CENVAT Credit On Reverse Charge Service Tax To Be Refunded In Cash Under CGST Act: CESTAT Delhi

The Customs, Excise & Service Tax Appellate Tribunal (CESTAT), New Delhi has held that any CENVAT credit accruing to Northern Coalfields Ltd. on payment of service tax under the reverse charge mechanism has to be refunded in cash under Section 142 of the CGST Act after the GST regime came into force.

The ruling came in a batch of five appeals filed by Northern Coalfields against service tax demands on payments made to the Madhya Pradesh government towards Rural Infrastructure and Road Development Tax and Forest Transit Fee.

A bench comprising Officiating President Dr. Rachna Gupta and Technical Member P.V. Subba Rao held that Northern Coalfields has to pay service tax under reverse charge for the normal period of limitation. It may then claim a refund of the amount that would accrue to it as CENVAT credit under Section 142 of the CGST Act.

The tribunal observed, "We find that since the CGST has came into force and the Cenvat Credit Rules would no longer apply. As per section 142 of the CGST Act, any amount which would accrue to the appellant as Cenvat credit will have to be refunded in cash. In short, the appellant has to pay service tax under reverse charge mechanism for the normal period of limitation and then it may claim refund of the amount which would accrue to it as Cenvat credit under section 142 of the CGST Act"

Northern Coalfields, a subsidiary of Coal India Ltd. headquartered in Singrauli, Madhya Pradesh, mines and sells coal. It also availed CENVAT credit on input and input services, including service tax paid under the reverse charge mechanism.

The dispute concerned payments made to the Madhya Pradesh government under the Madhya Pradesh Gramin Avsanrachna Tatha Sadak Vikas Adhiniyam, 2005 and towards Forest Transit Fee under the Madhya Pradesh Transit (Forest Produced) Rules, 2000 during April 2016 to June 2017.

The Revenue contended that the two payments were fees paid to the State Government for services rendered and were therefore liable to service tax under reverse charge. Northern Coalfields argued that the payments were in the nature of taxes and not fees, and therefore could not be subjected to service tax.

The tribunal followed a Madhya Pradesh High Court judgment holding that the two payments were in the nature of fees for services and not taxes.

“Respectfully following the judgment of the Madhya Pradesh High Court, we hold that both these payments were in the nature of fees for services and not taxes,” the tribunal observed. It accordingly held that service tax had to be paid under reverse charge on the fees.

The tribunal also considered the period for which the service tax demand could be sustained. It noted that the liability was under reverse charge and that Northern Coalfields could pay the service tax and take CENVAT credit.

The bench therefore held that no mala fide intent could be attributed to Northern Coalfields. The demands were confined to the normal period of limitation.

The tribunal then considered the effect of the GST regime on the CENVAT credit. It noted that the CENVAT Credit Rules would no longer apply after the CGST regime came into force.

Under Section 142 of the CGST Act, the amount that would accrue to Northern Coalfields as CENVAT credit would have to be refunded in cash.

The tribunal dismissed all five appeals and upheld the impugned orders.

For Appellant: Advocate Rajeev Kumar Agarwal

For Respondent: Anil Kumar, Authorized Representative