The Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has allowed the refund of Service Tax paid on input services during the pre-Goods and Services Tax (GST) era, for goods exported after the implementation of the GST regime.
The Tribunal clarified the ‘Existing Law’ mentioned under Section 142(4) of the GST Act. It was observed that the ‘Existing Law’ mentioned in the GST Act is the Finance Act and not the GST Act.
The denial of a refund of Service Tax paid on input services used in the manufacturing of “cut and polished diamonds” during the pre-GST era has become a contentious issue.
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An appeal filed by an Assessee-Exporter against the order of the Commissioner of GST & Central Excise (Appeals),Mumbai challenging the rejection of refund claims amounting to ₹24,75,319/- for the period between July 2017 and March 2018.
The appellant, engaged in the export of cut and polished diamonds, incurred Service Tax under the Reverse Charge Mechanism (RCM) for certification services provided by GIA Laboratory India Pvt. Ltd. This tax was paid prior to the implementation of GST on July 1, 2017, while the exports occurred post-GST.
The appellant sought a refund of the Service Tax under Rule 5 of the CENVAT Credit Rules, 2004, read with Notification No. 41/2012-ST, which provides for a refund of Service Tax paid on inputs used in exports.
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However, the refund applications were denied by the Adjudicating Authority and upheld by the Commissioner (Appeals). The authorities reasoned that the appellant should have transitioned the unutilized credit to the GST regime via the Trans-1 ledger under Section 140 of the CGST Act, 2017, and that Notification No. 41/2012-ST ceased to operate post-GST implementation.
The appellant argued that the denial of the refund was based on an erroneous interpretation of the law. It was submitted that the Finance Act, 1994, which governs Service Tax, is not an “erstwhile” law but continues to apply for refunds under Section 142(4) of the CGST Act, 2017. This section specifically allows for refund claims related to taxes paid under the “existing law” to be disposed of in accordance with the provisions of that law.
The appellant further contended that Section 174(2)(c) of the CGST Act preserves rights accrued under repealed laws, allowing claims for refunds under the Finance Act, 1994, and the CENVAT Credit Rules, 2004. Hence, the rejection of the refund was both legally and factually unsustainable.
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On the contrary, the Department countered that the Commissioner (Appeals) had issued a reasoned order in line with the decision in Rungta Mines Ltd. by the Jharkhand High Court. It was argued that since CENVAT Credit was inadmissible under the existing law or Notification No. 41/2012-ST, the refund claim could not be allowed.
Considering the arguments and submissions, the Tribunal observed that Section 142(4) of the CGST Act clearly provides for refund claims under the existing law. It noted that the appellant’s claim was appropriately filed under the Finance Act, 1994, read with Rule 5 of the CENVAT Credit Rules, 2004. The Tribunal also found the reliance on Rungta Mines Ltd. misplaced, as the facts of that case were distinguishable.
The two member bench of Dr. Suvendu Kumar Pati (Judicial member), referring the statutes and the orders, observed that “This being the command of law, his finding that received concurrence of the Commissioner (Appeals) that provision of existing law would mean CGST Act is erroneous and contrary to the provision of law and therefore, Claimant’s/Appellant’s filing of refund applications was made appropriately under the provisions of Finance Act read with Rule, 5 of the CENVAT Credit Rules, 2004, that can’t be said to be not maintainable.”
The bench ruled that the Commissioner (Appeals) was obligated to pass the order in accordance with Section 35A(4) of the Central Excise Act, 1944, which is equally applicable to Service Tax matters by virtue of Section 85(5) of the Finance Act, 1994.
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Since no additional grounds or reasons were cited by the Commissioner (Appeals) for denying the refund, the Tribunal held that the appellant was entitled to the refund as sought under the existing law.
The Tribunal allowed the appeal, setting aside the order of the Commissioner (Appeals). It directed the Department to refund ₹24,75,319/- with applicable interest within two months.
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