2023 (9) TMI 905 - HC - GST

Refund u/s 54 - Rejection of Input Tax Credit (ITC) on capital goods due to inverted duty tax structure - business of textile manufacturing of fabrics - restriction imposed by Notification No 5/2017 was removed by another Notification 20/2018 dated 26.07.2018 or not - rejection of refund on the ground that it is impermissible under the law to split the refund claim for a particular month in two parts and further on the ground that refund of reversed ITC on capital goods cannot be claimed as refund. HELD THAT - Notification No.5/2017 dated 28.06.2017 provided that no refund of unutilised tax credit shall be allowed where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on the output supplies of such goods which included woven fabrics manufactured by the petitioner company. However, by Notification No.20/2018 dated 26.07.2018 it was provided that Notification No.5/2017 would not be applicable to the items stated therein. Circular No. 56/2018 dated 24.08.2018 clarified that Notification No.20/2018 would be effective from first day of August 2018 to keep the accounting simple and refund of ITC for the month of July i.e. on purchases made on or before 31.07.2018 would lapse. Hence, as per the working of Rule 89(5) of the CGST Rules, 2017 the petitioners were entitled to refund of Rs.22,78,798/- as per Notification No.20/2018 - the petitioners also reversed ITC of Rs.10,12,188/- with regard to wrongly claimed credit on capital goods in the month of August, 2018 in Form GSTR-3B. Accordingly, the refund claim of the petitioners was automatically reduced by Rs. 8,06,852/-. Accordingly, the petitioners were allowed to file refund application for Rs.14,71,946/- by GST Portal on 21.06.2019. The reasons given by the respondent authorities that refund application filed is not as per the calculation made in Rule 89(5) of the CGST Rules is also not correct since as per the calculation made under Rule 89(5) which provides for maximum refund amount, the petitioners are entitled to refund of Rs.22,78,798/- on the total turnover of inverted duty tax structure which is not in dispute and accordingly, the petitioners were entitled to refund of Rs. 8,06,852/- which the petitioners could not claim in view of the fact that GST Portal did not permit the petitioners to file refund application in view of the reversal of the wrongly claimed credit on capital goods. The respondent authorities ought to have taken into consideration that the petitioners were eligible for balance amount of refund of Rs. 8,06,852/- which could not have been denied on hyper-technical ground as stated in the impugned orders. Reasoning given by respondent no.3 for rejecting the legitimate claim of the petitioner company that reversal of ITC on capital goods in Form GSTR-3B amounting to Rs.10,12,189/- is binding on the petitioner company and therefore, the petitioner company is not eligible for claim of refund as per Circular No.94/2019 dated 28.03.2019 cannot be accepted. Circular No.94/2019 permited a one time measure for availing refund of ITC on account of inverted duty tax structure as per Notification No.20/2018 read with Circular No.56/2018 as the assessees were not able to claim refund of the accumulated ITC to the extent to which they were eligbile - Therefore, it was clarified by Circular No. 94/2019 that when the assessee was not eligible to claim the refund then ITC is required to be claimed under the category any other instead of under the category refund of unutilized ITC on account of accumulation due to inverted tax structure in FORM GST RFD-01A for the same tax period in which said reversal has been made. The impugned order are hereby quashed and set aside. The respondent authorities are directed to sanction the refund of Rs. 8,06,852/- as per the refund application filed by the petitioners on 08.08.2019 within a period of six weeks from the date of receipt of a copy of this order along with applicable rate of interest in accordance with law - petition disposed off.

Summary

Issues Involved:

1. Eligibility for refund of Input Tax Credit (ITC) under inverted duty tax structure.
2. Legitimacy of filing a second refund application for the same tax period.
3. Reversal of ITC on capital goods and its impact on refund claims.

Summary:

1. Eligibility for Refund of ITC under Inverted Duty Tax Structure:
The petitioners, a textile manufacturing company, are liable to pay GST at 5% on the sale of fabrics while raw materials are taxed at higher rates (12%-28%). They are eligible for a refund of ITC due to the inverted duty tax structure as per section 54(3)(ii) of the GST Act. Initially, Notification No. 5/2017 barred refunds for unutilized ITC on woven and knitted fabrics, but this restriction was lifted by Notification No. 20/2018, making the petitioners eligible for refunds from August 2018 onwards.

2. Legitimacy of Filing a Second Refund Application:
The petitioners filed a refund application on 21.06.2019 and received Rs. 14,71,946/-. However, due to the reversal of wrongly claimed ITC on capital goods, the refund amount was reduced. They filed a second application on 08.08.2019 for the balance amount of Rs. 8,06,852/- under the "any other" category as per Circular No. 94/2019. The authorities rejected this second application, stating that the law does not permit splitting the refund claim for a particular month and that the refund for reversed ITC on capital goods cannot be claimed again.

3. Reversal of ITC on Capital Goods and Its Impact on Refund Claims:
The petitioners reversed ITC on capital goods amounting to Rs. 10,12,188/- in August 2018. This reversal reduced the refund claim automatically. The respondents argued that the reversal in GSTR-3B is binding and cannot be claimed again. The court, however, found that the petitioners were entitled to the full refund amount of Rs. 22,78,798/- as per Rule 89(5) of the CGST Rules and that the GST Portal's restriction was unjustified. The court noted that Circular No. 94/2019 allowed for a one-time measure to claim refunds under the "any other" category when the portal restrictions prevented the full claim.

Conclusion:
The court quashed the orders rejecting the refund and directed the authorities to sanction the refund of Rs. 8,06,852/- with applicable interest. The petition was allowed, and the rule was made absolute to the extent of granting the refund. No order as to costs.