CESTAT Allows Cash Refund of CENVAT Credit on Post-GST Payment of Pre-GST Service Tax under Section 142(3)

April 7, 2026 : The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Principal Bench, New Delhi, has held that CENVAT credit arising from service tax paid under the Reverse Charge Mechanism (RCM) for the pre-GST period is refundable in cash under Section 142(3) of the CGST Act, 2017, even where such tax was discharged after the introduction of GST.

The ruling came in Yokohama India Pvt. Ltd. v. Principal Commissioner of CGST, Delhi East, decided by Dr. Rachna Gupta.

The appellant, a manufacturer, was audited for the period April 2016 to June 2017, during which it was found that service tax had not been paid on certain services, including legal consultancy and ocean freight. Upon being pointed out, the appellant discharged the service tax liability along with applicable interest and penalty on 2 March 2022. Since the credit could not be transitioned into GST, a refund claim of ₹7.62 lakh was filed under Section 142(3) of the CGST Act.

The Department rejected the claim on the grounds that there was no express provision for granting a cash refund and that the payment indicated suppression of facts. This view was upheld by the appellate authority.

The Tribunal, however, held that Section 142(3) clearly mandates that refund claims relating to taxes paid under the existing law are to be processed in accordance with that law, and any admissible amount must be paid in cash notwithstanding anything to the contrary. It clarified that the provision does not require the tax to have been paid prior to the introduction of GST, and therefore, payment made in 2022 for a pre-GST liability cannot be a ground to deny the refund.

It further observed that once service tax is paid under the erstwhile regime, the corresponding CENVAT credit accrues as a vested right. Such entitlement cannot be defeated merely due to the transition to GST. On the allegation of suppression, the Tribunal held that payment of tax along with interest and penalty pursuant to audit does not, by itself, establish intent to evade tax. The burden to prove suppression lies on the Department, which was not discharged in the present case.

The Tribunal also found that Rule 9 of the CENVAT Credit Rules, 2004 had been wrongly invoked, as it applies to service providers, whereas the appellant had paid tax as a service recipient under RCM. Relying on earlier precedents, including Indo Tooling Pvt. Ltd., the Tribunal reiterated that where transition of credit is not possible, refund in cash is permissible under Section 142(3).

Accordingly, the impugned order was set aside and the appeal was allowed, granting the appellant refund of the CENVAT credit in cash.

Case Details:
Yokohama India Pvt. Ltd. v. Principal Commissioner of CGST, Delhi East
Service Tax Appeal No. 51369 of 2025
Decision Date: 07 April 2026
Coram: Dr. Rachna Gupta (Judicial Member)