Assessee Entitled To Avail Cenvat Credit Of Service Tax Already Paid During Transitional Period: Madras High Court



The Madras High Court, consisting of Justice R. Ramdevan and Justice Mohammed Shaffiq, has held that the assessee is entitled to avail cenvat credit of the service tax already paid but the assessee was unable to claim due to a transitional provision that has come into effect from 01.07.2017.

The respondent/assessee is engaged in the manufacture of GI Tower Parts, ERW Black and GI Pipes falling under Chapter 73 of the Central Excise Tariff Act, 1985. During the period April 2016 to June 2017, they received technical know-how or intellectual property rights from foreign persons and paid royalties to them in the course of business.For the services received by them, they were liable to pay service tax on a reverse charge basis, which was not paid by them originally. After pointing it out in the departmental audit, they had paid the service tax liability of Rs. 24,20,684 along with interest at Rs. 3,82,139 on May 2, 2018.

The appellant/department stated that though the assessee is entitled to avail cenvat credit as per the Cenvat Credit Rules, 2004, consequent to the introduction of GST with effect from 01.07.2017, the relevant enactments pertaining to Central Excise and Service Tax have been repealed. The Cenvat Credit Rules, 2004 have also been superseded by the new Cenvat Credit Rules, 2017. However, various transitional provisions were enacted under the CGST Act, 2017 to avail input tax credit on a transitional basis vide sections 140 to 142 of the CGST Act, 2017 and Rule 117 of the CGST Rules, 2017. For claiming transitional credit, a return on form GST-TRAN 1 has to be filed within a period of 90 days. The provision was not applicable to the case of the assessee, as they had paid the service tax for the period from April 2016 to June 2017 only on 02.05.2018 and hence, they were unable to avail credit for the service tax already paid by them. Thus, the assessee preferred a claim before the appellant for a refund of Rs. 24,20,684 in cash, relying on sections 140 and 142(9) (b) of the CGST Act, 2017.

The department rejected the claim of refund by the appellant on the premise that it was not relatable to section 11B of the CEA, 1994, which made it applicable to service tax matters by virtue of section 83 of the Finance Act, 1994. The assessee did not fall under any situation enumerated under section 54(8) of the CGST Act, 2017.

The assessee challenged the order passed by the appellant before the single judge bench. The single judge bench set aside the rejection order and remanding the matter to the respondents for fresh consideration.

The appellant submitted that the assessee had not paid the appropriate service tax within the stipulated time and had paid only in May 2018 after having been noticed through a departmental audit. The assessee lost the opportunity to take cenvat credit for the amount to be paid under reverse charge. As the payment had been made belatedly, the assessee could not take the cenvat credit in the ST-3 returns within the stipulated period, viz., 15.08.2017. Hence, they resorted to a refund of the service tax by filing refund claims under the transitional provisions under section 142 of the CGST Act, 2017.

The appellant contended that as the claim did not fit into any of the provisions of section 142 of the CGST Act, 2017, it was rejected by the jurisdictional Assistant Commissioner. However, the Judge, instead of directing the assessee to avail the alternative remedy provided in the statute, has ordered the writ petition to be remitted to the respondents for fresh consideration in the light of the applicability of section 142(3) of the CGST Act 2017. The doctrine of necessity cannot be invoked merely because the assessee pleaded that they had no remedy and that the taxing statutes were to be interpreted strictly and there is no equity in fiscal matters so as to invoke the doctrine of necessity for the purpose of providing a remedy just for asking, when the assessee has not complied with the statutory provisions.

The respondent/assessee submitted that, taking note of the entitlement of the assessee with respect to cenvat credit. There was no eligible provision available. The Judge rightly set aside the order passed by the appellant rejecting the claim of the assessee and directed the authority to reconsider the matter under section 142(3).

“This court is of the view that what was impugned herein is only the order of remand passed by the learned judge and, hence, there is no requirement to set aside the same in entirety. However, this court is inclined to modify the order of the learned Judge to some extent,” the court said.

The court directed the appellant to consider the application of the assessee under section 142(3) of the CGST Act, 2017, based on the available materials on merits and after affording an opportunity of hearing to the assessee, within a period of six weeks.

Case Title: The Assistant Commissioner of GST & Central Excise Versus M/s.Ganges International Private Limited

Case No: W.A.No.1648 of 2022 & CMP.No.11262 of 2022

Dated: 17.08.2022

Citation: 2022 LiveLaw (Mad) 382

Counsel For Appellant: Advocate Hema Muralikrishnan

Counsel For Respondent: Advocate Arthy

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