The Tribunal held that filing a refund claim is a voluntary statutory right which correspondingly implies the right to withdraw it prior to final adjudication, and that upon effective withdrawal the credit remains in the hands of the assessee for transition under Section 140 of the CGST Act.
The Customs, Excise and Service Tax Appellate Tribunal, Bangalore, has set aside an order directing reversal of transitional credit with interest, holding that a refund claim withdrawn before adjudication is non-est and that the underlying CENVAT credit validly carries forward to the GST regime through TRAN-1 [M/s. Mach Aero Components Pvt. Ltd. v. Deputy Commissioner of Central Tax, Bangalore].
The appellant, a 100% Export Oriented Unit manufacturing aero engine parts, had filed a refund claim of ₹66,97,395 for accumulated CENVAT credit on input services used for export under Rule 5 of the CENVAT Credit Rules, 2004. Before the claim was adjudicated, the appellant withdrew it in order to carry forward the accumulated credit into the GST regime by filing TRAN-1 on 26 December 2017 under Section 140 of the CGST Act. Despite the withdrawal, the adjudicating authority proceeded to reject the refund claim. The Commissioner (Appeals) went further and directed reversal of the transitional credit with interest, reasoning that the rejection of the refund claim triggered the first proviso to Section 142(3) of the CGST Act.
The CESTAT Bench of P.A. Augustian (Judicial Member) and Bhagya Devi (Technical Member) held that filing a refund claim is a voluntary statutory right and correspondingly the appellant possesses the right to withdraw it prior to final adjudication. Once effectively withdrawn, the refund claim is non-est — it ceases to exist for all legal purposes. In such circumstances, the credit never left the hands of the assessee and remained available for carry-forward to the GST regime under Section 140. The Tribunal further observed that neither the show cause notice nor the original order had alleged any ineligibility of the underlying credit itself, and that using the rejection of a withdrawn refund claim to trigger the proviso to Section 142(3) and thereby deny transitional credit was legally unsustainable.
The decision is particularly relevant for assessees who had pending CENVAT refund claims at the time of GST transition and chose to withdraw them in favour of carrying forward the credit through TRAN-1. The ruling clarifies that the act of withdrawal, when made before adjudication, restores the credit to its original status as accumulated credit eligible for transition, and that the Department cannot treat a rejected-but-withdrawn claim as a basis for reversing transitional credit.
