GST Update No 151 on refusing CENVAT credit refund in transition phase

GST is a significant reform in the field of indirect taxes. Multiple taxes levied and collected by Centre and States would come under a single umbrella named as “Goods and Service Tax”. Since GST seeks to consolidate multiple taxes into one, the important concept which comes into the picture is to have transitional provisions. This is an essential ingredient so as to ensure that GST regime is very smooth and hassle-free and no ITC/ benefits earned in erstwhile GST regime can be denied to the mitigating taxpayers. However, one such issue on the said subject matter came in front of CESTAT, Chennai in the case of M/s Bharat Heavy Electricals Ltd. Our present update is about the detailed analysis of the judgement imparted by the CESTAT Bench. The petitioners are engaged in manufacture of boilers auxiliaries such as air pre-heaters, fans etc. and are registered with Central Excise Department and Service Tax regime. After introduction of GST, they obtained registration and migrated to GST regime. During the period March 2017 to June 2017, the petitioner received various inputs and input services eligible for availing credit in GST regime within a period of 1 year under CENVAT Credit Rules, 2004. However, they have filed ER-1 return without availing the credit till 30.06.2017. After introduction of GST, the petitioner could not process TRANS-1 as no credit was availed prior to 30.06.2017. An application of refund was filed dated 27.03.2018. The petitioner argued that during the period 28.03.2017 to 08.06.2017, inputs were received and input services were received during 23.06.2017 to 28.06.2017 and payment to vendors were made from 05.07.2017 to 04.10.2017. Since there was a time lag between receipt and availment of credit, it could not be availed before 30.06.2017 and therefore, was not reflected in ER-1 returns. It was further contended based on various judicial pronouncements that in case the assessee is not in a position to utilize the credit duly accrued to him, it should be refunded in cash. Reliance was placed on Union of India Vs. Slovak India, CCE Vs. Birla Textile Mills – 2015 (325) ELT 651 (Del.), CCE Vs. Apex Drug Intermediates Ltd. – 2015 (322) ELT 834 (AP). The petitioner also followed the Guidelines of ICAI wherein it was held that costing of inputs and input services is taken bare of tax element. Furthermore, it was clarified that since there is no unjust enrichment, refund of duty/tax element cannot be denied. The Counsel of the Department submitted that refund claim is rejected on the grounds that appellant has not availed the credit while filing TRAN-1. Further, the time limit for filing TRAN-1 expired on 27.12.2017. It was contended that as per 3rd proviso to Rule 3 of CENVAT Credit Rules, 2004 credit is to be availed within one year of receipt of input or input services. It was contended that the refund of credit has to be adjudicated under erstwhile GST Law and if it so then only refund of unutilized credit can be awarded to assessee. The Court held that it is well explained and clarified by the appellant that as per the accounting system of the assessee the refund can be availed only after full payment is made to vendors i.e. Oct 2017. On the contrary, as per CENVAT Credit Rules, credit is to be availed within a period of one year which was not availed by the appellant due to introduction of GST Law and cessation of CENVAT account and cutoff date of filing of TRAN-1 returns. Consequently, credit was not availed while filing ER-1 for the month of June 2017. References in this respect can be made on Adfert Technologies Pvt. Ltd. Vs. Union of India, Tara Exports Vs. Union of India- 2019 (20) GSTL 321 (Mad.) wherein it as held that GST contemplated seamless flow of credit on all eligible inputs. Moreover, it is a settled principle of law that substantive credits cannot be denied due to procedural grounds. Reliance in this regard can be made on Pujan Buliders, Engineers and Contractors Vs. CCE & ST, Vadodra – 2021-TIOL-101-CESTAT MUM, Terex India Pvt. Ltd. Vs. CGST & Central Excise. Therefore, it was held that rejected of refund is not justified on the part of revenue authorities. The above judgement has once again proved to be a silver lining for the industry. It is well known fact that the right of claiming refund cannot be frustrated due to procedural grounds. The subject matter is prone to litigations and further, there had been various Judicial Pronouncements on the same line. For an instance, in the case of Eicher Motors Ltd. v/s Union of India 1999, Hon’ble Supreme Court came to rescue wherein it was held that MODVAT credit cannot be denied to assessee due to procedural lapse. Similar view was also taken by Apex Court in the case of Collector of Central Excise v/s Dai Ichi Karkaria Ltd. 1999 (112) ELT 353. The revenue authorities are bound to follow these judicial pronouncements in order to avoid unwanted litigations failing which there will be numerous cases pending in court demanding justice and relief and further resulting in sheer wastage of time of the Government.

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GST Update No 151 on refusing CENVAT credit refund in transition phase

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