2021 (9) TMI 472 - HC - GST

Refund claim - inverted duty (GST) structure - misdeclaration of amount of total turnover - period October to December 2018 - scope of SCN - rejection of claim of refund on the ground that as the input and output supplies made by the assessee were of the same material and goods, therefore, although the rate of tax on the input supply may be higher than the rate of tax in the output supply, but by referring to the provisions of paragraph 3.2 of the clarificatory circular No.135/05/2020-GST dated 31.03.2020 it was held that the assessee in not entitled to the refund - Section 54(3)(ii) of the CGST Act of 2017 - principles of natural justice - HELD THAT - The provisions of paragraph 3.2 of the circular No.135/05/2020-GST dated 31.03.2020 vis a vis, the provisions of Section 54(3) (ii) of the CGST Act of 2017, indicates that there is a conflict between the provisions of paragraph 3.2 of the circular No.135/05/2020- GST dated 31.03.2020 with the provisions of Section 54(3)(ii) of the CGST Act of 2017. The law in this respect is settled to the extent that whenever there is a conflict between the provisions of a statutory Act and that of a notification or circular issued by an administrative authority, the provisions of the statutory Act would prevail over such conflicting provisions of a notification or a circular of an administrative authority. The said principle of law is so well entrenched that we are not required to refer to any specific judgment on the said point of law and it is a well accepted principle of law - in view of the clear unambiguous provisions of Section 54(3) (ii) providing that a refund of the unutilized input tax credit would be available in the event the rate of tax on the input supplies is higher than the rate of tax on output supplies, the provisions of paragraph 3.2 of the circular No.135/05/2020-GST dated 31.03.2020 providing that even though different tax rate may be attracted at different point of time, but the refund of the accumulated unutilized tax credit will not be available under Section 54(3)(ii) of the CGST Act of 2017 in cases where the input and output supplies are same, would have to be ignored. The rejection of the claim for refund by the petitioner assessee in the order dated 22.05.2020 of the Assistant Commissioner by referring to the provisions of paragraph 3.2 of the circular No.135/05/2020-GST dated 31.03.2020 would be unsustainable in law. Principles of natural justice - HELD THAT - The reasoning given by the Joint Commissioner (Appeals) in the appellate order dated 29.10.2020 for reversing the order of rejection by the Assistant Commissioner would also be not sustainable. The only reasoning given by the Joint Commissioner (Appeals) is that the issue decided by the Assistant Commissioner was not included in the show cause notice dated 10.04.2020 and, therefore, there was a violation of the principles of natural justice - without making any further enquiry as to whether the tax rate on the input supplies was higher than the tax rate on the output supplies, the Joint Commissioner (Appeals) would direct a refund of the unutilized input tax credit under Section 54(3)(ii) of the CGST Act of 2017 - the order of the Joint Commissioner (Appeals) dated 29.10.2020 would be unsustainable in law. The matter stands remanded back to the Assistant Commissioner, GST, Guwahati to consider the matter afresh and arrive at his own factual satisfaction as to whether the actual rate of tax on the input supplies made by the petitioner assessee is higher than the actual rate of tax on the output supplies made by them and depending upon the satisfaction that may be arrived to pass a reasoned order on the claim of the petitioner assessee for refund under Section 54(3)(ii) of the CGST Act of 2017 - Petition allowed by way of remand.

Summary

Issues Involved:
1. Misdeclaration of turnover and rejection of refund claim.
2. Applicability of Section 54(3)(ii) of the CGST Act, 2017.
3. Validity of Circular No.135/05/2020-GST dated 31.03.2020.
4. Violation of principles of natural justice.
5. Conflict between statutory provisions and administrative circulars.

Issue-wise Detailed Analysis:

1. Misdeclaration of Turnover and Rejection of Refund Claim:
The assessee, BMG Informatics Pvt. Ltd., submitted a refund claim under FORM-GST-RFD-02, which was acknowledged on 28.02.2020. The department issued a show-cause notice on 10.04.2020, alleging misdeclaration of total turnover for the period October-December 2018. The Assistant Commissioner rejected the refund claim of ?3,92,594/- on 22.05.2020, stating that the input and output supplies being the same, though attracting different tax rates, do not qualify for a refund under Section 54(3)(ii) of the CGST Act, 2017, as supported by Circular No.135/05/2020-GST dated 31.03.2020.

2. Applicability of Section 54(3)(ii) of the CGST Act, 2017:
The Joint Commissioner (Appeals) overturned the Assistant Commissioner's decision, stating that the rejection was based on a ground not mentioned in the show-cause notice, violating the principles of natural justice. Section 54(3)(ii) allows refunds when the input tax rate is higher than the output tax rate, except for nil-rated or fully exempt supplies. The court emphasized that the input and output supplies in this case were not nil-rated or fully exempt, thus qualifying for a refund under Section 54(3)(ii).

3. Validity of Circular No.135/05/2020-GST dated 31.03.2020:
The court examined Circular No.135/05/2020-GST, which clarified that refunds under Section 54(3)(ii) are not applicable if input and output supplies are the same, even with different tax rates. The court found this circular to be in conflict with Section 54(3)(ii) of the CGST Act, which explicitly allows refunds when input tax rates are higher than output tax rates. The court held that the circular cannot override the statutory provisions of the Act.

4. Violation of Principles of Natural Justice:
The Joint Commissioner (Appeals) noted that the Assistant Commissioner rejected the refund on grounds not stated in the show-cause notice, violating principles of natural justice. The court agreed that the Assistant Commissioner should have confined his decision to the grounds mentioned in the show-cause notice.

5. Conflict between Statutory Provisions and Administrative Circulars:
The court reiterated the legal principle that statutory provisions prevail over conflicting administrative circulars. It held that paragraph 3.2 of Circular No.135/05/2020-GST, which restricts refunds for same input and output supplies, must be ignored as it conflicts with Section 54(3)(ii) of the CGST Act.

Conclusion and Remand:
Both the Assistant Commissioner's order dated 22.05.2020 and the Joint Commissioner (Appeals)' order dated 29.10.2020 were set aside. The matter was remanded back to the Assistant Commissioner to determine if the input tax rate was higher than the output tax rate and to pass a reasoned order on the refund claim within six weeks. The court emphasized that Section 54(3)(ii) should be applied as per its explicit provisions without being influenced by the conflicting circular. The writ petitions were disposed of accordingly.