Shelter of section 142 (3) cannot be taken to prevent lapse of CENVAT

Earlier under the era of Excise Duty & Service Tax, taxes paid on inward supply of goods & services were considered as CENVAT credit. GST consolidated both the above stated taxes into one. As such, transition provisions under GST Act,2017 explicitly stated the treatment of CENVAT credit.

The intention of the law makers that no tax payers shall be at loss after introduction of GST regime was backed up by ensuring that anything which was allowed under earlier regime would continue to be eligible in GST regime also &vice- versa.

In continuation of above, if any CENVAT credit was claimed earlier as refund, the same can’t be carried forward as transitional credit under GST Era.

Now the question arises for what will be the treatment of CENVAT credit for which refund was applied but was rejected by the competent authority. The dilemma arises as the tax payer cannot opt the same as transitional credit under GST.

In other words:

If refund claimed as per rule 5 of CCR, 2004 was partially rejected by the Tribunal , then after losing the amount shall be credited back to CENVAT account of tax payer, as it was debited at the time of filling of refund. Now the question arises if the CENVAT credit which was reversed due to non grant of refund by competent authority can now be sought as Input Tax Credit in CGST Act or cash refund will be granted?

The situation was clarified in ruling of Hyderabad CESTAT Bench in the case of United Seamless Tubular (P) Ltd. (2019-VIL-210-CESTAT-HYD-CE)

The assessee contended that “Had they taken credit of CENVAT, the same could have been transferred as ITC under the GST law by virtue of TRAN-1. It would be unfair for them to lose the credit for this reason”. But it was out rightly rejected.

The appellant had again represented to the lower authority for refund of this amount in cash. As the issue had already been decided by CESTAT, the lower authority again rejected the request of the appellant for refund via letter.

It was held that – Once it is decided by the CESTAT that the appellant is not entitled to refund of some amount of the CENVAT credit under Rule 5 of the CCR, as the lower authority cannot sanction such refund as it would constitute judicial indiscipline.

The above situation can be concluded in light of first proviso to Section 142(3) of GST Acts (Transitional Provision) which states that “if any claim for refund of CENVAT credit is fully or partially rejected, the amount so rejected shall lapse”.

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