GST update No 205 on re-credit of service tax paid in GST regime

The journey of migration from erstwhile indirect taxation regime to GST regime was full of ambiguity. The confusion in the minds of taxpayers as regards to the availment of credit of service tax paid after implementation of GST regime has been a matter of debate. There had been various judicial pronouncements on the said subject matter wherein the Court had delivered the rulings favouring the concerned assessees. However, recently, a decision has been reported in the case of M/S SRC PROJECTS LIMITED wherein the department had denied admissibility of the credit of service tax paid after implementation of GST regime. The decision delivered in this case is the subject matter of discussion of our present update.

The assessee is registered under GST and has paid service tax on the royalty paid to Tamil Nadu Government under RCM for leasing of queries pertaining to the period from April 2016 to July 2017 after implementation of GST regime. The said amount was raised as audit objection conducted by CERA and so paid in the GST regime. The assessee was not able to claim this amount as CENVAT credit in ST-3 return as it was paid on 30.12.2017 and consequently, they could not include the amount in the Tran-1 filed by them. Therefore, the assessee applied for refund of the said amount but their refund claim was rejected by the Assistant Commissioner. Consequently, the taxpayer knocked the doors of Madras High Court directly wherein the case was remanded back on the direction that although the refund claim of the assessee cannot be considered, however, the revenue authorities should decide if they can be permitted to avail the accrued credit in the electronic cash ledger of GST regime.

The assessee contended that there is no machinery provision to deal with such a situation as in the present case under Section 140/142 of CGST Act 2017 and therefore, they are not able to take credit of service tax and filed for refund. Further, it was contended that the last date to file Tran-1 application was 27.12.2017, since the service tax itself was paid as on 30.12.2017, the assessee was not able to file application for transfer of credit till due date.

It was held after analysing the situation that as per Section 142 of CGST Act, 2017, the taxpayer is claiming recredit of amount of service tax paid which is consequent to audit para raised but was paid post introduction of GST regime. Reference was made to decision of Jharkhand High Court in the case of M/s Rungta Mines Limited V/s Commissioner of CGST & Central Excise. It was held that the taxpayer cannot avail the benefit of Section 142(3) of CGST Act, 2017, in order to claim re-credit of service tax paid by him due to non-filing of Tran-1. Further, as per Section 142(8) of CGST Act, 2017, it is clear that the amount paid by taxpayer due to raising of audit objection by CERA becomes ineligible for re-credit as requested by taxpayer. Consequently, it was concluded that it is not permissible for the assessee to avail credit of the amount of service tax paid in the electronic cash ledger of GST.

It is pertinent to mention here that there have been numerous favourable decisions rendered by High Courts allowing carry forward of accrued credit to the electronic credit ledger in the GST regime or allowing refund of service tax paid under RCM in the GST era. Reference may be made to the decision of hon’ble Madras High Court in the case of M/S GANGES INTERNATIONAL PRIVATE LTD. V/S THE ASSISTANT COMMISSIONER OF GST & CENTRAL EXCISEwherein credit of service tax paid under RCM was allowed to be taken in the electronic credit ledger in GST regime. Similarly, reference may be made to decision given 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. Likewise, refund of service tax paid under RCM on import of software was allowed by the CESTAT in the case of M/S. CIRCOR FLOW TECHNOLOGIES INDIA PRIVATE LTD. V/S THE PRINCIPAL COMMISSIONER OF GST & CENTRAL EXCISE by placing reliance on the decision given in the case of ADFERT TECHNOLOGIES PVT. LTD. VS UOI wherein it was held thattransitional credit being a vested right, it cannot be taken away on procedural or technical grounds. The decision analysed in the present update is definitely a setback for the assessee as it indicates that revenue authorities do not adhere to the principle of judicial discipline. Inspite of favourable decisions on the issue, rendering an adverse decision on altogether different reasoning is a matter of concern for the taxpayers. The revenue authorities are duty bound to follow the favourable decisions rendered by the High Courts in light of the decision given by Apex Court in the case of Union of India and Other V/s Kamlakshi Finance Corporation. Nonetheless, such unfavourable decisions instigate unwarranted litigation.

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GST update No 205 on re-credit of service tax paid in GST regime

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