Legalities of Input Tax Credit Refunds (IGST), period of limitation and COVID-19 pandemic: A Case Study Analysis

Deciphering Legal Judgments: A Comprehensive Analysis of Case Law

Reported as:

2024 (1) TMI 623 - MADRAS HIGH COURT

Introduction

A recent judgment by the High Court has shed light on the complexities surrounding the refund of unutilised Input Tax Credit (ITC) under the Integrated Goods and Services Tax Act 2017 and the Central Goods and Services Tax Act 2017. This case, involving a Business Process Outsourcing company, highlights the challenges faced by businesses in navigating the procedural intricacies of tax laws, especially in the context of pandemic-induced disruptions.

Background of the Case

The petitioner, a Business Process Outsourcing company, engaged in exporting services under a letter of undertaking without payment of Integrated Goods and Services Tax (IGST), sought a refund of unutilised ITC. The dispute arose when the petitioner filed a refund application for the period from April 2018 to March 2019, during which it had exported services worth Rs. 101,226,441 to overseas recipients and received payments under Foreign Inward Remittance Certificates (FIRC). The show cause notice issued in September 2020 questioned the eligibility of ITC claims amounting to Rs. 922,424 and additional claims under the head 'Other'​​.

The Core Issue and Legal Contentions

The pivotal issue was the time-barred nature of the refund claim. The petitioner's counsel argued that the COVID-19 pandemic period should be excluded from the limitation period for filing the refund application, as per Notification No.13/2022-C.T. dated 05.07.2022. This notification excluded the period from 01.03.2020 to 28.02.2022 for computing the limitation period under Section 54 of the CGST Act. The counsel contended that, with this exclusion, the refund claim was within time​​.

In response, the Senior Standing Counsel representing the respondents argued that the petitioner failed to reply online to the show cause notice as required, thus invalidating their claim for the disputed refund amount​​.

Judicial Analysis and Conclusion

The court, upon examining the submissions, focused on whether the petitioner was entitled to the refund by availing of the exclusion in terms of Notification No.13/2022-C.T. The breakdown of the ITC claim showed various sums classified as ineligible for reasons such as pertinence to capital goods and services received by an unregistered branch. The sum of Rs. 734,732, which the petitioner claimed, corresponded to amounts disallowed as time-barred, pertaining to FIRCs issued from April 2018 to August 2018​​.

The court concluded that the notification explicitly required the exclusion of the pandemic period for calculating the limitation period for filing a refund application under Section 54 of the CGST Act. Extending the benefit of this notification to the petitioner meant that the refund application dated 04.09.2020 was within the two-year period computed from the relevant date as per the CGST Act​​.

Therefore, the court found the appellate order's conclusion, which deemed the claim as barred by limitation, unsustainable. Consequently, the impugned order was quashed, and the first respondent was directed to refund the sum of Rs. 734,732 to the petitioner within two months. The writ petition was allowed without any order as to costs, and the connected Miscellaneous Petition was closed​​.

Implications and Conclusion

This judgment underscores the importance of adhering to procedural norms in tax matters while also recognizing the unprecedented challenges posed by the COVID-19 pandemic. It highlights the need for businesses to be vigilant in understanding and applying the relevant legal provisions, especially in extraordinary circumstances. The case serves as a precedent for future disputes involving similar issues and brings clarity to the legal understanding of ITC claims and refunds under the GST framework.

Full Text:

2024 (1) TMI 623 - MADRAS HIGH COURT