Refund of Service Tax Paid Before GST Rollout: CESTAT Upholds Claim under Finance Act [Read Order]

The Mumbai Bench of Customs,Excise and Service Tax Appellate Tribunal(CESTAT) upheld the refund claim of the assessee for Service Tax paid on input services before the Goods and Service Tax(GST) rollout, ruling that the claim should be processed under the "existing law," i.e., the Finance Act, 1994.

Sheetal Manufacturing Company Pvt. Ltd.,appellant-assessee,exported cut and polished diamonds after procuring rough diamonds and carrying out the necessary manufacturing process. To meet buyer requirements, it got the final products certified by GIA Laboratory India Pvt. Ltd., paying Service Tax under Reverse Charge Mechanism (RCM).

The Service Tax was paid before GST was introduced on 01.07.2017, but the exports took place between July 2017 and March 2018. The assessee later applied for a refund of the duty under Rule 5 of the CENVAT Credit Rules, 2004, read with Notification No. 41/2012-ST.

The department issued show-cause notices and rejected the refund claim, stating that the appellant should have transitioned the credit into GST through TRAN-1 under Section 140 of the CGST Act, 2017. It was also noted that Notification No. 41/2012-ST was no longer in force after 01.07.2017.

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The Commissioner (Appeals) upheld the rejection, holding that the refund applications were filed after the introduction of GST and should have been made under the CGST Act, 2017. It was found that the claims were filed under the repealed Service Tax law and not under the law in force at the time, and therefore, the refund was rightly denied.

The assessee's counsel argued that the Commissioner (Appeals) made a mistake by treating the Finance Act, 1994 as the old law and the CGST Act, 2017 as the existing law. It was explained that under Section 2(48) of the CGST Act, existing law referred to laws made before GST started. The counsel said that Section 142(4) allowed refund claims to be handled under the old rules, and Section 174(2)(c) protected rights under the earlier laws. Based on this, it was argued that the assessee had the right to claim a refund under the Service Tax law and CENVAT Credit Rules, 2004, and the order passed by the Commissioner (Appeals) was wrong.

The departmental representative disagreed and said that the Commissioner (Appeals) rightly followed the Jharkhand High Court ruling in the Rungta Mines Ltd. case. It was pointed out that since CENVAT Credit was not allowed under the old rules, no refund could be given.

In reply, the assessee's counsel said that the Rungta Mines case dealt with rebate, not refund under Rule 5, and so it did not apply to their case.

Read More:Services by Overseas Logistics Agents Rendered Outside India not Taxable Before April 2006: CESTAT

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A single member bench of Dr. Suvendu Kumar Pati(Judicial Member)reviewed the case record, legal provisions, and submissions from both sides. It found that under Section 142 and Section 174 of the CGST Act, Service Tax paid before GST began had to be handled under the old Finance Act, 1994, and related rules.

The appellate tribunal noted that the assessee issued export invoices after 01.07.2017 and rightly filed refund claims under the earlier law. It held that the refund sanctioning authority and the Commissioner (Appeals) were wrong in treating the CGST Act as the "existing law."

Since no other valid reason was given for rejecting the refund, the CESTAT held that the assessee’s refund claim under the Finance Act and CENVAT Credit Rules, 2004, was valid and should be allowed.

To Read the full text of the Order CLICK HERE

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