2021 (1) TMI 1221 - Commissioner - GST

Refund of unutilized Input Tax Credit - inverted duty structure - rejection of refund of appellant mainly on the ground that of Para 4.2 of Circular No. 59/33/2018-GST dated 4-9-2018 the claimant is not eligible for the refund on input services and eligible for the refund on Inputs - HELD THAT - The appellant has pleaded that the tax paid on services is also covered under the definition of input tax credit as defined under Section 2(63) read with Section 2(62) of CGST Act 2017. In absence of specific exclusion regarding refund of input tax credit on services under Section 54(3) of CGST Act 2017 may not be denied by the Authorities. Further the appellant has pleaded that the benefit given under Section cannot be restricted/withdrawn by Rules and section will prevail over rule as Rules are subordinate to the Act. The Central Government in contemplation of the powers conferred by Section 164 of the Central Goods and Services Tax Act 2017 (12 of 2017) has amended the Central Goods and Services Tax Rules 2017 by issuing the Notification No. 26/2018-Central Tax dated 13-6-2018 - the subject matter has also been under consideration at various judicial and quasi-judicial authorities and the recent progression in the matter is prominent to deliberate cautiously hereunder which is not only a obiter dicta but also laid the foundation for formulation of the principles of law for the purpose of deciding the present problem before us on this issue. The amendment by the Notification No. 26/2018-Central Tax dated 13-6-2018 is intra vires to the Section 54(3) of the CGST Act 2017 provisions. Further the Rule 89(5) is not contrary to the provisions of Section 54(3) of the CGST Act 2017 as amended albeit it as a corollary Rule 89(5) of the CGST Rules as amended is in conformity with Section 54(3)(ii). The scope function and role of amendment as adumbrated in above paras and on applying the ratio decidendi of the Hon ble Madras High Court I find that the lexes of the amendments are amply justified. Thus refund of input services/capital goods on account of inverted duty structure is not admissible in terms of Section 54(3) read with Rule 89(5) of the CGST Act/Rules 2017 - appeal dismissed.

Summary

Issues Involved:
1. Eligibility for refund of unutilized Input Tax Credit (ITC) on input services and capital goods under the inverted tax structure.
2. Interpretation of Section 54(3) and Rule 89(5) of the CGST Act, 2017.
3. Validity and applicability of amendments made by Notification No. 26/2018-Central Tax, dated 13-6-2018.
4. Jurisdiction and authority of rules versus statutory provisions.

Issue-wise Detailed Analysis:

1. Eligibility for Refund of Unutilized ITC on Input Services and Capital Goods:
The appellant, engaged in manufacturing and supply of Solar Panels, filed for refund of unutilized ITC on account of the inverted tax structure for August 2018 and March 2019. The adjudicating authority rejected the refund claims for input services and capital goods based on Rule 89(5) of CGST Rules, 2017, as amended by Notification No. 21/2018 dated 18-4-2018. The appellant argued that Section 54(3) of the CGST Act, 2017 allows for refund of unutilized ITC without specific exclusion for input services or capital goods. They contended that tax paid on services should be included under the definition of ITC as per Section 2(62) and 2(63) of the CGST Act, 2017.

2. Interpretation of Section 54(3) and Rule 89(5) of the CGST Act, 2017:
The adjudicating authority and the appellate authority both emphasized that Section 54(3) of the CGST Act, 2017, read with Rule 89(5), restricts refund to unutilized ITC on inputs only, excluding input services and capital goods. The appellant's argument that the benefit under the section cannot be restricted by rules was countered by the appellate authority, which upheld the legislative intent and the validity of the rules.

3. Validity and Applicability of Amendments by Notification No. 26/2018-Central Tax, dated 13-6-2018:
The appellate authority upheld the amendments made by Notification No. 26/2018, which substituted Rule 89(5) to specifically exclude input services and capital goods from the definition of Net ITC for refund purposes. The authority referred to the Hon’ble Madras High Court's judgment in M/s. Tvl. Transtonnelstroy Afcons v. Union of India, which validated the legislative power to make such classifications and restrictions.

4. Jurisdiction and Authority of Rules versus Statutory Provisions:
The appellant cited various case laws to argue that rules cannot override statutory provisions. However, the appellate authority, relying on the principle that refund provisions should be interpreted strictly like exemption provisions, found that the rules were within the legislative framework and did not contradict the statutory provisions. The authority also noted that the amendments were made under the powers conferred by Section 164 of the CGST Act, 2017, allowing for retrospective effect.

Conclusion:
The appellate authority concluded that the rejection of refund claims for input services and capital goods was justified under the amended Rule 89(5) and Section 54(3) of the CGST Act, 2017. The appeals were dismissed, and the impugned orders were upheld, affirming that the refund of ITC on input services and capital goods is not admissible under the inverted duty structure.