2021 (4) TMI 963 - HC - GST

Refund of ITC versus claim of duty draw back - option to select one scheme - Circular No.37/18-Customs dated 09.10.2018 - HELD THAT - It is clear from a reading of Section 54(3) that the petitioner is entitled to one or the other of two benefits, i) duty draw back or ii) Input Tax Credit. Thus, an option has been extended to an assessee engaged in zero rated sale to either claim the benefit of duty drawback or the benefit of refund of ITC. That is why, in the present case, the petitioner, for the month of July, 2017 has opted to stick with the claim of duty draw back seeing as the amount of drawback is higher than the ITC for the months of August and September, 2017 - On a plain reading of Section 54 (3) it is found that the claim of refund to be in order. The orders of the appellate authority are set aside and the authority is directed to refund the sanctioned amounts within a period of six (6) weeks from today. In doing so, the contents of paragraph 2.5 of the Circular will not stand in the way since a circular cannot stand in the way of a benefit offered under a statutory scheme. Paragraph 2.5 of the circular, insofar as it is contrary to the statutory provisions of Section 54(3) is bad in law. Petition allowed.

Summary

Issues:
Challenge of appellate orders confirming rejection of refunds based on Circular No.37/18-Customs, renouncing claim for Input Tax Credit (ITC), excess claim of duty drawback, zero-rated supplies, rejection of refund application invoking third proviso to Section 54(3) of the Act, setting off draw back against refund, maintainability of Writ Petitions due to pending constitution of Goods and Services Tax Appellate Tribunal.

Analysis:
The Writ Petitions contested appellate orders confirming rejection of refunds claimed by the petitioner for July, August, and September 2017, with a focus on the excess claim of duty drawback leading to renunciation of ITC claim as per Circular No.37/18-Customs. The petitioner withdrew the claim for July 2017, resulting in its dismissal. However, for August and September 2017, the petitioner, an exporter of tea, engaged in zero-rated supplies under Section 16 of the Goods and Service Tax Act, 2017, making a draw back claim under the Customs Act, 1962, which was sanctioned.

Despite zero-rated supplies, the petitioner paid IGST, CGST, and SGST on tea purchases, seeking a refund under Section 54 of the Act. While 90% of the claim was provisionally sanctioned, a show cause notice proposed full rejection due to alleged excess claim and higher draw back rate utilization. The rejection was upheld in appellate orders, despite the petitioner's plea to set off draw back against refund, as the Tribunal was yet to be constituted.

The respondent relied on Circular No.37/18-Customs, asserting that the petitioner relinquished ITC claim due to inflated draw back claim. However, judicial precedents from the Gujarat High Court and a Madras High Court Judge held otherwise. Section 54 of the Act entitles the petitioner to either duty drawback or ITC refund for zero-rated supplies, providing an option to choose the benefit. Thus, the petitioner's refund claim was deemed valid under Section 54(3).

The Court set aside the appellate orders, directing the authority to refund the sanctioned amounts within six weeks, emphasizing that Circular provisions cannot override statutory schemes like Section 54(3). The Court deemed paragraph 2.5 of the Circular contrary to the law. Citing support from the Gujarat High Court and a Madras High Court Judge's decisions, the Writ Petitions were allowed, with no costs incurred, and connected Miscellaneous Petitions were closed.