• Dated 23^rd May, 2025

Assessee Entitled to Cash Refund for CVD and SAD under Section 142(3) of CGST Act after Failing Export Obligations: CESTAT

Brief Facts:

In this present case the Appellant faced challenges in fulfilling its export obligations for capital goods procured under an Export Promotion Capital Goods (EPCG) License. As a consequence, the Appellant paid Customs Duty amounting to Rs. 11,32,417/-, which included CVD and SAD of Rs. 2,97,797/-. This payment was made on November 20, 2020, squarely within the GST regime. Due to this timing, the Appellant was unable to avail Cenvat Credit for this amount, which would have been eligible under the pre-GST regime. Therefore, the Appellant filed a refund claim for Rs. 2,97,797/-, requesting a cash refund under Section 142(3) of the CGST Act, 2017. Section 142(3) of the CGST Act, 2017 states that every claim for refund of CENVAT credit after July 1, 2017, must be disposed of in accordance with the provisions of the existing law (i.e the Finance Act and the Central Excise Act). The importance of this rule lies in its clarification that the statutory/appellate provisions for such claims continue to remain the same, ensuring a seamless transition of legal recourse. Furthermore, it was explicitly held that any amount of credit found admissible to the claimant shall be refunded to him in cash, notwithstanding anything to the contrary contained under the provisions of existing law. This ruling provided a clear legal framework, supporting the appellant's contention that a cash refund was appropriate in their situation. Despite these clear provisions and precedents, the Lower Authorities dismissed the refund claim, compelling the Appellant to appeal to the Tribunal for resolution.

Appellant's Contention:

The Appellant contended that the issue of whether CVD and SAD paid subsequent to 2017 are eligible for cash refund under Section 142(3) of the CGST Act, 2017, is no longer res integra. They asserted that various prior rulings had favored importers/assessees on this very issue. The Appellant also highlighted that this Bench had previously held that Service Tax paid on an RCM basis after July 1, 2017, eligible for Cenvat Credit, would also be eligible for cash refund under Section 142(3) of the CGST Act, 2017.

Respondent's Contention:

The Learned Authorized Representative (AR) for the Respondent presented a counter-argument, asserting that the Larger Bench's decision in Bosch Electrical Drive India Pvt Ltd solely addressed the jurisdictional aspect of such appeals and did not definitively rule on the eligibility of the Appellant to receive a cash refund under Section 142(3). To bolster their position, the AR placed reliance on the case law of Servo Packaging Ltd v. CGST & CE, Puducherry, and the Final Order in Aurobindo Pharma Ltd v. CC, Chennai-II. The AR also reiterated the findings and conclusions of the Lower Authorities, maintaining that the current appeal should therefore be dismissed.

Court's Ruling:

The CESTAT, Regional Bench, Hyderabad, allowed the appeal. The Tribunal observed that the core issue - whether CVD and SAD, paid post-July 1, 2017, due to non-fulfillment of export obligations, are eligible for cash refund when Cenvat Credit cannot be availed - was identical to previous cases. The Tribunal underscored that its coordinate Benches had consistently held that appellants in such situations would indeed be eligible for Cenvat Credit.

The Tribunal relied on the following precedents, which held in short:

• Mithila Drugs Pvt Ltd v. CGST, Udaipur [2022 (3) TMI 58 - CESTAT New Delhi]: Held that CVD and SAD paid subsequently during the GST regime for pre-GST imports under advance authorization scheme are refundable as credit is no longer available under GST, but was available under erstwhile Central Excise regime.
• Clariant Chemicals India Ltd v. CCE & ST, Raigad [2022 (10) TMI 796 - CESTAT Mumbai]: Held that where eligibility to take CENVAT credit was undisputable, and credit could not be taken due to procedural aberration during GST transition, the claimant is eligible to get refund of credit by cash under Section 142(6)(a) of the CGST Act.
• ITCO Industries Ltd v. CGST & CE, Salem [2022 (6) TMI 1040 - CESTAT Chennai]: Held that the appellant was eligible for credit of CVD and SAD paid, and such claims for refund cannot be denied, directing for refund with consequential relief.
• Flexi Caps & Polymers Pvt Ltd v. CGST & CE, Indore [2021 (9) TMI 917 - CESTAT New Delhi]: Held that due to the erstwhile law being taken over by the new GST Act, unutilized credits, for which the assessee was entitled under the Cenvat Credit Rules, are eligible for cash refund under Section 142(3) of the GST Act.
• OSI Systems Pvt Ltd v. CCT, Rangareddy [2022 (9) TMI 801 - CESTAT Hyderabad]: Held that under transitional provision of Section 142(3) of CGST Act, no unjust enrichment is attracted for service tax paid on RCM basis post-GST, which was otherwise eligible as Cenvat credit, and thus eligible for cash refund.

Consequently, the Tribunal found that the principles established were directly applicable to the facts of the present case. Therefore, following these established precedents, the Tribunal set aside the impugned order and allowed the appeal, directing the Adjudicating Authority to grant the refund along with interest, to be calculated from the initial date of filing the refund claim.

Comment:

This ruling by the CESTAT marks a pivotal development for businesses navigating the intricate landscape of transitional provisions under the GST regime. The consistent judicial stance, powerfully reinforced by this decision, offers a much-needed lifeline for taxpayers facing situations where credits accumulated under previous tax laws become unusable post-GST. The emphasis on allowing cash refunds for duties like CVD and SAD, which were genuinely paid but whose credit cannot be transitioned, aligns with the broader objective of ensuring that the shift to GST does not create undue financial hardship or a loss of legitimate entitlements. This interpretation of Section 142(3) is pragmatic and equitable, preventing an unintended consequence of the legislative transition from becoming a permanent financial burden on businesses. It underscores the judiciary's commitment to uphold the spirit of continuity and fairness, ensuring that taxpayers are not unduly penalized for the structural changes in the tax system.

Author: Aindrila Ghosh

Edited by: Shaily Gupta