GST Update No 120 on refund of service tax paid under RCM in GST regime

The government had promised that the transition into GST regime would be smooth and easy whereas the said promise has been broken several times, be it filing of transitional return by allowing carrying forward of the credit of erstwhile regime or grant of cash refund in various situations post implementation of GST. The current update is prepared on the decision given in the case of M/S. CIRCOR FLOW TECHNOLOGIES INDIA PRIVATE LTD. V/S THE PRINCIPAL COMMISSIONER OF GST & CENTRAL EXCISE which aims at discussing whether refund of service tax paid on RCM basis is allowed under GST regime.

The appellants are engaged in the manufacture of valves and were holding registration under Central Excise Laws during the pre-GST regime. They entered into transactions during January 2017 to June 2017 involving import of software for which service tax was liable to be paid under reverse charge mechanism. They paid the service tax belatedly in March 2019. The said tax was for the services received by them from the foreign service provider for the period January 2017 to June 2017 and the tax was paid under reverse charge mechanism. In terms of CENVAT Credit Rules, 2004 as it stood during the relevant period, the appellants were eligible to avail credit of the service tax paid by them. After introduction of GST with effect from 1.7.2017, as appellants could not avail CENVAT credit, they filed an application for refund of the amount of which they are eligible for credit. The refund claim was rejected by the adjudicating authority stating that the tax has been voluntarily paid and that no credit is eligible in the GST regime. On appeal filed before the Commissioner (Appeals), the said view was upheld. Hence the appellants preferred appeal before the Tribunal.

Appellant contended that the document to claim credit of tax paid under reverse charge mechanism was provided under rule 9 (1) (e) of CCR 2004 which says that challan evidencing payment of service tax by the service recipient is the prescribed document. The appellant has paid the service tax vide challan dated 16.03.2019 after the introduction of GST but they could not avail credit for the reason that cenvat account ceased to exist.

However, as per section 174 (2)(c) of the CGST Act, the right of credit is protected even though provisions for payment of Central Excise / Service Tax has been repealed. Furthermore, as per Section 142 (3) of the GST Act, every claim for refund filed by any person before, on or after the appointed day, for refund of any amount of Cenvat Credit shall be disposed of according to the provisions of existing law and any amount accruing shall be paid in cash.
The Tribunal held that when the liability of tax has been accepted by the department, they cannot reject the claim of refund of credit on the same. The hon’ble CESTAT placed relied on the decision given in the case of ADFERT TECHNOLOGIES PVT. LTD. VS UOI wherein it has been held that transitional credit being a vested right, it cannot be taken away on procedural or technical grounds. In various decisions, it has been held that substantive right of credit cannot be denied on account of procedural grounds.
In the present case, there is no allegation that the credit is not eligible to the appellant. It is merely stated that tax has been paid voluntarily and therefore credit is not available under the GST regime. Though credit is not available as Input Tax Credit under GST law, the credit under the erstwhile Cenvat Credit Rules is eligible to the appellant. Such credit has to be processed under Section 142 (3) of GST Act, 2017 and refunded in cash to the assessee. Therefore, the appeal was allowed.
The above decision is very beneficial to the assessee in situations wherein they are unable to claim cenvat credit post implementation of GST. In this context, reference may be made to the recent decision pronounced by the hon’ble Delhi CESTAT in the case of FLEXI CAPS AND POLYMERS PVT. LTD. VERSUS COMMISSIONER, CGST & CENTRAL EXCISE-INDORE [2021 (9) TMI 917-CESTAT NEW-DELHI] that has allowed refund of CVD and SAD paid on default in export obligation with respect to imports made under advance license in the GST regime for which availment of credit was not possible. It is appreciable that favourable decisions are being rendered to enable assessees to claim refund of cenvat credit which cannot be availed post implementation of GST.

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GST Update No 120 on refund of service tax paid under RCM in GST regime

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