2020 (12) TMI 1117 - HC - GST

Refund of ITC of CGST and SGST - N/N. 26/2017 Custom, dated 29.06.2017 - HELD THAT - After the present writ-application was filed on 20th December 2020, Section49 of the CGST came to be amended w.e.f. 01/02/2019 and new Section49A and Section49B were inserted in the said Act. By virtue of power under Section49B, Rule88A was inserted w.e.f.29/03/2019 in the CGST Rules vide Notification No.16/2019CT, dated 29/03/2019. In such circumstances, w.e.f. 01/02/2019, the ITC available on account of IGST has to be first utilized for the payment of IGST or CGST or SGST. This provision was amended w.e.f.01/02/2019, but the GST portal started functioning as per the amended provisions w.e.f.01/06/2019. Therefore, w.e.f. 01/06/2019, the accumulated ITC of IGST of ₹ 4,47,43,682/- (Additional Customs duty paid by the writ-applicants, EPCG holder) started getting utilized automatically during the pendency of the petition. The ITC of CGST and SGST started accumulating correspondingly. In such circumstances, as on date on account of such amendment in operation, the writ-applicants have Nil balance of IGST in its electronic credit ledger and the IGST balance is converted into CGST and SGST. In other words, the balance of CGST and SGST got artificially inflated as a result of the appropriation of IGST credit. The respondents are directed to sanction and pay the refund of ₹ 4,47,43,681/after first reversing the entries of utilization of the subject credit and debiting the said amount from the credit ledger consequently available to the writ-applicant - Application allowed.

Summary

Issues:
Challenge to Notification no.26/2017Custom and Trade Notice 11/2018, Refund of IGST, Accumulation of ITC of CGST and SGST, Appropriation of IGST credit, Direction for refund.

Analysis:
The writ-application sought to quash Notification no.26/2017Custom and Trade Notice 11/2018, claiming refund of ?4,47,43,681 with interest at 24%. The Court noted that the issue was akin to a previous judgment in the case of M/s. Prince Spintex Pvt. Ltd. Vs. Union of India, where the amendment of Notification No.16/2015Cus. was held to apply to imports made during a specific period. The Court quashed Trade Notice 11/2018 to the extent it required importers to pay IGST and allowed the petition for refund, directing payment of ?2,38,83,203 with interest. However, subsequent amendments to Section49 of the CGST Act and insertion of new sections necessitated further consideration.

The Court observed that post the writ-application filing, amendments to the CGST Act introduced new provisions regarding the utilization of ITC available on account of IGST. Consequently, the accumulated ITC of IGST was automatically utilized, leading to the conversion of IGST balance into CGST and SGST. This resulted in an artificial inflation of CGST and SGST balances due to the appropriation of IGST credit.

In light of the above developments, the Court allowed the writ-application, directing the respondents to refund the amount of ?4,47,43,681 after reversing the entries of credit utilization and debiting the said amount from the credit ledger available to the writ-applicant. The Court mandated this refund process to be completed within four weeks from the date of the order, addressing the concerns arising from the appropriation of IGST credit and the subsequent accumulation of CGST and SGST balances.