2022 (2) TMI 1002 - HC - GST

Refund of the accumulated ITC - Constitutional Validity of Sub Rule (48) of Rule 89 of the CGST Rules, 2017 - ultra vires Sections 54 and 164 of the CGST Act, 2017, Section 16 of the IGST Act, 2017 and Articles 14 and 19(1)(g) of the Constitution of India or not - refund claims for unutilized ITC of input transactions attributable to Zero rated supply in the nature of exports under LUT - whether the assertion on the part of the writ applicant that it is entitled to claim the refund in accordance with the formula as provided under Sub Rule (4) of Rule 89 of the Rules is correct? HELD THAT - The Joint Commissioner (Appeals), although took the view that Sub Rule (4B) of Rule 89 of the Rules would apply, yet it thought fit to remit the matter so that the claim can be determined accordingly. Mr. Dave would submit that now since the principle of input / output ratio is to be applied for the purpose of determining the amount to be refunded, a fresh exercise will have to be undertaken by the Assistant Commissioner. It is not even necessary to now quash and set aside the order passed by the Joint Commissioner (Appeals), as, in fact, the matter should go back to the Assistant Commissioner for the purpose of determination of the refund claim in accordance with the principle / formula, as provided and explained in the reply. But, at the same time, it would be necessary to quash and set aside the order passed by the Joint Commissioner dated 19th July 2021 - Appeal allowed in part.

Summary

Issues Involved:
1. Constitutional validity of Sub Rule (4B) of Rule 89 of the CGST Rules.
2. Entitlement to refund claims under Rule 89(4) vs. Rule 89(4B) of the CGST Rules.
3. Rejection of refund claims and subsequent orders by the Assistant Commissioner and Joint Commissioner (Appeals).

Issue-wise Detailed Analysis:

1. Constitutional Validity of Sub Rule (4B) of Rule 89 of the CGST Rules:
The writ applicants challenged the constitutional validity of Sub Rule (4B) of Rule 89 on the grounds that it is ultra vires Sections 54 and 164 of the CGST Act, Section 16 of the IGST Act, and Articles 14 and 19(1)(g) of the Constitution of India. However, the court decided not to address this issue in the current judgment, stating that it could be agitated in another appropriate litigation.

2. Entitlement to Refund Claims Under Rule 89(4) vs. Rule 89(4B) of the CGST Rules:
The primary contention was whether the refund claims should be processed under Rule 89(4) or Rule 89(4B). The applicants argued that Rule 89(4) provided a formula for calculating refunds, whereas Rule 89(4B) did not. The Assistant Commissioner and Joint Commissioner (Appeals) held that the claims should be processed under Rule 89(4B). The court noted that the Principal Commissioner, in the affidavit-in-reply, stated that manufacturers should be aware of the input-output ratio of inputs/raw materials used in manufacturing exported goods, and this ratio could be used to determine the refund claims. The court concluded that the Assistant Commissioner should re-evaluate the refund claims using the input-output ratio as a workable formula.

3. Rejection of Refund Claims and Subsequent Orders by the Assistant Commissioner and Joint Commissioner (Appeals):
The Assistant Commissioner initially rejected the refund claims for November 2019, stating that the claims should have been filed under Rule 89(4B) instead of Rule 89(4). The Joint Commissioner (Appeals) remitted the matter back to the Assistant Commissioner for fresh consideration under Rule 89(4B). The Joint Commissioner (CGST and Central Excise, Vadodara-II) later ordered the recovery of the entire amount sanctioned earlier, along with interest and penalties. The court quashed this order, directing the Assistant Commissioner to re-evaluate the claims based on the input-output ratio formula provided in the Principal Commissioner’s affidavit.

Conclusion:
The court ordered the Assistant Commissioner to re-evaluate the refund claims based on the input-output ratio of inputs/raw materials used in manufacturing the exported goods, as explained in the Principal Commissioner’s affidavit. The order dated 19th July 2021, which sought to recover the sanctioned refund amount, was quashed. The entire exercise was to be completed within eight weeks from the date of receipt of the court’s order. The connected writ application was also disposed of on similar grounds, ensuring that the earlier claims would not be considered time-barred due to the fresh adjudication process.