Introduction: This article is written only for exporter of services which are entitled to claim refund of service tax CENVAT credit and has not applied for these refunds under earlier laws.
Issue: As per Rule 5 of CCR 2004, a service provider who provides an output service which is exported without payment of service tax, shall be allowed refund of CENVAT credit. But, there are many such service providers who did not claim these refunds for one or the other reasons and such unclaimed refund is lying in the books as on 30 June 2017. After the enactment of GST law on 01 July 2017, the assessee has two possible options towards liquidation of aforementioned CENVAT balances.
Options:
1. Claim refund under earlier laws: Assesse has the option to file a refund claim under provisions of Rule 5 of erstwhile CCR read with Notification No. 27 /2012-CE (N.T.) dated 18 June, 2017. However, it is to be noted that Section 142(4) of the CGST Act provides that in case the refund claim is rejected either fully or partly by relevant authorities, the amount sought as refund shall lapse and cannot be reclaimed as credit. Accordingly, if assessee opts to apply for refund in terms of erstwhile laws, it will be prudent to file the refund after due verification of such application to minimize errors and avoid any loss of credits.
2. Carry forward credit to GST through transition: Details of such CENVAT credit are required to be disclosed as part of the final service tax return by assessee and also should be mentioned in GST TRAN-1, which is prescribed for transition of credits to GST regime.
However, it would not be allowed to take a refund of unutilized CENVAT balance transitioned from service tax regime. This is because the relevant provisions under GST laws provide that the input tax credit accrued by a tax payee during the current regime i.e. under GST would be eligible for refund. Reference in this regard is made to Section 54(3) of CGST Act. Now question is if assesse can't take refund of CENVAT transformed into GST transitional credit them why to carry forward it? Exports are zero rated and therefore the exporters are eligible to claim refund in either of the two options:
a) Supply services under a bond or Letter of Undertaking ('LUT') without payment of IGST and claim refund of unutilized input credit. The input tax credit ('ITC') of services, inputs and capital goods used in making zero-rated supplies may be utilized for payment of CGST, SGST and IGST on other supplies. In case the said ITC remains unutilized, the claim for refund of ITC can be filed, as per Section 54(3) of CGST Act read with Rule 96A of CGST Rules 2017. If the assessee opts for upfront exemption from payment of taxes on zero-rated supplies, it would not be allowed to take a refund of unutilized CENVAT balance transitioned from service tax regime.
b) Supply services on payment of IGST and claim refund of the same thereafter, as per Section 54(8) of CGST Act read with Rule 89(1) of CGST Rules 2017. If the assessee opts to pay IGST on its export supplies by utilizing available credit, comprising of transitioned credits as well as credits under GST regime, it would be in a position to seek refund of IGST so paid. He may subsequently switch to the option of seeking upfront exemption of taxes on its export activities. The transition of credits to GST & thereafter utilizing the same to pay IGST on export of services may be advantageous vs. filing refund claims due to the cumbersome refund procedures.
Disclaimer: The article contains personal understanding and opinion of the author which may not be reproduced or claimed anywhere.
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