanctioned the refund of ₹49,06,962 on March 16, 2020. The authority determined that the refund was justified because the company had reversed more credit than was necessary during the period.
However, the Central Tax Department contested this decision, claiming that the refund was not permissible both on grounds of exceeding the prescribed time limit and on merits. The department filed an appeal before the Commissioner of Central Tax, Central Excise & Service Tax, Raigarh (Appeals), who reviewed the case.
The Commissioner (Appeals), in a ruling dated October 29, 2020, upheld the claim that the refund application had been filed within the prescribed time limit of one year from the relevant date, as required by Section 11B of the Central Excise Act, 1944. However, the Commissioner denied the assessee’s claim to a refund on the grounds that the excess CENVAT credit was not eligible for a cash refund under the CENVAT Credit Rules, 2004. The Commissioner’s order stated that there was no provision under the existing law to grant cash refund for such excess reversed CENVAT credit, except in cases involving exports under Rule 5 of the CCR.
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According to the Commissioner, the company’s refund claim could not be entertained because Section 142(3) of the CGST Act did not supersede the provisions of the existing CENVAT law regarding cash refunds. Aggrieved, the assessee took the matter to the CESTAT.
Before the tribunal, the legal counsel for the assessee argued that the refund was justified because the excess CENVAT credit constituted excess duty paid, which should be refunded under the provisions of the Central Excise Act, 1944. The counsel further cited Section 142(3) of the CGST Act, 2017, which permits refunds of CENVAT credit in cash during the transition to the GST regime.
The counsel stressed that the refund represented excess credit that could not be utilized under the GST system, and as such, the company was entitled to a cash refund. It was also highlighted that the CENVAT credit in question had not been passed on to any third party, meaning there was no violation of the unjust enrichment principle, a key requirement for refunds under Section 11B of the Central Excise Act.
The department’s representative, however, argued that the refund in cash was not permitted under the CENVAT Credit Rules, 2004, and that the refund claim should be denied. The department relied on earlier rulings that limited cash refunds to specific cases, such as export-related claims under Rule 5 of the CCR.
After hearing the contentions, the bench of Mr. M.M. Parthiban examined the legal framework surrounding the transition from the CENVAT system to the GST regime, particularly the provisions of Section 142(3) of the CGST Act, 2017. The tribunal noted that the purpose of this section was to ensure a smooth transition by allowing refunds of CENVAT credit that could not be carried forward to the new GST system.
The tribunal rejected the department’s argument that cash refunds were not allowed, noting that Section 142(3) of the CGST Act specifically provides for refunds in cash during the transition, regardless of the limitations imposed by the old CENVAT regime. The tribunal also highlighted that the unjust enrichment clause had been satisfied, as the assessee had demonstrated that it had not passed on the excess credit to any third party.
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In its detailed order, the tribunal concluded that the assessee had correctly followed the procedures for reversing CENVAT credit and was entitled to a cash refund of ₹49,06,962, as the excess credit could not be utilized under the GST regime.
In result, the appeal was allowed.
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