Refund cannot be denied on account of procedural lapse

Last updated: 23 July 2021

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The CESTAT, Chennai ruled that a business's claim for a service tax refund on exported services could not be denied solely due to a procedural error in their ST-3 returns. Despite the appellant failing to mention their availed credit in the returns for the relevant period, the tribunal found they were eligible for the refund. The court emphasised that this oversight was a procedural lapse, not a disqualifying factor, especially since the services were exported and the credit was properly accounted for in their books.

Court :
CESTAT, Chennai

Brief :
In M/s Origin Learning Solutions Pvt. Ltd. v. Commissioner of Service Tax [Service Tax Appeal No.40599 of 2017 decided on July 20, 2021] M/s Origin Learning Solutions Pvt. Ltd. ("the Appellant") is engaged in providing Information Technology Services and are also exporting said services. The Appellant availed credit on the Service tax paid and applied for refund under Rule 5 of the CENVAT Credit Rules, 2004 ("CENVAT Credit Rules") for the period July, 2013 to September, 2013.

Citation :
Service Tax Appeal No.40599 of 2017 decided on July 20, 2021

In M/s Origin Learning Solutions Pvt. Ltd. v. Commissioner of Service Tax [Service Tax Appeal No.40599 of 2017 decided on July 20, 2021] M/s Origin Learning Solutions Pvt. Ltd. ("the Appellant") is engaged in providing Information Technology Services and are also exporting said services. The Appellant availed credit on the Service tax paid and applied for refund under Rule 5 of the CENVAT Credit Rules, 2004 ("CENVAT Credit Rules") for the period July, 2013 to September, 2013.

Commissioner- Allowed the refund. Department filed an appeal.

Commissioner (Appeals)- Allowed Department's appeal and held that the refund sanction is erroneous that the Appellant is not eligible for refund.

The Hon'ble CESTAT, Chennai noted that it is not in dispute that the Appellant is eligible for credit on the service tax paid by them under reverse charge mechanism on input services availed by them.

Observed that the only reason for denying the credit is that they have not reflected such availment of credit in ST-3 returns for July, 2013 to September, 2013. However, the services having been exported, the Service tax paid on the input services used for export of services should be refunded to the Appellant as per Rule 5 of CENVAT Credit Rules. Further, the Appellant has properly accounted in their books of account.

Held that not mentioning the credit availed in ST-3 returns is only a procedural lapse, which can be condoned and allowed the appeal.

FAQ :

No, a service tax refund cannot be denied solely because of a procedural lapse, such as failing to mention availed credit in ST-3 returns, if the taxpayer is otherwise eligible and has properly accounted for the credit.

The main issue was whether the appellant's failure to reflect availed service tax credit in their ST-3 returns for a specific period should lead to the denial of their refund claim for exported services.

The CESTAT ruled that the failure to mention the credit in ST-3 returns was a procedural lapse that could be condoned, and did not disqualify the appellant from receiving the refund.

The taxpayer must be eligible for the credit, the services must have been exported, and the credit must be properly accounted for in the company's books of account.