2018 (12) TMI 1838 - Commissioner - GST

Refund of accumulated ITC - rate of tax on inputs being higher than the rate of the output supplies - adjudicating authority has rejected part refund by observing that in case of inverted duty structure, the input tax credit pertaining to only such inputs, the rate of tax on which is higher than the rate of tax on output supplies, would be permissible to be put into the formula for calculating refund in case of inverted duty structure - whether while calculating the inverted rate refund claim under Section 54 of CGST Act net ITC will be taken after deduction of inverted rate purchase or otherwise? HELD THAT - Sub-rule 5 of Rule 89 of Central Goods Services Tax Rules, 2017 has given the formula for calculating the matter to refund on account of inverted duty structure - Net ITC has been specifically defined in the rule, which states that input tax credit availed on input during the relevant period other than input tax credit pertain to zero-rated supply mentioned in Rule 89 of 4A 4B. The adjudicating authority, on his own has travelled beyond the clarification as prescribed in the statute. The adjudicating authority should have relied on the exact wording of the statute under consideration - the adjudicating authority has wrongly deducted ITC of the same and lower tax rate availed by the appellants and agree to the arguments placed forward by the latter - Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Calculation of refund claims under Section 54 of CGST Act, 2017.
2. Interpretation of "Net ITC" in the context of refund claims for inverted duty structure under Rule 89(5) of CGST Rules, 2017.
3. Methodology adopted by the adjudicating authority for refund calculation.

Issue-wise Detailed Analysis:

1. Calculation of refund claims under Section 54 of CGST Act, 2017:
The appellants, engaged in the manufacture and sale of DG sets, filed refund claims under Section 54 of the CGST Act, 2017 for accumulated ITC due to the tax rate on inputs being higher than the rate on output supplies. The adjudicating authority partly allowed the refund claims based on Rule 89(5) of CGST Rules, 2017, which led to the appellants filing appeals.

2. Interpretation of "Net ITC" in the context of refund claims for inverted duty structure under Rule 89(5) of CGST Rules, 2017:
The main issue was whether "Net ITC" should include only the input tax credit on inputs with a higher tax rate than the output supplies. The adjudicating authority interpreted "Net ITC" to exclude inputs with a lower or equal tax rate to that of the output supplies. However, the appellants argued that "Net ITC" should cover all inputs during the relevant period, irrespective of their tax rate, as per the definition in Rule 89(5).

3. Methodology adopted by the adjudicating authority for refund calculation:
The appellants contended that the adjudicating authority adopted an incorrect formula by excluding ITC on inputs with lower or equal tax rates. They argued that the correct formula, as per Rule 89(5), should include all ITC availed on inputs during the relevant period. The adjudicating authority's methodology led to a partial rejection of the refund claims.

Judgment Analysis:

Upon reviewing the facts, appeal memorandum, and submissions, it was found that the adjudicating authority misinterpreted the definition of "Net ITC" by excluding ITC on inputs with lower or equal tax rates. The correct interpretation, as per Rule 89(5), is that "Net ITC" includes all input tax credit availed during the relevant period.

The judgment emphasized that the adjudicating authority should adhere to the exact wording of the statute. It cited various legal precedents, including the Duport Steel v. Sirs case, Parmeshwaran Subramani, Dharamendra Textile Processors, and Favourite Industries, which stress the importance of interpreting statutory provisions based on their plain and unambiguous language.

The adjudicating authority's approach was deemed unsustainable as it deviated from the statutory definition of "Net ITC." The judgment concluded that the appellants' interpretation was correct, and the refund claims should be recalculated accordingly.

Conclusion:

The impugned orders were set aside, and the appeals filed by the appellants were allowed. The adjudicating authority was directed to recalculate the refund claims based on the correct interpretation of "Net ITC" as per Rule 89(5) of the CGST Rules, 2017. The appeals were disposed of in these terms.