The Allahabad Bench of the Customs, Excise, and Service Tax Appellate Tribunal ( CESTAT ) denied the claim for a cash refund of service tax paid under the Reverse Charge Mechanism ( RCM ) stating that the appellant’s failure to comply with the GST transition provisions as well as the absence of a legal basis for cash refunds of unutilized service tax credits post-GST implementation.
Bajaj Carpet Industries, the appellant engaged in carpet manufacturing, received various services (manpower supply, goods transport, work contract, and legal consultancy) in June 2017 and paid service tax amounting to Rs. 4,53,986 under the Reverse Charge Mechanism (RCM) on September 29, 2017.
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The appellant filed the ST-3 return for April-June 2017 on August 13, 2017, the deadline for revision was September 27, 2017. Due to the shift to the GST regime on July 1, 2017, the appellant could not carry forward the CENVAT credit in the revised return.
The appellant filed a refund claim on May 3, 2018, under Section 11B of the Central Excise Act, read with Section 142(3) of the CGST Act, seeking a cash refund of Rs. 4,53,986. The initial refund claim was rejected by the Assistant Commissioner on February 14, 2020.
The Assistant Commissioner stated that there was no provision for a refund of service tax paid under RCM and that CENVAT Credit could have been carried forward in the GST regime via TRAN-1.
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On appeal, the Commissioner (Appeals) dismissed the appeal holding that the CENVAT Credit could have been transitioned under TRAN-1 but was not by the appellant. Thus, there was no statutory provision allowing for a cash refund of RCM-paid service tax.
Aggrieved, the appellant appealed before the CESTAT arguing that CENVAT Credit is a substantive right and should be claimable as a cash refund. The appellant contended that Section 142(3) of the CGST Act allows for refunds of taxes paid under the previous regime, including cases where Cenvat Credit could not be carried forward due to the introduction of GST.
A single bench led by Sanjiv Srivastava (Technical Member) observed that the appellant did not use the prescribed TRAN-1 form to transition the Cenvat Credit to the GST regime. Since this mechanism was specifically provided for such credit transfers, failure to comply rendered the credit non-transferable.
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The tribunal found that the rulings cited by the appellant were not directly applicable. It noted that the precedents supporting cash refunds were generally limited to specific export scenarios or transitional cases where credits were lawfully claimed and maintained within the statutory timelines.
The tribunal noted that with the shift to GST, the Cenvat Credit scheme ended on June 30, 2017. As such, any unused credit could only be transitioned through the specific mechanism established under GST law, and there was no statutory entitlement for cash refund claims after this date.
The tribunal found that the appellant’s cash refund claim did not align with the legal provisions and existing judicial interpretations. Therefore, the tribunal ruled that the appellant was not entitled to a cash refund of service tax paid under RCM as it failed to comply with transition provisions under the GST framework.
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