Question

An assessee has availed the import of services from non-taxable territory in regard to permission for use of software under IPR services during 2012-13 to 2016-17. Due to unawareness of RCM provisions, he has not paid the Service Tax on this import of Services under RCM. In the month of 11/2017, EA-2000 audit team had pointed out this non-payment. On knowing this, the assessee has paid the service tax, under RCM, on 06-12-2017. This amount could not be carried forward in Tran-1, which he has filed already and the time for filing the revised Tran-1 was also expired. Under these circumstances, the assessee filed a refund claim as per Section 142(3). The Asstt. Commissioner had rejected that assessee is not eligible for cash refund as he has already filed TRAN-1 on 14-08-2017 and the Finance Act`1994 has been repealed in section 1741(1) of CGST Act`2017. Hence the refund application is rejected under Section 11B of CEA`Act1944. Question: Do the provisions contained in Section 142(3) of CGST Act`2017 does not support the assessees claim for refund which is other wise available as Cenvat Credit. Now because of subsuming of FA`1994, whether this transitional provision l come to the rescue of the asseessee ? In case of negative answer, what is the alternative way to get refund.

Answer

Facts of the case: Taxable Person imported IPR services on which service tax under RCM was not paid. Audit objection was raised in November 2017 and then tax was deposited in December 2017. By then time limit for Trans-1 had expired. Refund application was made under section 142(3) CGST which was rejected.

Law Applicable:
As per section 142(3);
"Every claim for refund filed by any person before, on or after the appointed day, for refund of any amount of CENVAT credit, duty, tax, interest or any other amount paid under the existing law, shall be disposed of in accordance with the provisions of existing law and any amount eventually accruing to him shall be paid in cash, notwithstanding anything to the contrary contained under the provisions of existing law other than the provisions of subsection (2) of section 11B of the Central Excise Act, 1944"

Interpretation:
Trans1 was supposed to be filled with the closing balance of returns of earlier tax regime. Tax paid under RCM after the expiry of return period was not supposed to be carried forward via Trans1. Therefore balance not being shown in Trans1 is not a valid ground to reject the refund claim.
Section 142(3) makes it abundantly clear that any refund of tax paid under earlier regime which could not be transferred through Trans1 shall be made under earlier laws and the same shall be granted in cash only.

Conclusion:
If the refund claim is otherwise valid then claim can not be rejected merely on the grounds that Trans1 was not filled in this regard or that Finance Act 1994 is now subsumed.
You may file an appeal provided that refund claim was otherwise made on valid grounds.
(Example of otherwise valid grounds may be like, demand notice received after limitation period, Revenue neutral transaction etc) (Reply dt.10/04/2019)