CVD and SAD Paid Post-GST Eligible for CENVAT Credit Under Earlier Regime: CESTAT Allows Cash Refund u/s 142(3) [Read Order]

The Principal Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT), New Delhi, ruled that CVD and SAD paid after the implementation of GST were originally eligible for CENVAT credit under the pre-GST regime and their refund in cash is permissible under Section 142(3) of the CGST Act.

Asiatic Drugs and Pharmaceuticals Pvt. Ltd., the appellant, is a manufacturer and exporter of pharmaceutical products. Before the rollout of GST, the company imported raw materials under Advance Authorization licenses, which allowed duty-free imports on the condition that the export obligation was fulfilled. When the appellant failed to meet the export obligations in part, it voluntarily paid the applicable Basic Customs Duty (BCD), Countervailing Duty (CVD), and Special Additional Duty (SAD), along with interest, after July 1, 2017, the date GST came into force.

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Since the duties were paid post-GST, the appellant could not claim credit under the CENVAT Credit Rules, which had been repealed. The appellant filed a refund application under transitional provisions, seeking a cash refund for the amount of Rs. 68,06,074. The refund claim was rejected by the Assistant Commissioner because the duties were paid due to failure to meet export obligations and therefore were not admissible under Section 142(6)(b) of the CGST Act or Rule 9(1) of the CENVAT Credit Rules. The Commissioner (Appeals) upheld this view.

Aggrieved, the appellant brought the matter before the tribunal, arguing that the refund claim rightly falls under Section 142(3) of the CGST Act, which provides for a refund in cash for amounts paid under the old regime when credit cannot be availed post-GST. The appellant’s counsel argued that the duties paid were legitimate and that credit would have been claimable under the previous law had it not been for the transition to GST.

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The department argued that the refund was inadmissible as the payment was made due to non-fulfillment of a condition and not under a typical tax liability. They relied on previous rulings, including Servo Packaging and Rungta Mines, to argue that the refund claim did not meet the threshold required under transitional provisions.

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The two-member bench comprising Justice Dilip Gupta (President) and P.V. Subba Rao (Technical Member) held that the claim was rightly covered under Section 142(3) of the CGST Act and that the mere timing of payment post-GST did not disqualify it. The tribunal observed that the CVD and SAD were duties that would have been eligible for credit under the pre-GST regime, and since such credit could not be utilized after July 1, 2017, a refund in cash was both justified and legally permissible.

The tribunal also distinguished the department’s reliance on the Rungta Mines case, observing that it involved facts where the claimant had taken credit illegally and sought a refund on ineligible amounts. In contrast, the appellant in the present case had a genuine credit entitlement under the earlier regime and had paid the duties voluntarily.

The tribunal ruled that the rejection of the refund was incorrect and not in line with the legal framework under Section 142(3). The appeal was allowed, and the refund claim was granted.

To Read the full text of the Order CLICK HERE

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