Change In Taxation Regime Should Not Affect Credit Availment Right Of Assessee: CESTAT

The Delhi Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that a change in the taxation regime should not affect the credit availment right of the assessee.

The bench of Rachna Gupta (Judicial Member) observed that, under Section 174(2)(c) of the CGST Act, the appellant's right, privilege, and right to credit cannot be affected solely because the refund was rejected due to the limitation being passed after December 27, 2017.

The appellant/assessee is the manufacturer of nameplates, plastic printed stickers, etc. Since the GST regime had come into effect, the appellant had surrendered the Central Excise Registration. As a result, a cenvat of Rs. 11,23,276 under the previous tax regime went unused.

The appellant was unable to file the TRAN-1 by the due date, owing to technical glitches. Therefore, the appellant preferred an application dated April 26, 2018, before the Nodal Officer under Circular No. 39/12/2018 requesting the filing of a TRAN-1 application. The appellant simultaneously filed a refund claim application on April 26, 2018, under Section 11B of the Central Excise Act, 1944 for a "refund of Cenvat credit" of Rs.11,23,276 lying in his credit register on July 1, 2017.

The Range Officer in its report submitted that a refund claim of Cenvat balance amounting to Rs.11,23,276 under section 11B of the Central Excise Act, 1944 was lying in credit in the Cenvat account on the day immediately preceding the appointed day of the introduction of the Central Goods and Service Tax Act, 2017. However, it has no legal standing and may not be sanctioned under Section 11B of the Central Excise Act, 1944, read with Section 142(3) of the CGST Act, 2017. The refund of Cenvat was rejected by the Assistant Commissioner.

The appellant filed the appeal against the order before the Commissioner (Appeals-II), who set aside the order and remanded the matter to the Assistant Commissioner for fresh adjudication, owing to the non-adherence to the Principles of Natural Justice. The Assistant Commissioner passed the order again rejecting the refund of Rs. 11,23,726.

The appellant contended that Section 174(2), read with Section 142 of the CGST, in itself saves the refund of unutilized Cenvat credit as being a right and privilege accrued under the erstwhile act. As a result, rejecting even when the GST Act saves the unutilized Cenvat credit is incorrect, arbitrary, and capricious.

The department contended that the refund claim was rejected on two grounds. Firstly, Section 11B of the Central Excise Act, 1944, cannot be invoked for a cash refund of the unutilized Cenvat credit lying in the Cenvat credit account of a manufacturer at the time of either closure of the factory or cannot be utilised by them for payment of duty. Secondly, the appellant did not try to file FORM GST TRANS-1 before the due date. The circular is valid only for those cases where the applicant tried to file the form before the due date but failed to file the same due to IT glitches.

The tribunal stated that even in the GST Act, there are two transitional provisions that have been enacted providing for two possible solutions for the transfer of unutilized credit balances. Firstly, under Section 140 of the CGST Act, 2017, the credit could be electronically carried forward by the filing of TRAN-1 up to the stipulated period of time. Secondly, Section 142 of the CGST Act, 2017, provides for the refund of unutilized Cenvat credit with the caveat that the same amount of Cenvat credit has not been carried forward to the electronic credit ledger via TRAN-I.

The CESTAT noted that GST laws contemplate a seamless flow of tax credits on all eligible inputs. In various decisions, it has been held that a substantive right of credit cannot be denied on procedural grounds.

Case Title: M/s. Monochem Graphics Pvt. Ltd. Versus Commissioner of Central Excise & CGST, Delhi West

Citation: Excise Appeal No. 51140 of 2022 [SM]

Date: 04.10.2022

Counsel For Appellant: Advocates R.K. Philips and Apoorv Philips

Counsel For Respondent: Authorised Representative Ishwar Charan

Click Here To Read Order