2020 (10) TMI 890 - Commissioner - GST

Refund of GST - inverted tax structure - adjudicating authority had noticed that the appellant had wrongly taken Net ITC in RFD-01 which included ineligible ITC of Capital Goods - Allegation that the appellant has suppressed/mis-declared value of Net ITC resulting in excess claim of refund - Section 54 (3) of the CGST Act, 2017 - Refund under the provisions of receipt under deemed export - penalty - HELD THAT - Refund of unutilized ITC in case of inverted tax structure, as provided in Section 54 (3) of the CGST Act, 2017 is available where ITC remains unutilized even after setting off of available ITC for the payment of output tax liability. Where there are multiple inputs attracting different rate of tax, in the formula provided in Rule 89 (5) of the CGST Rules, the term Net ITC cover the ITC availed on all inputs in the relevant period, irrespective of their rate of tax. Further, as per Para -14 of Circular No.79/53/2018-GST dated 31.12.2019 Section 54 (3) of the CGST Act provides that refund of any unutilized ITC may be claimed where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies (other than nil rated or fully exempt supplies). Further, Section 2 (59) of the CGST Act defines inputs as any goods other than capital goods used or intended to be used by a supplier in the course or furtherance of business. Thus, inputs do not include services or capital goods. Therefore, clearly, the intent of the law is not to allow refund of tax paid on input services or capital goods as part of refund of unutilized input tax credit. Accordingly, in order to align the CGST Rules with the CGST Act, notification No.26/2018-Central Tax, dated 13.06.2018 was issued wherein it was stated that the term Net ITC, as used in the formula for calculating the maximum refund amount under rule 89 (5) of the CGST Rules, shall mean input tax credit availed on inputs during the relevant period other than the input tax credit availed for which refund is claimed under sub-rules (4A) or (4B) or both. Thus, both the law and the related rules clearly prevent the refund of tax paid on Input Services and Capital Goods as part of refund or Input Tax Credit accumulated on account of Inverted Duty Structure - appellant s contention that credit of Capital Goods along with Input Services also be included for the purpose of determination of Net ITC is not correct and rightly rejected by the adjudicating authority. Refund under the provisions of receipt under deemed export - HELD THAT - The appellant was at his liberty to claim the refund under relevant provision of the law and he should have filed the claim under relevant provisions related to deemed export scheme. It can not be allowed at this stage, as there is no such provision under the rules, therefore appellant s demand can not be acceded and rightly rejected by the adjudicating authority - there are no force in the contention of the appellant and are not acceptable - appeal dismissed. Penalty proposed under Section 122 (1) of the Act - Scope of SCN - HELD THAT - Adjudicating Authority can not travel beyond the scope of show cause notice. Any order passed by the adjudicating authority beyond the scope of show cause notice is not legal and liable to be set aside. Therefore, the penalty imposed under Section 122 (2) (b) is beyond the scope of show cause notice and is set aside. Appeal disposed off.

Issues Involved:
1. Wrongful claim of GST refund by the appellant.
2. Inclusion of ineligible ITC of Capital Goods and Input Services in the refund claim.
3. Mis-declaration and suppression of Net ITC value.
4. Applicability of penalty under Section 122 of the CGST Act, 2017.
5. Entitlement to refund under the "receipt under deemed export" provision.

Issue-wise Detailed Analysis:

1. Wrongful Claim of GST Refund by the Appellant:
The appellant, engaged in manufacturing and supply of Acrylic Yarn, filed a refund claim of ?64,11,146/- under the Inverted Duty Tax Structure for May 2018. The adjudicating authority provisionally sanctioned 90% of the claim amounting to ?57,65,530/-. Upon detailed scrutiny, it was found that the appellant had claimed an excess refund by including ineligible ITC of Capital Goods and Input Services, resulting in a wrongful refund claim of ?47,28,635/-.

2. Inclusion of Ineligible ITC of Capital Goods and Input Services in the Refund Claim:
The adjudicating authority observed that the appellant included ITC of ?51,97,848/- on Capital Goods and ?1,76,403/- on Input Services in the Net ITC, which is contrary to Rule 89 (5) of the CGST Rules, 2017. The correct Net ITC should have been ?67,07,782/- instead of ?1,20,82,033/-. The refund claim was recalculated, and the appellant was found eligible for only ?10,36,895/-, leading to an excess claim of ?47,28,635/-.

3. Mis-declaration and Suppression of Net ITC Value:
It was established that the appellant mis-declared the Net ITC value with the intent to claim an inadmissible refund. The adjudicating authority confirmed the demand of ?47,28,635/- and ordered its recovery along with interest under Section 74 (1) and Section 50 of the CGST/RGST Act, 2017.

4. Applicability of Penalty under Section 122 of the CGST Act, 2017:
The adjudicating authority imposed a penalty equal to the demand amount under Section 122 (2) (b) for suppression of facts. However, the appellant argued that the penalty should be under Section 122 (1) as per the show cause notice. The appellate authority found merit in this argument, stating that the adjudicating authority cannot travel beyond the scope of the show cause notice. Therefore, the penalty under Section 122 (2) (b) was set aside.

5. Entitlement to Refund under the "Receipt under Deemed Export" Provision:
The appellant contended that they were eligible for a refund under the "receipt under deemed export" provisions for capital goods procured under the EPCG Scheme. However, the adjudicating authority rejected this claim, stating that the appellant should have filed the refund under the relevant provisions related to deemed export. The appellate authority upheld this decision, emphasizing that the appellant's demand could not be accommodated at this stage due to the lack of provisions under the rules.

Conclusion:
The appellate authority upheld the adjudicating authority's decision to reject the excess refund claim and confirmed the demand of ?47,28,635/- along with interest. However, the penalty imposed under Section 122 (2) (b) was set aside as it was beyond the scope of the show cause notice. The appeal was disposed of accordingly.

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