Yokohama India v. Commissioner of CGST: cash refund of pre-GST CENVAT credit under section 142(3)

The facts in brief

Yokohama India Pvt. Ltd., a manufacturer, was audited for the period April 2016 to June 2017. The audit found that service tax on legal consultancy services and on ocean freight — payable under the Reverse Charge Mechanism (RCM) — had not been paid for the pre-GST period. On the issue being pointed out, the appellant discharged the service tax liability along with interest and penalty on 2 March 2022, well after GST had come into force on 1 July 2017.

Having paid this pre-GST service tax under RCM, the appellant became entitled to corresponding CENVAT credit. But because GST had already subsumed the CENVAT regime by the time the tax was paid, the appellant could neither carry that credit forward into the GST system nor utilise it. It therefore filed a refund claim of approximately ₹7.62 lakh under section 142(3) of the CGST Act, seeking cash refund of the unutilisable credit.

The Department rejected the claim on two grounds. It contended that there was no express provision permitting refund of such credit; and it alleged that the late payment, made only after the audit, suggested suppression. The appellant appealed to the Customs, Excise and Service Tax Appellate Tribunal at New Delhi.

The transitional question

The transition from the CENVAT and service-tax regime to GST left a category of credit stranded. Where a taxpayer paid a legacy tax liability — here, RCM service tax for the pre-GST period — after the GST cut-over, the corresponding CENVAT credit it earned could not be carried forward, because the carry-forward window and the CENVAT machinery had closed. Unless the law supplied a remedy, that vested credit would simply lapse on the change of regime.

Section 142(3) of the CGST Act is the transitional provision that addresses this. It directs that every claim for refund of any duty, tax, interest or other amount paid under the existing law be disposed of in accordance with the provisions of the existing law, and that any amount eventually accruing be paid in cash — "notwithstanding anything to the contrary contained in the existing law". The provision is, in effect, an anti-lapse mechanism: it converts credit that can no longer be carried forward or utilised into a cash entitlement, processed under the old law. The question for the Tribunal was whether RCM service tax for the pre-GST period, though paid after GST, fell within that mechanism — and whether the late payment on audit defeated the claim.

What the Tribunal held

CESTAT held that the CENVAT credit was refundable in cash under section 142(3), and allowed the appeal.

The Tribunal held that section 142(3) is a transitional provision mandating that refund claims relating to taxes paid under the existing law be processed in accordance with that law, with any admissible amount paid in cash — precisely to prevent vested CENVAT credit from lapsing on the GST transition. CENVAT credit, it held, is a vested right that cannot be defeated merely because the GST regime intervened. Where the credit could not be carried forward into GST, its cash refund is the statutory remedy, and the timing of the underlying payment — after GST — does not take the credit outside section 142(3).

On suppression, the Tribunal rejected the Department's objection. Mere payment of tax pursuant to an audit does not establish suppression or intent to evade. The appellant had paid the service tax, with interest and penalty, on the issue being pointed out, and was entitled to the refund of the corresponding CENVAT credit it could no longer utilise. The refund claim of approximately ₹7.62 lakh was held admissible in cash.

The doctrinal architecture

Three propositions carry the reasoning, each of recurring importance in transitional-credit litigation.

First, section 142(3) is the operative remedy for cash refund of CENVAT credit that cannot be carried into GST. The "notwithstanding anything to the contrary contained in the existing law" override is doing real work: it displaces any provision of the old law that would otherwise have channelled the credit only into utilisation rather than refund, and directs that admissible amounts be paid in cash. The provision exists for exactly the situation before the Tribunal — credit earned too late to be carried forward.

Second, CENVAT credit is treated as a vested right that survives the GST transition. The change of regime does not extinguish an entitlement that had accrued under the old law; it changes only the form in which the entitlement is realised, from utilisation against output liability to a cash refund. RCM service tax for the pre-GST period, even if paid post-GST, generates refundable credit on this analysis.

Third, payment pursuant to an audit — made with interest and penalty when the liability is pointed out — does not, by itself, establish suppression or intent to evade. The Department's attempt to read culpability into the timing of payment failed. A taxpayer who pays a legacy liability on audit is not thereby shown to have suppressed anything; and the absence of suppression matters because it preserves the taxpayer's entitlement to the corresponding credit and its refund.

The anti-lapse logic, examined

The decision is best understood as an application of an anti-lapse principle that runs through the transitional provisions of the CGST Act. The legislature, in subsuming the CENVAT and service-tax regimes into GST, faced a choice about what to do with entitlements that had accrued under the old law but could not be realised under the new one. It could have allowed them to lapse — a result that would have visited a windfall on the exchequer and a corresponding loss on taxpayers whose only fault was timing. Section 142(3) is the legislative answer: it preserves those entitlements by converting them into cash refunds, processed under the existing law, and it does so with an override — "notwithstanding anything to the contrary contained in the existing law" — strong enough to displace any provision of the old regime that would otherwise have confined the credit to utilisation.

The Tribunal's treatment of CENVAT credit as a vested right is the conceptual hinge of this analysis. If the credit were a mere concession, contingent on the continued existence of the regime that created it, the change of regime might fairly be said to have taken it away. But the settled characterisation is that credit, once earned, is a vested right; the regime change alters the mechanism of realisation, not the existence of the entitlement. RCM service tax for the pre-GST period, even when discharged in 2022, generates that vested credit, and section 142(3) supplies the route by which it is realised in cash.

The suppression holding completes the picture. The Department's argument — that a payment made only on audit betrays an intent to evade — would, if accepted, have allowed the timing of the underlying payment to defeat the refund. The Tribunal refused to draw that inference. A taxpayer who pays a legacy liability, with interest and penalty, when an audit surfaces it has acted to regularise its affairs, not to conceal them; and the entitlement to the corresponding credit, and its refund, survives intact.

Why the ruling matters

The decision sits in the dense, high-volume body of CENVAT-to-GST transitional-credit litigation. It is distinct from, and complements, the line of authority on TRAN-1 carry-forward: those cases concern the mechanics of carrying credit forward into the GST system, whereas this concerns the section 142(3) cash refund of credit that cannot be carried forward at all. The two strands address different points along the transition and do not overlap.

The ruling is taxpayer-favourable on two fronts that recur constantly: the survival of vested CENVAT credit across the GST cut-over, and the high bar for alleging suppression where tax is paid on audit. For manufacturers and importers who discharged legacy RCM liabilities late — often precisely because an audit surfaced them — it provides a clear cash-refund pathway and forecloses the Department's twin objections that no refund provision exists and that the late payment betrays evasion. As a Principal Bench order it is persuasive across CESTAT and is likely to be invoked in the many pending section 142(3) refund appeals. For the corpus, it adds standalone tribunal coverage of the service-tax and transitional-credit domain, complementing the carry-forward authorities already in place.

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Sources

1. Law Notify — "CESTAT Allows Cash Refund of CENVAT Credit on Post-GST Payment of Pre-GST Service Tax under Section 142(3)": https://lawnotify.in/cestat-allows-cash-refund-of-cenvat-credit-on-post-gst-payment-of-pre-gst-service-tax-under-section-1423/
2. Taxscan — Annual Customs, Excise and Service Tax case digest, CESTAT Rulings (entry on Yokohama India / section 142(3) cash refund): https://www.taxscan.in/top-stories/annual-customs-excise-and-service-tax-case-digest-cestat-rulings-2025-part-14-1441543
3. Taxscan — "CESTAT Allows Refund of Unutilized CENVAT Credit on Education Cess Citing Transitional Provisions of CGST Act" (parallel section 142 transitional-refund line): https://www.taxscan.in/cestat-allows-refund-of-unutilized-cenvat-credit-on-education-cess-citing-transitional-provisions-of-cgst-act/511121/
4. Customs, Excise and Service Tax Appellate Tribunal — orders portal, Principal Bench New Delhi (Service Tax Appeal No. 51369 of 2025): https://cestatnew.gov.in/