Blog No. 53: Refund of CENVAT Credit not availed in Excise Returns due to late receipt of invoice

Transitional provisions are made to save the rights existing as on the day immediately preceding the appointed date i.e., as on 30.06.2017. In a case where the services were received prior to appointed date and invoice was also issued by the vendor, the failure to avail CENVAT Credit in the statutory returns due to delay in receipt of original invoice does not create any right existing as on 30.06.2017. Therefore, refund thereof is not admissible under section 142(3) of the GST Act.

Hon’ble Jharkhand High Court upheld the orders passed by adjudicating authority as well as appellate authority rejecting the refund claim. Read about the case [Rungta Mines Limited Versus The Commissioner, CGST&CE and Ors (2022)] below:

Facts of the Case

1. The petitioner is a manufacturer of sponge iron, billet and TMT Bar. The petitioner was registered under Central Excise Act. The petitioner was registered under Services Tax law merely for the purposes of paying service tax under reverse charge mechanism.
2. It is not in dispute that the petitioner was entitled to avail CENVAT Credit of service tax paid on ‘port services’ received by him.
3. The ‘port services’ was taken in the month of April 2017, the invoice was generated on 23.05.2017 but the invoice was received by petitioner on 20.09.2017.
4. Due to non-receipt of invoice, petitioner did not avail CENVAT Credit of ‘port services’ in the monthly excise return (ER-1) filed for June 2017 on 10.07.2017. As per statutory provisions, said return could have been revised upto 31.07.2017.
5. Having no option left and to sustain the legality of credit, petitioner availed the CENVAT Credit in Services Tax return which was filed on 22.09.2017.
6. Since the petitioner was a manufacturer, the claim of service tax on ‘port services’ could not be transitioned to GST regime through Form GST TRAN-1 as the same was not available in excise returns. Hence, a refund application was preferred under section 142(3) of the GST Act.
7. The authorities rejected the refund applications for the reasons that petitioner lost his right of CENVAT Credit by not availing the same in excise returns. Since the petitioner is not a provider of output service, the claim of cenvat in ST-3 is illegal.

Submissions of the Petitioner

8. The provisions of Section 142 are residuary substantive provisions which deal with refund of CENVAT Credit in cases/contingencies which are not specifically covered or contemplated under Section 140 of the Central Goods & Services Tax Act.
9. Under Section 142 (3) of the CGST Act, there is no requirement of disclosure of the CENVAT Credit in the ER-1 returns like Section 140 (5) and unlike Section 140 (1) of the said Act.
10. The respondent authorities erred in law while holding that there is no provision of law granting refund of tax paid on input services under Section 11 B of Central Excise Act relatable to the facts and circumstances of this case.
11. Transitional provisions are special provisions for the application of legislation to the circumstances which exist at the time when the legislation comes into force.
12. Provisions of transition are to be purposively construed.
13. Considering the purposive construction, the Hon’ble Madras High Court has granted transition of credit of tax deducted at source under VAT law even when Section 140 of Tamil Nadu GST Act, 2017 does not specifically provide for it [2021- TIOL-831-HC-MAD-GST].
14. Even in the taxation if strict literal construction leads to absurdity, construction which results in equity rather than injustice should be preferred.
15. Pre-existing right prior to coming into force of the new law continues to be governed by the old law and their rights under the old statute are not destroyed.

Observations of the Court

16. The entire section 11B of Central Excise Act, 1944, as it stood immediately before the appointed date, does not sanction any refund where the assessee has failed to claim CENVAT Credit as per CENVAT Credit Rules, 2004 and has lost its right to claim such credit by not claiming it within the time prescribed.
17. On the appointed date there could be claims of refund of any amount of CENVAT Credit, duty, tax, interest or any other amount paid under the existing law in connection with which the applications for refunds were pending or time limit for claiming refund was yet to expire or may crystalize on account of any judgement of courts or tribunals in relation to pending litigations. These are some of the situations which would be covered by the miscellaneous transitional provisions as contained in section 142(3) of CGST, Act which would continue to be governed by section 11B(2) of Central Excise Act, 1944.
18. Meaning thereby, section 142(3) does not confer a new right which never existed under the old regime except to the manner of giving relief by refund in cash if the person is found entitled under the existing law in terms of the existing law.
19. The second proviso to section 143(2) cannot be said to be an eligibility condition to claim refund but is only a condition which governs refund as an assessee cannot be permitted to have transitional credit as well as refund of the same tax amount.
20. Section 140(5) applies under the circumstances where input services are received after the appointed day but the tax has been paid by the supplier under the existing law within the time and in the manner prescribed with a further condition that the invoice etc are recorded in the books of account of the such person within a period of 30 days from the appointed day. Section 140(5) also does not help the petitioner. Section 140 (5) has no applicability to the facts and circumstances of this case. In the instant case, admittedly the services in the nature of “port services” were received by the petitioner in the month of April 2017 and invoice was also generated in the month of May 2017.
21. The petitioner on the one hand illegally took credit of service tax on “port services” as credit in their ST-3 return and on the other hand filed application for refund of the same amount under section 142(3) of the CGST, Act which is certainly not permissible in law. The authorities have rightly considered these aspects of the matter also while rejecting the application for refund filed by the petitioner.

Paksh Remarks

22. This was one of the common problems faced by the taxpayers during transition to GST regime.
23. One of the main reasons for this issue was non-extension of due date to revise the excise return or to file the original excise return whereas in the services tax law, same was extended making it feasible for assessee’s to claim CENVAT Credit and to carry forward the same in their transitional forms.
24. Therefore, the arguments based on unintelligible differentia could have been put forth before the court of law which placed two assessee’s in a different position.
25. In our view, the matter should be contested before next forum.