CESTAT allows Refund of Service Tax Paid under RCM Post-GST, Holds Transitional Provision u/s 142(3) of GST Applies [Read Order]

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Ahmedabad bench held that service tax paid under the Reverse Charge Mechanism (RCM) after the implementation of Goods and Services Tax (GST) regime is eligible for a cash refund, provided the taxpayer was unable to avail input credit due to the transition between tax regimes.

The background of the matter was a departmental audit where it was discovered that R R Kabel, the appellant had not paid service tax on certain services including manpower recruitment and transport under the old RCM rules.

The company subsequently paid the taxes owed. However, because the GST Act had already replaced the old system as of July 1, 2017, the "Cenvat Credit" system no longer existed.

This left the company in trouble and they had paid the tax but had no legal mechanism to claim the credit they would have normally received. Consequently, they filed for a refund.

The Revenue initially blocked these claims, arguing that neither the old laws nor the new GST Act explicitly allowed for such a refund. They contended that transitional provisions were not intended to convert late tax payments into cash refunds.

This was also supported by the Commissioner (Appeals). The company took the matter to the Tribunal.

The appellant argued that this specific provision was designed to act as a safety net for exactly this kind of situation. It stipulates that any claim for a refund of tax or duty paid under the old law must be processed according to the old law’s rules, and if the claim is valid, the refund should be paid in cash.

The Tribunal after hearing the matter, concurred with the appellant’s position noting the decision in NSSL Pvt. Ltd. and Gigamon Solutions. It said that the transition to a new tax regime should not be used as a mechanism to douse a taxpayer’s vested rights.

The bench of Satendra Vikram Singh (Technical member) observed that if a company was legitimately entitled to credit under the previous regime, it would be fundamentally unfair for the government to retain the tax payment while at the same time denying the associated benefit.

Consequently, the Tribunal set aside the lower authorities' rejections and allowed the appeals, remanding the matter to jurisdictional officers for the processing and granting of the refund claims.

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