The Customs, Excise & Service Tax Appellate Tribunal (CESTAT), Allahabad Regional Bench, allowed the appeal of M/s Victora Hospitalities Pvt. Ltd. and set aside the Commissioner (Appeals)’s order rejecting refund of service tax paid under reverse charge mechanism after GST implementation. Holding that the claim falls under section 142(3) of the CGST Act and is governed by existing law, the Tribunal directed refund of Rs.23,00,436 with consequential relief.
Background & Facts
The Dispute
The appellant, M/s Victora Hospitalities Pvt. Ltd., engaged in restaurant services, accommodation, renting of immovable property, convention, and health and beauty treatment services. During an audit for the period 2015-16 to 2017-18, the appellant deposited service tax of Rs.23,84,916 on royalty paid in foreign currency under the reverse charge mechanism. It subsequently applied for refund/credit of the said amount. The Assistant Commissioner of GST rejected the refund claim of Rs.23,00,436 by order dated 20.06.2018. The Commissioner (Appeals) upheld this rejection by order dated 03.08.2020, prompting the present appeal.
Key Facts
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The appellant deposited service tax under reverse charge on import of service on 08.12.2017, after the prescribed period for filing the last ST-3 Return had expired; this amount was not reflected in the ST-3 Return.
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The CGST Act came into force w.e.f. 01.07.2017. Consequently, the CENVAT Rules ceased to be in force after the introduction of the CGST Act.
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The appellant could not claim transition of input credit under section 140 of the CGST Act nor avail CENVAT credit under the CENVAT Rules.
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The refund claim was for Rs.23,00,436, representing the service tax deposited on 08.12.2017.
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The Deputy Commissioner rejected the refund claim by order dated 24.04.2019; the appellant’s appeal before the Commissioner (Appeals) was rejected by order dated 21.09.2019.
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The impugned order under appeal is the Commissioner (Appeals)’s order dated 03.08.2020.
Procedural History
- 08.12.2017: Deposit of service tax under reverse charge mechanism.
- 20.06.2018: Assistant Commissioner’s order rejecting refund claim of Rs.23,00,436.
- 24.04.2019: Deputy Commissioner’s order rejecting the refund claim.
- 21.09.2019: Commissioner (Appeals)’s order rejecting the appellant’s appeal.
- 03.08.2020: Impugned order of Commissioner (Appeals) upholding rejection of refund claim.
- 08.10.2026: Date of hearing before CESTAT Allahabad Regional Bench.
- 09.10.2026: Date of decision (final order No.70426/2026).
Relief Sought
The appellant sought quashing of the impugned order dated 03.08.2020, direction for refund of the service tax amount of Rs.23,00,436, and consequential relief including interest and costs as per law.
The Legal Issue
The central question was whether a refund claim for service tax paid under the reverse charge mechanism after the introduction of the CGST Act is maintainable under section 142(3) of the CGST Act, i.e., whether such claim falls within the ambit of "existing law" for the purpose of transitional provisions.
Arguments Presented
For the Appellant
The appellant contended that the audit and payment of service tax occurred after GST implementation, thus the claim falls under section 142(3) of the CGST Act. It relied on a series of Tribunal decisions, including Assistant Commissioner of GST & Central Excise versus Ganges International (P) Ltd., 2023 (68) GSTL 134 (Mad.), Terex India Pvt. Ltd. versus Commissioner of GSST & C. Excise, 2022 (63) GSTL 238 (Tri), and others, which held that refunds of service tax paid after GST rollout are admissible under section 142(3) as they are to be disposed of in accordance with existing law. The appellant emphasized that the service tax was paid under Chapter V of the Finance Act and the claim was squarely within subsection (3) of section 142.
For the Respondent
The authorized representative for the Commissioner reiterated the findings of the impugned order, arguing that because the service tax was deposited on 08.12.2017, after the CGST Act came into force, the CENVAT Rules were no longer in force and therefore the claim could not be considered under "existing law". It maintained that the Deputy Commissioner’s rejection was correct on the ground that the claim arose after the transitional period and hence was not maintainable.
The Court's Analysis
The Tribunal noted conflicting decisions across various Benches and the Hon’ble High Court of Jharkhand on this issue. It then relied on the Larger Bench decision in Final Order No.40021/2023 dated 21.12.2023, which held that a refund claim under section 142(3) of the CGST Act is maintainable even if the service tax was deposited after 01.07.2017, provided the claim is to be disposed of in accordance with existing law. The Tribunal quoted the Larger Bench’s observation that "the claim under section 142(3) of CGST Act cannot be considered to be under the 'existing law' as the service tax was not paid in time but on 08.12.2017 after the CGST Act had come into force" but distinguished the present case on the basis that the appellant had deposited the tax under reverse charge mechanism and the claim was for CENVAT credit paid, which squarely fell within the ambit of section 142(3).
The Tribunal further observed that the service tax was paid under Chapter V of the Finance Act and the refund was claimed under subsection (3) of section 142 of the CGST Act, which mandates disposal in accordance with existing law. It concluded that even if the service tax had been deposited after 01.01.2017, the refund of CENVAT credit could be claimed only under section 142(3) and an appeal lay to the Tribunal. Accordingly, the impugned order was deemed unsustainable.
"In view of the above, we find that the refund in cash, of Service Tax paid by the Appellant as cited above is admissible to the Appellant."
The Verdict
The appeal was allowed. The impugned order dated 03.08.2020 was set aside. The Tribunal declared that the refund in cash of service tax paid by the appellant, amounting to Rs.23,00,436, is admissible. Consequential relief, if any, was to be granted as per law. No specific interest rate or compensation was mentioned in the operative portion, but the principal amount of Rs.23,00,436 was affirmed as refundable.
What This Means For Similar Cases
Refund Claims Under Transitional Provisions
Practitioners must note that refunds of service tax paid under reverse charge mechanism after GST implementation are maintainable under section 142(3) of the CGST Act, provided the claim is for CENVAT credit and is to be disposed of in accordance with existing law.
Existing Law Governs Refunds
The expression "existing law" in section 142(3) refers to the law applicable prior to GST, i.e., the Finance Act, 1994 and related rules, and not the CGST Act itself. Hence, even payments made after the appointed day can qualify for refund if they relate to pre-GST tax liabilities.
Burden on Revenue to Show Inadmissibility
The revenue cannot reject a refund claim merely on the ground that the tax was deposited after the introduction of GST; it must demonstrate that the claim does not fall under the existing law framework. The Tribunal’s reliance on larger bench precedent strengthens the assessee’s position in similar refund disputes.
