Deciphering Legal Judgments: A Comprehensive Analysis of Case Law
Reported as:
2023 (12) TMI 361 - DELHI HIGH COURT
Introduction
This case revolves around the interpretation of Section 54(3) of the Central Goods & Services Tax Act, 2017 (CGST Act) concerning the refund of accumulated Input Tax Credit (ITC). The petitioner, a corporation involved in the oil industry, sought a refund of accumulated ITC, which was denied by the authorities on the grounds that the rate of tax on input and output supplies was the same. The central legal issue concerns the interpretation of Clause (ii) of the proviso to Section 54(3) of the CGST Act and the applicability of Circular No. 135/05/2020 issued by the Central Board of Indirect Taxes and Customs (CBIC).
Legal Framework
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Section 54(3) of the CGST Act: This section allows a registered person to claim a refund of any unutilized ITC at the end of any tax period. However, the proviso to this section limits the refund of unutilized ITC to cases of zero-rated supplies made without payment of tax and where the rate of tax on inputs is higher than on output supplies.
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Clause (ii) of Section 54(3) of the CGST Act: This clause specifically restricts the refund of unutilized ITC to cases where the ITC has accumulated due to the rate of tax on inputs being higher than the rate of tax on output supplies.
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Circular No. 135/05/2020-GST: This circular clarifies that the refund of accumulated ITC under Clause (ii) of Section 54(3) would not be applicable in cases where the input and the output supplies are the same.
Analysis of the Case
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Application of Section 54(3) and Clause (ii): The case presents a scenario where the petitioner's major input and output were taxed at the same rate. The authorities, therefore, denied the refund based on the interpretation that Clause (ii) is inapplicable when input and output supplies are the same. This interpretation was challenged by the petitioner, arguing that the refund should be allowed as other inputs had a higher tax rate than the output.
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Interpretation of Circular No. 135/05/2020: The CBIC’s circular intended to clarify the provisions of Section 54(3) but was interpreted by the authorities to deny the refund. The court examined whether this circular was in conflict with the provisions of the CGST Act. It was found that the circular does not proscribe the grant of refund in cases where the principal input and the output supply are similar, indicating a narrower application than what was concluded by the adjudicating authority.
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Legislative Intent and Inverted Duty Structure: The court noted the legislative intent behind the grant of refund of unutilized ITC due to an inverted tax structure. The intent was to confine the tax to the rate on output supplies. The court found that disregarding the rate of tax on other inputs, as done by the Revenue, was unsustainable.
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Applicability of the Circular: The court highlighted that the CBIC cannot add to or curtail the import of the CGST Act provisions. As such, if the petitioner is entitled to a refund under Section 54(1), it cannot be denied based on a circular.
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Comparison with Other Judgments: The court also referred to other judgments such as BMG Informatics (P.) Ltd. v. The Union of India, where it was held that the CBIC's circular was unsustainable and should be ignored in the context of similar facts.
Conclusion
The court concluded that the petitioner was entitled to a refund of accumulated ITC. The interpretation of Clause (ii) of Section 54(3) by the authorities was deemed too restrictive and not in line with the legislative intent of the CGST Act. The Circular No. 135/05/2020 was found to be applicable in a narrower scope than applied by the authorities. The case reaffirms the principle that circulars issued by CBIC cannot override the express provisions of the CGST Act and that the legislative intent must guide the interpretation of tax laws.
Full Text:
2023 (12) TMI 361 - DELHI HIGH COURT
9911796707
