The Ahmedabad Bench of the Customs, Excise, and Service Tax Appellate Tribunal ( CESTAT ) granted a refund of pre-GST CENVAT credit. It ruled that Rule 9(1)(bb) of the CENVAT Credit Rules, 2004, was inapplicable to payments made under the reverse charge mechanism ( RCM ) since such payments were not based on supplementary invoices.
The appellant, A Schulman Plastic India Pvt. Ltd., engaged in manufacturing plastic products, paid service tax under reverse charge on various services, including management, technical consultancy, and manpower recruitment, for the pre-GST period. The appellant paid a suo moto service tax of Rs. 59,29,433 post-GST implementation.
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The appellant filed a refund claim under Section 142(3) of the Central Goods and Service Tax Act, 2017, as the CENVAT credit for the pre-GST period could not be utilized in the GST regime. The department issued two show cause notices rejecting the refund claim on grounds of ineligibility under Section 142(8)(a) of the CGST Act, 2017.
The adjudicating authority and the Commissioner (Appeals) both rejected the claim and invoked Rule 9(1)(bb) of the Cenvat Credit Rules, 2004, alleging the payment was made due to fraud or willful misstatement. They also held that the refund was barred as the payments were made under Section 73(3) of the Finance Act, 1994, which indicates voluntary acceptance of liability.
The appellant’s counsel argued before CESTAT that Rule 9(1)(bb) was inapplicable because the payment was made under the reverse charge mechanism and not through supplementary invoices issued by service providers.
The appellant’s counsel submitted that the no show cause notice alleged fraud, suppression, or willful misstatement which made the invocation of Rule 9(1)(bb) baseless.
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The two-member bench comprising Judicial Member Ramesh Nair and Technical Member C.L. Mahar observed that Rule 9(1)(bb) applies only to credit based on supplementary invoices, not on self-challans used under the reverse charge mechanism.
The tribunal found that Section 142(8)(a) of the CGST Act, 2017 does not apply to Cenvat credit refunds and is related solely to GST input tax credit.
The tribunal held that the appellant was eligible for the refund and set aside the Commissioner’s order citing it was beyond the scope of the show cause notice and the order-in-original. The appellant’s appeal was allowed.
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