2025 (1) TMI 719 - HC - GST

Rejection of refund applications based on Section 54 (3) of the GST Act read with Rule 89 (5) of the GST Rules - rejection of refund on the ground that the refund was not admissible since the refund as per the old formula was already granted to the petitioners - HELD THAT - Reliance placed in the case of Ascent Meditech Ltd. 2024 (12) TMI 511 - GUJARAT HIGH COURT where it was held that ' The Circular No. 181/22 dated 10.11.2022 so far as it clarifies that the amendment is not clarificatory in nature is quashed and set aside and it is held that the Notification No. 14/2022 is applicable retrospectively as the amendment brought in Rule 89 (5) of the Rules is curative and clarificatory in nature and the same would be applicable retrospectively to the refund or rectification applications filed within two years as per the time period prescribed under section 54 (1) of the Act. Rule is made absolute to the aforesaid extent.' The aforesaid decision of this Court is squarely applicable to the facts of the present group of petitions and nothing could be pointed out by the respondents to persuade this Court from taking a different view. Conclusion - Amendment to Rule 89(5) is applicable retrospectively, the petitioners are entitled to refunds under the amended formula, and the CBIC circular's prospective application is invalid. Petition allowed.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

Whether the amendment to Rule 89(5) of the GST Rules, as introduced by Notification No. 14/2022 dated 05.07.2022, is applicable retrospectively or prospectively.
Whether the petitioners are entitled to a refund of unutilized input tax credit (ITC) on input services under the amended formula in Rule 89(5), even for applications filed prior to the amendment.
Whether the circular issued by the CBIC on 10.11.2022, clarifying the prospective application of the amendment, is valid and binding.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Retrospective or Prospective Application of the Amendment

Relevant Legal Framework and Precedents: The amendment to Rule 89(5) was introduced to address anomalies identified by the Supreme Court in the VKC Footsteps India Pvt. Ltd. case. The court had urged the GST Council to reconsider the formula for refund calculations.
Court's Interpretation and Reasoning: The court considered whether the amendment was clarificatory and curative, thus applicable retrospectively, or whether it was a substantive change, thus applicable prospectively.
Key Evidence and Findings: The court noted previous judgments, including Ascent Meditech Ltd. vs. Union of India, which held that clarificatory amendments take effect retrospectively.
Application of Law to Facts: The court found that the amendment was intended to correct anomalies and was therefore curative and clarificatory in nature.
Treatment of Competing Arguments: The respondents argued for prospective application based on the CBIC circular, while the petitioners argued for retrospective application based on judicial precedents.
Conclusions: The court concluded that the amendment is applicable retrospectively to refund applications filed within the prescribed two-year period under Section 54(1) of the GST Act.

Issue 2: Entitlement to Refund under Amended Formula

Relevant Legal Framework and Precedents: Section 54(3) of the GST Act and Rule 89(5) of the GST Rules govern the refund of unutilized ITC. The amendment aimed to include input services in the refund formula.
Court's Interpretation and Reasoning: The court held that the petitioners are entitled to refunds under the amended formula, as they had filed rectification applications within the statutory period.
Key Evidence and Findings: The court examined the timing of the refund applications and the statutory period for filing such applications.
Application of Law to Facts: The court applied the amended formula to the refund applications filed by the petitioners, finding them eligible for additional refunds.
Treatment of Competing Arguments: The respondents did not provide a substantial counter to the petitioners' claims, relying instead on the CBIC circular.
Conclusions: The court directed the respondents to process the refunds as per the amended formula, applicable retrospectively.

Issue 3: Validity of CBIC Circular

Relevant Legal Framework and Precedents: The CBIC circular dated 10.11.2022 clarified the prospective application of the amendment.
Court's Interpretation and Reasoning: The court found that the circular contradicted the legal principles established in previous judgments regarding clarificatory amendments.
Key Evidence and Findings: The court referred to the decision in Ascent Meditech Ltd., which held that such amendments should be applied retrospectively.
Application of Law to Facts: The court held that the circular could not override the retrospective application of the amendment.
Treatment of Competing Arguments: The respondents relied on the circular, while the petitioners cited judicial precedents to argue against it.
Conclusions: The court quashed the circular's prospective application, affirming the retrospective applicability of the amendment.

3. SIGNIFICANT HOLDINGS

Verbatim Quotes of Crucial Legal Reasoning: "The Notification No. 14/2022 is applicable retrospectively as the amendment brought in Rule 89 (5) of the Rules is curative and clarificatory in nature."
Core Principles Established: Clarificatory amendments to fiscal legislation are applicable retrospectively, especially when they aim to correct anomalies or inequities in the law.
Final Determinations on Each Issue: The court ruled that the amendment to Rule 89(5) is applicable retrospectively, the petitioners are entitled to refunds under the amended formula, and the CBIC circular's prospective application is invalid.

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