2022 (7) TMI 73 - HC - GST

Refund of accumulated Input Tax Credit - input and output supplies are same - Violation of Article 14, and Article 300A of the Constitution of India and Section 54 of the Central Goods and Services Tax Act, 2017 or not - HELD THAT - Section 54(3)(ii) of the CGST Act is absolutely unambiguous and does not carve out any exception that Input Tax Credit under the Inverted Tax Structure would not be applicable where the input and the output goods are the same. For the purpose of clarification, the Government of India, Ministry of Finance, Central Board of Indirect Taxes and Customs issued a notification dated 18.11.2019 para No.59 whereof reproduced infra, which makes it clear that the supplier who supplies goods at a concessional rate to companies involved in specified projects is entitled to refund under the inverted tax structure as per Clause (ii) of first proviso to Sub-section (3) of Section 54 of the CGST Act. The circular dated 31.03.2020 (Annexure-2) on the strength whereof the petitioner s claim for ITC refund has been rejected, clarifies that refund of accumulated ITC under Clause (ii) of Sub-section (3) of Section 54 of the CGST Act would not be applicable in cases where the input and output supplies are the same. This circular is in the nature of an explanation and was issued on 31.03.2020 whereas the petitioner s claim for refund was a prior period between September, 2018 to September, 2019 on which date, the clarification dated 18.11.2019 was in force which clearly stipulates that a registered dealer who supplies goods at concessional rate is eligible for refund under the Inverted Tax Structure. Clause (ii) of Sub-Section (3) of Section 54 of the CGST Act does not indicate that ITC would be admissible only if the goods supplied had been subjected to some process. The provision allows refund of credit accumulated on account of supplies and does not mention that the credit could be claimed only if the supplier has made any value addition/ enhancement to the goods supplied - The Central Government Notification dated 28.06.2017, in unambiguous terms stipulates that upon being satisfied that it is necessary in the public interest to do so, on the recommendations of the council, intra State supply of goods, was being exempted/taxed at lower tax rates. Thus, the circular dated 31.03.2020, being a subordinate legislation, is repugnant and conflicting to the parent legislation i.e. Section 54(3)(ii) of the CGST Act and hence, the same cannot be applied to oust the legitimate claim for accumulated ITC refund filed by the petitioner. Otherwise also, the claim for refund of ITC filed by the petitioner was for a period prior to issuance of the circular dated 31.03.2020 - petition allowed.

Summary

Issues Involved:
1. Legality and propriety of the Impugned Refund rejection Order in Form RFD 06.
2. Validity of Para 3 of Circular No. 135/05/2020-GST dated 31.03.2020.
3. Entitlement of the petitioner to a refund of accumulated Input Tax Credit (ITC) under the inverted duty structure.

Detailed Analysis:

1. Legality and Propriety of the Impugned Refund rejection Order in Form RFD 06:
The petitioner filed a refund claim of Rs. 27,02,26,876 under the inverted duty structure as per Section 54(3)(ii) of the CGST Act. The respondent, Deputy Commissioner, State Tax, Circle Barmer, rejected this claim based on Para 3 of Circular No. 135/05/2020-GST dated 31.03.2020, which stipulates that refund of accumulated ITC is not available where input and output supplies are the same. The court found that Section 54(3)(ii) of the CGST Act does not carve out any exception for cases where input and output supplies are the same. The provision allows refund of credit accumulated on account of supplies and does not mention that the credit could be claimed only if the supplier has made any value addition to the goods supplied. Consequently, the rejection of the petitioner's claim for accumulated ITC by the respondent was deemed invalid and was quashed.

2. Validity of Para 3 of Circular No. 135/05/2020-GST dated 31.03.2020:
The petitioner challenged Para 3 of the Circular dated 31.03.2020, which denies refund in cases where input and output supplies are the same. The court noted that the circular is a subordinate legislation and cannot override the parent statute, Section 54(3)(ii) of the CGST Act. The court referred to judgments from the Guwahati High Court in B.M.G. Informatics Pvt. Ltd. and the Calcutta High Court in M/s. Shivaco Associates, which held that the circular dated 31.03.2020 is contrary to the provisions of the CGST Act. The court concluded that the circular dated 31.03.2020 is repugnant to the parent legislation and cannot be applied to deny the petitioner's legitimate claim for ITC refund.

3. Entitlement of the Petitioner to a Refund of Accumulated Input Tax Credit (ITC) under the Inverted Duty Structure:
The petitioner argued that they are entitled to a refund under the inverted duty structure as provided by the CGST and RGST Acts. The court found that the petitioner's claim for refund was for a period prior to the issuance of the circular dated 31.03.2020. The court emphasized that the provision under Section 54(3)(ii) of the CGST Act does not indicate that ITC would be admissible only if the goods supplied had been subjected to some process. The court held that the petitioner is entitled to the refund of accumulated ITC as per its entitlement under the inverted duty structure, and directed the respondents to refund the accumulated ITC forthwith.

Conclusion:
The court allowed the writ petition, quashing the order dated 05.01.2021 and directing the respondents to refund the accumulated input tax credit to the petitioner. The court held that the circular dated 31.03.2020 is repugnant to Section 54(3)(ii) of the CGST Act and cannot be applied to deny the petitioner's claim for ITC refund. No order as to costs was made.