Blog No. 59: Benefit of Services Tax paid after 30.06.2017 under Reverse Charge Mechanism can be taken to Electronic Credit Ledger

As per section 140 of the GST Act, the registered person is entitled to take Cenvat credit in his electronic credit ledger carried forward in the return relating to the period ending on 30.06.2017. However, insofar the payment made under reverse charge after 30.06.2017 is concerned, these credits were not available as on 30.06.2017, because, admittedly, these payments had been made after 30.06.2017. In these kind of special situations, the provision if not Section 142(3), no other eligible provision is available.

Hon’ble Madras High Court invoked the “Doctrine of Necessity” and allowed the benefit of section 142(3) in these kind of situations by way of allowing credit to the Electronic Credit Ledger. Since refund was not permitted under Services Tax law, therefore, petitioner cannot be granted refund under section 142(3) but he can be permitted to avail ITC in the Electronic Credit Ledger.

Read in detail about the case Ganges International Private Limited and Ors Vs UOI and Ors reported as 2022 (3) TMI 544 below:

Facts of the Case

1. The petitioner had been prompted by the Department to pay the service tax on account of various audit observations. The petitioner had paid the appropriate service tax for an amount of ₹ 26,88,460/- along with applicable interest amount of ₹ 3,99,625/- on 14.12.2017,  30.12.2017 and 02.05.2018.
2. In order to get the refund of the said amount, because, the said service tax paid is purely an input tax, for which, credit can be taken by the petitioner under erstwhile Cenvat Credit Rules, petitioner had made an application. However, the said application seeking for refund was rejected through the Order-in-Original dated 24.09.2018.

Submissions of the Assessee

3. The petitioner could not make any application in GST TRAN-1 on or before 27.12.2017, because, the very service tax itself was paid by the petitioners in these cases on 14.12.2017, 30.12.2017 and 02.05.2018 respectively. 
4. Sub-section (3) of Section 142 enables any person to file a refund claim either before, on or after the appointed day i.e., 01.07.2017. If the petitioners are eligible to claim credit, the petitioners would also be eligible to make an application for refund under sub-section (3) of Section 142.

Stand of Revenue

5. The application submitted under Section 142(3) is an application to make a claim for refund and therefore, such a refund claim could not have been made by the petitioners even during the erstwhile regime before 01.07.2017, as, if at all the petitioners were eligible to claim any Cenvat credit, it is only a credit, which should be transferred, for which, the route is Section 140(1) and not under Section 142(3).
6. The documents pertaining to Rule 9(1) is nothing but payment of Service tax or duty as service tax as well as the duty which should have been paid immediately after taking the input service and also the import in respect of the respective cases. Conveniently, in these cases, since the petitioners have chosen to pay the service tax as well as the additional duty long after from that date, they have not satisfied the one year limitation provided under third proviso to Rule 4(1) of the Cenvat Credit Rules.

Observations of the Court

7. Once the payment has been made after the cut-off date for making TRAN-1 application, whether those amount/credit can be sought for to carry forward to the GST regime by making an application once again under Section 140(1) is the question.
8. What was the eligible credit available in the account as on 30.06.2017 alone should be carried forward under Section 140(1) transitional provision.
9. Here these amounts since have been paid as stated supra, sometime after the time limit for making the application under Section 140(1), these amounts whether can be sought for by way of credit transfer or refund in cash, is the next question.
10. Had there been no GST regime from 01.07.2017, the petitioners otherwise would have been eligible to claim Cenvat credit of all these amounts paid, for which, the eligibility of the petitioners to claim the credit is not in much dispute.
11. Merely because, the transitional provision has come into effect from 01.07.2017 and under Section 140(1) of the Act, the persons like the petitioners can make a claim only in respect of the credit which is already accrued as on 30.06.2017 and these credit had come into the account of the petitioners only subsequently, for which, claim under Section 140(1) could not have been made, the chance of making such an application to seek the refund or otherwise of such a credit which has subsequently accrued in the account of the petitioners, cannot be denied.
12. Since it is a dire necessity, as these kind of situation necessarily to be met with by the Legislation, for which, these transitional provision has been brought in in the Statute Book, there can be no impediment for invoking Section 142(3) of the Act by invoking the “Doctrine of Necessity”.
13. The petitioners application atleast could have been considered by the respondents under Section 142(3) of the Act for the purpose of taking the credit and such credit could have been considered and allowed for carrying forward in the electronic credit ledger of the GST regime which is nothing but a different route than Section 140 and that is the only possibility for dealing with these kind of applications.

Decision of the Court

14. For all these reasons, this Court, having considered the peculiar facts and circumstances of the case, is inclined to dispose of these writ petitions with the following orders:

“(i) That the impugned orders in these writ petitions are liable to be set aside, accordingly are set aside. As a sequel, the matters are remitted back to the respondents for reconsideration. While reconsidering the same, the authority concerned, who has to deal with the applications of the petitioners, shall consider and dispose of these applications under Section 142(3) of the CGST Act, 2017.

(ii) While reconsidering the said applications, the claim made by the petitioners need not be considered for the purpose of refund of the claim made by them. However, the said claim made by the petitioners can very well be considered for the purpose of permitting the petitioners to carry forward the accrued credit to the electronic credit ledger of the GST regime.

(iii) After considering the said applications, as indicated above, the necessary order shall be passed by the respondents within a period of six weeks from the date of receipt of a copy of this order. It is made clear that, before passing the orders as indicated above, an opportunity of being heard shall be given to the petitioners, so that the petitioners can put forth their case by providing all necessary inputs to the satisfaction of the authorities to take a decision thereon.

Download HC-Mad-2022-Ganges International