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2020 (2) TMI 169 - HC - GSTRefund of unutilized CENVAT credit - zero rated supplies - clubbing of successive calendar months/quarters across different financial years - Section 16(1)(a) of the Integrated Goods and Services Tax Act, 2017 - validity of Circular No.37/11/2018-GST dated 15.03. 2018 and Circular No. 125/44/19-GST dated 18.11.2019 - period from November, 2017 to June, 2018 - HELD THAT - By way of the impugned circulars, though the respondents recognise the difficulties faced by the exporters and have permitted them to file refund claim for one calendar month/quarter or by clubbing successive calendar months/quarters, yet the restriction pertaining to the spread of refund claim across different financial years is arbitrary. There is no rationale or justification for such a constraint. In the instant case, where exports are not made in the same financial year, question arises as to whether Respondents can restrict the filing of the refund for tax periods spread across two financial years and deprive the petitioner of its valuable right accrued in his favour. In exports, availability of the rotation of funds is essential for the business to thrive. Moreover, businesses do not run according to the whims of the executive authorities. The business world cannot be told when to place orders for exports; when to manufacture the goods for export; and; when to actually undertake the exports. Respondents impugned circulars have thus blocked the capital of the petitioner and the unutilised ITC and it has accumulated huge amount of unutilised ITC to the tune of ₹ 30 crores. Merely because the petitioner made exports in the month of June, 2018, we do not see any justification to deny the refund of the ITC which have accumulated in the previous financial years. The Respondents cannot, artificially by acting contrary to the fundamental spirit and object of the law, contrive ways to deny the benefit, which the substantive provisions of the law confer on the tax payers. Thus, the petitioner has a strong prima facie case, and we cannot deny the petitioner of its right to claim refund which is visible from the mechanism provided under the Act. The impugned circulars take away the vested right of the taxpayer that has accrued in the relevant period. Respondents are directed to process the petitioner s claim in accordance with law once the tax refund is filed - petition allowed by way of remand.
Issues Involved:
1. Validity of Circular No. 37/11/2018-GST and Circular No. 125/44/19-GST. 2. Entitlement to refund of unutilised input tax credit (ITC) for zero-rated supplies. 3. Interpretation of relevant provisions under the IGST Act and CGST Act. 4. Restriction on refund claims across different financial years. Detailed Analysis: Validity of Circular No. 37/11/2018-GST and Circular No. 125/44/19-GST: The petitioner challenged Circular No. 37/11/2018-GST dated 15.03.2018 and Circular No. 125/44/19-GST dated 18.11.2019, arguing that these circulars impose restrictions that prevent the petitioner from claiming refunds of unutilised input tax credit (ITC) for the period from April 2018 to June 2018. The petitioner contended that paragraph 8 of Circular No. 125/44/2019-GST, which inhibits refund claims for periods spanning different financial years, contravenes Section 44 and Rule 89 of the IGST rules. Entitlement to Refund of Unutilised Input Tax Credit (ITC) for Zero-Rated Supplies: The petitioner, engaged in exporting books, argued that under Section 16(1)(a) of the IGST Act, their export activity is classified as zero-rated supplies. Consequently, they are entitled to claim a refund of unutilised ITC. Section 16(3) of the IGST Act allows a registered person making zero-rated supplies to claim a refund of unutilised ITC by supplying goods under bond or Letter of Undertaking without payment of integrated tax, and then claiming a refund of unutilised ITC as per Section 54 of the CGST Act. Interpretation of Relevant Provisions under the IGST Act and CGST Act: The petitioner relied on several provisions, including Article 286(1) of the Constitution of India, Section 2(5) of the IGST Act defining "export of goods," and Section 16(1)(a) of the IGST Act, which deals with zero-rated supply. They also referenced Section 54(1) and Section 54(3) of the CGST Act, which provide the framework for claiming refunds of unutilised ITC. The petitioner argued that the impugned circulars, by restricting refund claims to a single financial year, are ultra vires the Act. Restriction on Refund Claims Across Different Financial Years: The petitioner highlighted that the restriction imposed by the circulars, which prevents refund claims from spanning different financial years, is arbitrary and lacks justification. They argued that this restriction blocks significant amounts of unutilised ITC, causing financial hardship. The court observed that the restriction is indeed arbitrary and that businesses cannot be dictated by the executive authorities regarding the timing of exports and related activities. The court emphasized that the restriction contradicts the fundamental spirit and object of the law, which aims to facilitate refunds for zero-rated supplies. Interim Relief and Directions: The court, recognizing the prima facie case of the petitioner, stayed the operation of paragraph 8 of Circular No. 125/44/2019-GST and directed the respondents to either open the online portal for filing tax refunds electronically or accept manual filings within four weeks. The respondents were also instructed to process the petitioner’s refund claims in accordance with the law once filed. Conclusion: The court found the restrictions imposed by the impugned circulars to be arbitrary and contrary to the provisions of the IGST and CGST Acts. The interim order provided relief to the petitioner, allowing them to file refund claims spanning different financial years, and directed the respondents to process these claims in accordance with the law.
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