2022 (4) TMI 118 - HC - GST

Refund of the unutilized ITC accumulated on account of inverted tax structure - refund claimed on account of rate of tax on inputs being higher than the rate of tax on output supplies - rejection of refund relying on a circular issued by the Central Board of Indirect Taxes and Customs being Circular No. 135/2020-GST dated 31.03.2020 wherein it has been mentioned that the tax-payers cannot claim refund in terms of clause (ii) of Section 54(3) of the CGST Act, 2017 in cases where the input and output supplies remain the same. Whether the benefit which is available under the Act can be taken away and/or restricted by the circular? - HELD THAT - Any circular issued under Section 168(1) of the Act is only for the purpose of bringing uniformity in the implementation of the Act. The intention of the legislature as expressed in Section 54(3) of the Act is clear and unambiguous. The Section, in absolute uncertain terms, mentions that refund of any unutilized input tax credit may be claimed where credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies. The Act does not restrict refund only in respect of supplies which are different at the input and output stage. The Board thought it fit to reduce the tax in respect of domestic consumers with effect from 25.01.2018 and there is no reason as to why the benefit of accumulated input tax credit will not be passed on to the petitioners - The circular dated 31.03.2020 is imposing a restriction to release certain benefits which are provided under the Act. By way of the circular, the Board is curtailing the said benefit and making refund permissible only if the input and output supplies are different. The same amounts to overreaching the provisions as laid down in the Act - It cannot be said that the legislature was unmindful of the fact that there may be instances where the input and output supplies are the same. On the contrary, it can be said that the legislature consciously did not create any distinction for allowing refund in all cases where the input tax is more than the output tax. The said benefit is applicable to all similar cases. The respondent authority ought not to reject the claim of the petitioners relying on the circular as the prayer made by the petitioners is permissible under the Act - it is held that the petitioners will be entitled to the refund as claimed - Petition disposed off.

Summary

Issues:
Refund claim rejection under Section 54(3) of CGST Act, 2017 based on circular; Interpretation of input and output supplies similarity; Validity of circular restricting refund; Applicability of Gujarat Authority for Advance Ruling; Relevance of judgments by Guwahati High Court and Delhi High Court; Comparison with Madhya Pradesh High Court judgment; Legality of circular under Section 168(1) of CGST Act, 2017.

Analysis:
The petitioners sought refund under Section 54(3) of the CGST Act, 2017 due to an inverted tax structure where the tax on inputs (LPG in bulk) at 18% exceeded the tax on output supplies (LPG in small containers for domestic consumers) at 5%. The refund claim was rejected citing a circular dated 31.03.2020, which stated that refund cannot be claimed when input and output supplies are the same. The circular was issued under Section 168(1) of the Act for uniform implementation.

The central issue revolved around whether a circular could restrict a refund claim permissible under the Act. The court emphasized that the Act clearly allowed refunds in cases of accumulated input tax credit due to higher tax on inputs than outputs. The circular's attempt to limit refunds to differing supplies was deemed impermissible as it went beyond the Act's provisions.

The court referenced precedents like M/s. Jindal Stainless Ltd. case, highlighting that circulars cannot override statutory provisions. It was noted that the Act did not exclude refund eligibility based on similar input and output supplies, making the circular's restriction invalid. The court emphasized that the legislature intended to grant refunds in all cases of inverted tax structure without creating distinctions based on supply types.

In conclusion, the court set aside the orders rejecting the refund claim, asserting the petitioners' entitlement to the refund as claimed. The judgment emphasized that the circular's attempt to limit refunds based on input-output similarity was not supported by the Act, and the petitioners' claim was valid under Section 54(3) of the CGST Act, 2017.