In a recent ruling, the Mumbai Bench of the Customs, Excise and Service Tax Appellate Tribunal ( CESTAT ) ruled in favor of Mercedes Benz India Pvt. Ltd., allowing the refund of Rs. 40,01,872 for excess CENVAT credit under the transitional provisions of Section 142(3) of the CGST Act, 2017.
Mercedes Benz India Pvt. Ltd., appellant, engaged in the business of manufacture of motor vehicles. Between April 2017 and June 2017, Mercedes Benz followed the rules under Rule 6(3A) of the CENVAT Credit Rules, 2004.
Rule 6(3A) required the company to make provisional reversals of CENVAT credit for the exempt services they provided. At the time, the appellant company provisionally reversed a total amount of Rs.1,39,05,084 but after the financial year ended, the company audited their accounts and realized that the actual amount they should have reversed was only Rs. 99,03,212.
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So, the company claimed for the refund of the excess amount. The appellant filed a refund claim in December 2017. However, the tax department rejected their claim stating that Mercedes Benz hadn’t followed the correct procedures and rules under Rule 6(3A) and the department claimed that there was no provision for cash refunds of CENVAT credit under the existing law unless it was related to exports.
Aggrieved by this decision, the company appealed before the Commissioner (Appeals) but the appeal was dismissed stating under the existing law (the Central Excise Act and CENVAT Credit Rules), cash refunds were not allowed except in specific cases such as exports.
The Commissioner insisted that if Mercedes Benz hadn’t carried forward their credit into the GST regime through the TRAN-1 form, then their claim would lapse.
The appellant company appealed before the Mumbai Bench of CESTAT where the counsel argued that Section 142(3) of the CGST Act specifically allows for the refund of CENVAT credit in cash during the transition from the Central Excise regime to the GST regime and demonstrated that the incidence of the excess reversed credit was not passed on to customers through a Chartered Accountant’s certificate.
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On the contrary, the revenue counsel argued that did not follow the procedures prescribed under Rule 6(3A)(g) of the CENVAT Credit Rules, 2004 for claiming refunds and failed to revise their returns within the stipulated time.
It further argued that the Central Excise Act and CENVAT Credit Rules did not permit cash refunds for excess CENVAT credit, except in cases such as exports under Rule 5 of the CENVAT Credit Rules.
A single Bench comprising M.M. Parthiban, a technical member noted that Section 142(3) of the CGST Act specifically provides for refunds of CENVAT credit in cash, overriding any contrary provisions in the earlier law. This transitional provision was designed to address such refund claims during the shift from the Central Excise regime to GST.
The tribunal acknowledged that there had been conflicting decisions on similar issues. For example, the Chennai Bench of the Tribunal had ruled in favor of companies seeking cash refunds in such cases. They held that since businesses could not carry forward their credits to the GST regime, they were entitled to a refund in cash.
But on the other hand, the Hyderabad Bench had ruled against such refunds, saying that no law explicitly allowed for cash refunds of accumulated CENVAT credit.
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The tribunal referred to a previous decision by the Supreme Court of India in the Union of India Vs. Kamlakshi Finance Corporation Limited, 1991, which emphasized the importance of judicial discipline. According to this principle, lower authorities must follow the decisions of higher appellate bodies without questioning them unless there’s a stay or appeal in place.
After careful consideration, the tribunal ruled in favor of Mercedes Benz, ordering the department to refund the Rs.40,01,872 to the company. The tribunal concluded that the transitional provisions of the CGST Act clearly provided for this refund, and denying it would be unjust.
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