The Hon’ble High Court of Madras vide its order dated 22.02.2022 in the matter of M/s Ganges International Private Limited & Ors. in W.P. No.s – 528, 1092 & 1160 of 2019 applying ‘doctrine of necessity’ held that the refund claims for the Service Tax paid filed by the petitioners could have been considered under Section 142(3) of CGST Act by the respondents and be allowed to carry forward the same to the GST regime.

The Petitioners filed the present writ petitions praying for quashing the impugned orders dated 29.08.2018, 24.09.2018 & 16.07.2018 and direct the respondents to sanction the refund as claimed by the petitioners.

Facts: –

• The Petitioner is engaged in providing various construction services to Government/private parties and was registered with erstwhile Service tax regime however on the introduction of GST i.e. 01.07.2017 shifted to GST regime. The last return for service tax filed by the petitioner was on 15.08.2017 for the period April to June 2017.
• During the course of CERA audit, it was pointed out that the petitioner is liable to pay tax service tax for the royalty paid to the Government under reverse charge for services rendered at two quarries in view of Notification no. 22/2016 dated 13.04.2016 and amendment in Section 66D (a)
• The petitioner as prompted by the department paid service tax of Rs. 26,88,460/- along with interest of 3,99,625/- for the period 01.04.2016 to 31.07.2017 for the royalty paid to the Government for mining the stones.
• Since the amount paid as service tax was an input service being used for providing the output service, the petitioner was entitled for credit of the same. However, the petitioner could not avail the same due to the introduction of GST, erstwhile laws were repealed, CENVAT Credit rules, 2004 were superseded by new CENVAT Credit rules, 2017, various transitional provisions were enacted in Section 140 to 142 of the CGST Act.
• The petitioner could file an application under GST TRAN – 1 for transferring the credit to GST regime as the payment of service tax by the petitioner was in December 2017, when prompted to pay by the Department.
• The petitioner facing this peculiar situation filed a refund claim as the amount was paid on 30.12.2017. The application for refund was rejected by the respondents vide impugned order in original no. 19/2018 dated 24.09.2018 stating that the petitioner is eligible for taking CENVAT credit of the amount paid however there was no provision in new regime to allow as input tax credit in GST.
• Almost similar facts are there in other two cases.

Petitioners Plea: –

• It was submitted on the behalf of the petitioners that the petitioner could not make the application in GST TRAN – 1 on or before the cutoff date i.e 27.12.2017 as the service tax amount itself was paid on 30.12.2017, 02.05.2018 except in P. 1160 of 2019, where the countervailing duty and special additional duty was paid on 14.12.2017, and within a span of 10-15 days an application under GST TRAN-1 could not be filed.
• Section 12(3) of CGST enables any person to file a refund claim either before, on or after the appointed day i.e., 01.07.2017 and any refund 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 shall be paid in cash.
• It was further submitted that existing law is nothing but the law prevailing prior to 01.07.2017 and if the petitioners are eligible to take credit, the petitioners facing the peculiar situation would also be eligible to file an application under Section 142 (3).
• The respondents in the impugned order have rejected the applications of the petitioners stating that there is no provision in the new regime to allow such refund even after considering the fact that the petitioners being eligible for credit in erstwhile law could not make the application in GST TRAN 1 as the service tax amount itself was paid, in two cases, after 27.12.2017 (Cutoff date). The refund claim of the petitioners shall be dealt with under Section 142 (3) and if the refund cannot be granted, it may be allowed to transfer the credit to present GST account.
• Lastly it was submitted that as the respondents in the impugned order has rejected, he refunds claim only for the want of provisions, it would be possible for the respondents to take the route of Section 142(3). Thus, requested to set aside the impugned order and remand back the matter directing the respondents to take up the refund application and decide the same if not for refund at least for credit.

Revenue Submissions:

• The petitioner could have made an application under Section 140 of the Act to carry forward it CENVAT Credit of eligible duties to its electronic credit ledger and furnish the same in the return for day immediately preceding the appointed day, however in the present case no such application has been submitted. Thus, no amount accrued in the account of the petitioners to take the credit in electronic credit ledger under GST.
• Section 142(3) is only related to seek for refund of duty already paid and not related to transfer of credit and the refund applications would be disposed of under the existing law after satisfying with the eligibility of person claiming the refund.
• It was further submitted on the behalf of revenue that the petitioner should have filed the return six months prior to the appointed day and the refund claim under Section 142(3) should be made as per his eligibility to seek for refund under Central Excise Act, 1944.
• The petitioner is not entitled to refund claim as third proviso to rule 4(1) of the CENVAT Credit states that the manufacturer or the provider of output service shall not take CENVAT after one year of the date of issue of any document in sub rule (1) of Rule 9 and the one-year limitation has already expired.
• The petitioners instead of making an application under Section 140 (1) of the Act, had belated made an application for refund of CENVAT Credit and claiming that such application to be deal with under Section 142 (3).
• It was further submitted that CENVT Credit itself is a concession and the claim of such a concession under Section 142(3) does not arise as the service tax or duty was not paid, in all three cases, prior to 30.06.2017.
• That the petitioners have chosen to take the present route to avoid the time limit prescribed under Section 140 (1) i.e. 27.12.2017, which the petitioner failed to make.

Held: –

• The Hon’ble High Court after considering the submissions made from both sides and while passing the common order all three cases observed that in all the three cases, there is no dispute that the service tax was not paid before 30.06.207. In two cases it was after 27.12.2017 i.e., last date for GST TRAN 1, and in the third case the countervailing duty was paid just 13 days prior to 27.12.2017.
• That on introduction of GST, the legislature had to bring transitional provisions and accordingly Section 140 to 142 were brought, wherein Section 140 has provided for ‘Transition arrangements for Input tax credit’ according to which the eligibility of a person to carry the CENVAT Credit in the return filed to GST regime relates to the period prior to the appointed day i.e., 01.07.2017.
• An application under GST TRAN 1 (under Section 140(1)) has to be made for carrying forward the accrued CENVAT Credit to electronic credit ledger in GST regime and the time limit prescribed for that application was 90 days which was subsequently extended up to 27.12.2017.
• That the petitioner has already carried forward the balance in the credit as on 30.060.2017 under Section 140(1) of CGST however the present claim made in these three cases could not be made as the payment itself was made in December 2017 and May 2018 and the question to be considered is, if the payment is made after the cutoff date can it be carried forward to GST regime.
• The Hon’ble High Court observed that the eligible credit balance lying as on 30.06.2017 should be forwarded to the GST regime by filing an application in GST TRAN 1 under Section 140 and if the amount has been paid after the cutoff date can that be sought by way of credit transfer or refund in cash.
• The Hon’ble High Court taking note of the petitioner submissions’ that the application for refund under section 142(3) has been filed as they were not left with any option and it shall be disposed of in accordance with the existing law’ and the revenue submissions that ‘the application submitted by the petitioner if at all to be considered, shall be only treated as application for credit transfer’ , observed that the payment of service tax and other duties in the instant case should have been made before 30.06.2017, which was not made in the present case, however was made in December 2017 and May 2018 on being triggered by the revenue.
• The Hon’ble High Court further took note of the revenue submissions i.e.’ that the eligibility of petitioner prior to 30.06.2017 for seeking the credit in dispute needs to checked as rule 4(1) of the CENVAT Credit rules provides that a manufacturer or provider of output service shall not credit after one year of the issue of any of the documents as specified in sub rule (1) of rule 9 and that limitation has expired in the case of the petitioners’ however on the other hand ‘the petitioner relying on the challans of the payment of service tax submitted that it is within limitation and referring to the para 12 of the impugned order submitted that the eligibility of the petitioners otherwise under the normal circumstances before 30.06.2017 was not in dispute.’
• The Hon’ble Court after considering the revenue submissions made by the revenue observed that the facts of the present case are very peculiar and had there been no GST regime, as the eligibility to claim the credit is not in dispute, the petitioners would have been eligible to claim the credit of the all these amounts paid.
• The Hon’ble Court further taking note of the submissions as above held that merely because transition provisions came into effect on 01.07.2017 under Section 140 (1) of CGST these credit which came into the account the petitioner subsequently i.e. after 30.06.2017 cannot be denied as these credit were accrued in the account of the petitioners.
• Thereafter the Hon’ble High Court considering the special situation in the instant case invoked ‘Doctrine of Necessity’ for Section 142(3) observing that it is a dire necessity, as this kind of situation necessarily to be met with the Legislation.
• The Hon’ble Court further referring to the judgments in case of Mohapatra and Company and another Vs. State of Orissa and another [1985] 1 SCR 322, (1996) 4 SCC 104, Election Commission of India and another Vs. Dr.Subramaniam Swamy and another, (2006) 3 SCC 276 in State of U.P. Vs. Sheo Shanker Lal Srivastava and others, Duncan Agro Industries Limited Vs. Union of India reported in 1988 (18) ECC 358, stated though the ‘Doctrine of Necessity’ would be invoked for want of forum however, as in the present case, it can also be construed that if Section 142 (3) is not permitted to be invoked in situations like this, it would render the taxpayer remediless.
• The Hon’ble High Court after observing as above and considering the circumstances in the case held that the question of cash refund under Section 142 (3) of the Act does not arise in this case, but at the same time, the application made by the petitioners could have been considered by the respondents for the purpose of taking the credit and such credit could have been allowed for carrying forward in the electronic credit ledger in the GST regime.
• Lastly it was held by the Hon’ble Court that the impugned orders rejecting the claim made by the petitioners are not tenable and would not stand in the legal scrutiny in view of the legal position as discussed above.

The Hon’ble Court with the above findings set aside the impugned orders and directed the respondents to reconsider and dispose of the applications of the petitioners under Section 142(3) of CGST Act, 2017.  It was also directed that after providing an opportunity of being heard, the respondents would reconsider the claim of the petitioners not for refund however for carrying it forward to the electronic credit ledger in the GST regime.