Whether rejection of accumulated credit refund for error in reflecting closing balance of credit in return valid?

PJ/CASE LAW/2015-16/2943

Case:- SERCO GLOBAL SERVICES PVT. LTD. VERSUS COMMISSIONER OF C. EX., DELHI-III

Citation:- 2015 (39) S.T.R. 892 (Tri. - Del.)

Brief facts:- This appeal has been filed against the Order-in-Appeal dated 29-3-2012 which upheld the Order-in-Original dated 1-7-2011 in terms of which 3 refund claims for the quarters April, 2008 to June, 2008, October, 2008 to December, 2008 and January, 2009 to March, 2009 amounting to Rs. 18,58,858/-, Rs. 31,25,495/- and Rs. 25,63,429/- respectively were disposed of and no amount was sanctioned. Refund claims were filed in terms of Rule 5 of Cenvat Credit Rules, 2004 read with Notification No. 5/2006-C.E. (N.T.), dated 14-3-2006.
The appellant is registered under the Software Technology Parks of India (STPI) Scheme. In the Software Export Declaration form, it described the nature of services as “Software Development”. In an elaborate discussion about classification of the services exported, the primary Adjudicating Authority came to a finding that
(i) while maintenance or repair of computer software under Annual Maintenance Contract or otherwise, was taxable under “Management, Maintenance or Repair” service under Section 65(105)(zzg) of the Finance Act, 2004. “management, maintenance or repair” of software other than computer software were correctly classifiable under Information Technology Software services under Section 65(105)(zzzze) which became taxable with effect from 16-5-2008 and therefore, the Cenvat credit availed before that date was not admissible and hence was not eligible for refund.
(ii) ST-3 return for June, 2008 did not show unutilized closing balance of Cenvat credit and therefore no refund was admissible.
(iii) The Cenvat credit amount of Rs. 68,27,559/- was wrongly added by them to their Cenvat Credit Account and therefore the amount of refund of Rs. 56,58,994/- was adjusted towards the said amount and therefore not disbursed.

Appellant’s contention:-The appellant contended that -
(i)         Its service was covered under the Management, Maintenance or Repair service during the whole period, (but during the hearing in CESTAT, it conceded that it was not pressing for the refund of amount of Cenvat credit taken before 16-5-2008).
(ii)        Merely because there was inadvertent mistake in ST-3 return in not showing correct closing balance of Cenvat credit, that cannot be a ground for rejecting their claim for refund when Cenvat credit balance was available in their Cenvat Credit Account.
(iii)       It filed revised ST-3 return reflecting the correct Cenvat credit balance before adjudication order was issued.
(iv)       In any case the amount of refund should not be adjusted against the dues which had not been determined quasi-judicially and that there had been no show cause notice as to why the so-called wrongly added Cenvat credit balance of Rs. 68,27,559/- should not be denied and recovered. Indeed, no action has been initiated even for recovery of Rs. 11,68,565/- which remained as balance after adjusting the refund of Rs. 56,58,994/- although the primary Adjudicating Authority in para 16.5 of the adjudication order noted as under :
“However, even after such deduction, an amount of Rs. 11,68,565/- is still payable by the applicant for which separate proceedings may be initiated by the Assistant Commissioner (Division - Gurgaon) as the same cannot be done in the present refund proceedings.“

Respondent’s contention:-The ld. D.R. stated that the Adjudicating Authority was correct in adjusting the amount of refund towards Cenvat credit amount wrongly added in the ST-3 returns.

Reasoning of judgment:-They have considered the contentions of the appellant. In view of concession by the appellant that it was not pressing for refund of the credit taken prior to 16-5-2008, they are not dwelling upon the issue of admissibility or otherwise of refund of Cenvat credit taken, prior to 16-5-2008, or upon the issue of classification. As regards the ground of rejection of refund for the period 16-5-2008 to June, 2008 that the ST-3 return for June, 2008 did not show any unutilized balance of Cenvat credit, it is to be made clear that refund is to be granted on the basis of the Cenvat credit available in the Cenvat Credit Account and not on the basis of the closing balance of Cenvat credit shown in ST-3 Return. Further the appellant submitted revised return showing correct closing balance of Cenvat credit but the same was ignored by the Adjudicating Authority. In this regard, they find that in the case of Jagdamba Polymers Ltd.v. C.C.E., Ahmedabad - 2010 (253)E.L.T.626 (Tri.-Ahmd.)it has been held by CESTAT that omission to reflect the balance in ER 1 return is only a procedural error for which credit cannot be denied when there is no dispute about its eligibility. In the case of Ceolric Servicesv. C.S.T., Bangalore - 2011 (23)S.T.R.369 (Tri.-Bang.), the Hon’ble CESTAT held as under :
In view of the provision of Rule 7C of the Rules, the revised return cannot be ignored simply on the ground that the same has been filed after a period provided under Rule 7B of the Rules. In these circumstances, they find that the matter requires re-consideration by the Adjudicating Authority in view of the provision of Rule 7C of the Rules. The impugned order is set aside, after waiving pre-deposit of the amount of Service Tax, interest and penalty and the matter is remanded to the Adjudicating Authority to decide the issue afresh after offering an opportunity of hearing to the appellant. The appeal is allowed by way of remand.
Thus, the mistake in ST-3 return was a rectifiable mistake which was indeed rectified by filing revised ST-3 return and as has been held in the case of Ceolric Services (supra) the revised return should not have been discarded as non-est. Further, even if the Cenvat credit was considered to have been taken wrongly, disallowing the same requires quasi-judicial process involving issuance of show cause notice followed by a speaking order. In this case, it has obviously not been done. Indeed, they find that even after adjusting the amount of refund of Rs. 56,58,994/- towards the Cenvat credit amount of Rs. 68,27,559/- summarily held to be inadmissible, no action has been initiated for recovering the remaining amount of Rs. 11,68,565/-as noted earlier. It has been held in the case of Hindustan Zinc Ltd.v. C.C.E., Jaipur II - 2009 (15)S.T.R.633 (Tri.-Del.) = 2007 (220)E.L.T.410 (Tri.)that adjustment of refund claim in another pending case is not sustainable. In that case, the Department had adjusted the amount against another case which was pending before Tribunal whereas the appellant obtained stay order. In the case of Metal Forgingsv. UOI - 2002 (146)E.L.T.241 (S.C.), the Hon’ble Supreme Court held that show cause notice is a mandatory requirement for raising demand and communications, orders, suggestions or advices from Department cannot be deemed to be a show cause notice.
Further, they find that the Commissioner (Appeals) in the impugned order (in para 6) has noted as under :
6. I find that the appellant had not shown all eligible input credits in the Service Tax return for the period April, 2008 to September, 2008. However, the appellant has shown all the past eligible credits not shown in earlier returns in the opening balance in the Service Tax return for the period October-March, 2009. Also the appellant was maintaining the Cenvat credit register during the period April - September, 2008. In view of the said inadvertent errors, the appellant has revised its Service Tax return for the period April, 2008 - September, 2008 and filed the same on 13 July, 2010 in the Gurgaon division. This revised return correctly mentioned that the appellant had a closing balance of Rs. 68,27,559/- as on September, 2008.
Thus the Commissioner (Appeal) has himself noted that not showing balance of Cenvat credit in the ST-3 return was inadvertent error and the revised return submitted by the appellant correctly mentions the closing balance of Cenvat credit to be Rs. 68,27,559/- as on September, 2008 and that the appellant was maintaining the Cenvat credit register.
Theyfind that the primary Adjudicating Authority in para 16.2 to 16.4 has noted as under :

16.2 October, 2008 - December, 2008 :
	(Amount in Rs.)
Total Export Turnover	5,39,02,785
Total Domestic Turnover	84,23,580
Total turnover	6,23,26,365
Cenvat credit availed	36,13,927
Cenvat credit disallowed	(-) 19,316
Cenvat credit allowed	35,94,611
Cenvat credit utilized	3,53,996
Unutilised Cenvat credit	32,40,615
Maximum Refund allowed	= 35,94,611 X 5,39,02,785 6,23,26,365	= Rs. 31,08,789/-

16.3 January 2009 to March 2009
	(Amount in Rs.)
Total Export Turnover	3,05,80,654
Total Domestic Turnover	1,28,48,187
Total Turnover	4,34,28,841
Cenvat credit availed	36,40,430
Cenvat credit disallowed	(-) 18,780
Cenvat credit allowed	36,21,651
Cenvat credit utilized	9,05,546
Unutilised Cenvat credit	27,16,104
Maximum Refund allowed	= 36,21,651 X 3,05,80,654 4,34,28,841	= Rs. 25,50,205/-

In view of the above findings, it is held that a total amount of Rs. 56,58,994/- (rupees fifty six lacs fifty eight thousand nine hundred ninety four only) is the amount of refund of unutilised Cenvat credit admissible to M/s. Serco Global Services Private Limited for the quarters April, 2008 to June, 2008, October, 2008 to December, 2008 & January, 2009 to March, 2009. However, an amount of Rs. 68,27,559/- which has been wrongly added by them to their Cenvat Credit Account is ordered to be deducted so as to correctly reflect the Cenvat availed utilized and carried forward in subsequent returns, (emphasis added)
It is evident from the above-quoted paras that the Adjudicating Authority has come to a clear finding that for the quarters October, 2008 to December, 2008 and January, 2009 to March, 2009, Rs. 56,58,994/- is the amount of refund of unutilised Cenvat credit admissible to the appellant. As regard the refund for the quarter April, 2008 to June, 2008, in view of the fact that Cenvat Credit Account had balance and a revised ST-3 return was also submitted (although as stated earlier, mere mistake in ST-3 return does not disentitle the appellant for refund) the amount of refund is required to be recomputed in the light of the fact that credit taken before 16-5-2008 is to be disallowed and therefore, the question of refund of the same (i.e. of the credit taken prior to 16-5-2008) would not arise.
In view of the foregoing discussions, they allow the appeal by way of remand with the following directions :
(a) An amount of Rs. 56,58,994/- held to be admissible as refund for the quarters October, 2008 to December, 2008 and January, 2009 to March, 2009 as per para 16.4 of the primary adjudication order will be sanctioned and disbursed to the appellant within 30 days of receipt of this order.
(b) In respect of refund claim for the period April, 2008 to June, 2008 the amount of refund due will be recalculated after disallowing the credit taken upto 16-5-2008 and thereafter the amount found admissible as refund will be sanctioned. For the purpose of re-computation the appellant shall submit the necessary calculations for consideration of the primary Adjudicating Authority within 15 days of receipt of this order who will determine and disburse the admissible amount of refund within 45 days of the receipt of the calculations from the appellant after giving it an opportunity of being heard.

Decision:-Appeal disposed of

Comment:-The analogy of the case is that Refund is to be granted on basis of Cenvat credit available in Cenvat credit account and not on basis of closing balance of Cenvat credit shown in ST-3 return. Revised return showing correct closing balance of Cenvat credit was submitted by assessee subsequently. Mistake in ST-3 return is a rectifiable mistake which can be rectified by filing revised ST-3 return. Revised return submitted by assessee correctly mentions closing balance of Cenvat credit and assessee maintaining Cenvat credit register. Consequently, it was held that the assessee is eligible for refund of unutilised Cenvat credit.

Prepared by:- Monika Tak

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PJ/CASE LAW/2015-16/2943

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