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TMI Blog2023 (4) TMI 46X X X X Extracts X X X X X X X X Extracts X X X X ..... have factored in such incentives in the pricing mechanism when they quote and therefore, the restriction of the same would be highly unreasonable, given the objective of the Government that exports should be zero rated and taxes should not be exported - It is also well settled that if the government perceives that there could be a possibility of abuse of a provision, it should adopt measures to keep a check on the same; however, the law cannot be amended on the premise of distrust. It is also relevant to note that in the GST Council Meeting, it was stated that the FOB value of exports will not be changed, which would mean that there is no doubt about the valuation of the goods; therefore, if there is no doubt about the value of the goods, the artificial restriction of refunds by taking the value of domestic supplies seems irrational. Further, the policy of the Government itself will have to satisfy the test of rationality and must be free from arbitrariness and discrimination. In DEPUTY COMMISSIONER OF INCOME TAX ANR. VERSUS M/S. PEPSI FOODS LTD. (NOW PEPSICO INDIA HOLDINGS PVT. LTD.) [ 2021 (4) TMI 369 - SUPREME COURT] , the Apex Court held that the expression permissible policy o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Central Goods and Services Tax Rules, 2017 (for short 'the CGST Rules') as amended vide Para 8 of the Notification No.16/2020-CT dated 23.03.2020 is the subject matter of the present petition. Prior to the aforesaid amendment, Rule 89(4C) of the CGST Rules, read as under:- "Turnover of zero-rated supply of goods means the value of zero-rated supply of goods made during the relevant period without payment of tax under bond or letter of undertaking as declared by the supplier, whichever is less, other than the turnover of supplies in respect of which refund is claimed under sub-rules (4A) or (4B) or both". After amendment w.e.f 23.03.2020, Rule 89(4C) reads as under:- "Turnover of zero-rated supply of goods means the value of zero-rated supply of goods made during the relevant period without payment of tax under bond or letter of undertaking or the value which is 1.5 times the value of like goods domestically supplied by the same or, similarly placed supplier, as declared by the supplier, whichever is less, other than the turnover of supplies in respect of which refund is claimed under sub-rules (4A) or (4B) or both" Factual Matrix of the case: 3. The petitioner - M/s Tonbo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... planation to Rule 93 of the CGST Rules. 4. Heard Sri.V.Raghuraman, learned Senior Counsel along with Sri.J.S.Bhanumurthy for the petitioner and Smt.K.R.Vanitha, learned counsel for the respondents-revenue and perused the material on record. Petitioner's Contentions: 5. In addition to reiterating the various contentions urged in the petition and referring to the material on record, learned Senior counsel for the petitioner submitted that at the outset, the challenge in the present petition to the validity of the explanation to Rule 93 of the CGST Rules(Relief 'B') was not being pressed into service by the petitioner, who would be restricting its claim to the remaining reliefs sought for in the petition. 5.1 It was submitted that Rule 89(4)(C) of the CGST Rules, as amended on 23.03.2020 is ultra vires and invalid and deserves to be declared unconstitutional and struck down. It was further submitted that the impugned order is illegal, arbitrary and without jurisdiction or authority of law and deserves to be quashed and the respondents be directed to accept/allow the subject refund claims of the petitioner and grant refund of taxes along with interest in favour of the petitioner. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same character has to be taxed, the taxation must be by the same standard, so that the burden of taxation may fall equally on all persons holding that kind and extent of property; if the same class of property or persons similarly situated is subjected to an incidence of taxation, which results in inequality, the law may be struck down as creating an inequality amongst holders of the same kind of property or persons. 5.5 It was submitted that Article 14 of the Constitution forbids class legislation; however, Article 14 does not prohibit reasonable classification for the purpose of legislation provided it passes two tests, viz., that the classification must be founded on an intelligible differentia, which distinguishes persons or things that are grouped together from others left out of the group; and that the differentia must have a rational relation with the object sought to be achieved by the statute; it was submitted that the impugned Rule 89(4)(C) of the CGST Rules is arbitrary and unreasonable, in as much as it bears no rational nexus with the objective sought to be achieved by Section 16 of the IGST Act, in that while Section 16 of the IGST Act seeks to make exports tax-free ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ferently in different states for the same products being exported. It was therefore submitted that when it is impossible for any exporter to show proof of value of "like goods" domestically supplied by the "same or, similarly placed, supplier", the refund itself cannot be denied to such exporter and consequently, Rule 89(4)(C) of the CGST Rules merely being a machinery provision cannot impose a rigorous condition to take away right to obtain refund, which the petitioner is otherwise entitled to in terms of Section 54 of CGST Act read with Section 16 of the IGST Act. 5.9 The impugned Rule 89(4)(C) of the CGST Rules, as amended on 23.03.2020 is arbitrary and unreasonable, in as much as the possibility of taking undue benefit by inflating the value of the zero-rated supply of goods, cannot be a ground to amend the Rule, which deserves to be declared invalid on this ground also. 5.10 The impugned refund rejection order has been mechanically passed without any application of mind also violative of principles of natural justice; further, the refund claims of the petitioner pertain to periods prior to 23.03.2020, when Rule 89(4)(C) of the CGST Rules came into force and since the same ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es in India has undergone transformation upon introduction of GST with effect from 01.07.2017. This tax is being levied with concurrent jurisdiction of the Centre and the States on the supply of goods or services. For this purpose, the Constitution of India has been amended vide Constitution (101st Amendment) Act, 2016 with effect from 16th September 2016. The Constitutional Amendment Bill specifically mentions that the objective of introducing GST is to avoid cascading effect of taxes. 8. Central Government enacted the CGST Act to provide for levy and collection of tax on supply of goods or service or both where the supply is intra-state supply; so also, the CGST Rules were also framed including the impugned Rule 89(4)(C); 9. Central Government enacted the IGST Act for the purpose of levy and collection of GST on the supply of goods or services or both where the supply is inter-state supply; 10. The State of Karnataka enacted the KGST Act to levy and collect tax on intra-state supply of goods or services or both within the state of Karnataka. 11. GST is a multi-stage tax, as each point in a supply chain is taxed (unless specifically exempted by law) till the goods and services ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f India v. VKC Footsteps (India) (P) Ltd., - (2022) 2 SCC 603, the Apex Court held as under:- "44. The idea which permeates GST legislation globally is to impose a multi-stage tax under which each point in a supply chain is potentially taxed. Suppliers are entitled to avail credit of tax paid at an anterior stage. As a result, GST fulfils the description of a tax which is based on value addition. Value addition is intended to achieve fiscal neutrality and to obviate a cascading effect of taxation which traditional tax regimes were liable to perpetuate. In a sense therefore, the purpose of a tax on value addition is not dependent on the distribution or manufacturing model. The tax which is paid at an anterior stage of the supply chain is adjusted. The fundamental object is to achieve both neutrality and equivalence by the grant of seamless credit of the duties paid at an anterior stage of the supply chain." Section 16 of the IGST Act, 2017 reads as under: Zero rated supply. (1) "zero rated supply" means any of the following supplies of goods or services or both, namely:-- (a) export of goods or services or both; or (b) supply of goods or services or both to a Special ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (4) In the case of zero-rated supply of goods or services or both without payment of tax under bond or letter of undertaking in accordance with the provisions of subsection (3) of section 16 of the Integrated Goods and Services Tax Act, 2017 (13 of 2017), refund of input tax credit shall be granted as per the following formula - Refund Amount = (Turnover of zero-rated supply of goods + Turnover of zero-rated supply of services) x Net ITC ÷ Adjusted Total Turnover Where, - (A) "Refund amount" means the maximum refund that is admissible; (B) "Net ITC" means input tax credit availed on inputs and input services during the relevant period other than the input tax credit availed for which refund is claimed under sub-rules (4A) or (4B) or both; (C) "Turnover of zero-rated supply of goods means the value of zero-rated supply of goods made during the relevant period without payment of tax under bond or letter of undertaking or the value which is 1.5 times the value of like goods domestically supplied by the same or, similarly placed supplier, as declared by the supplier, whichever is less, other than the turnover of supplies in respect of whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvice has already suffered tax and only the final product is exempted. Moreover, when the output is exempted, tax laws do not allow availment /utilisation of credit on the inputs and input services used for supply of the exempted output. Thus, in a true sense the entire supply is not zero rated. Though the output suffers no tax, the inputs and input services have suffered tax and since availment of tax on input side is not permitted, that becomes a cost for the supplier. The concept of zero rating of supplies aims to correct this anomaly. - What is Zero Rating? - By zero rating it is meant that the entire value chain of the supply is exempt from tax. This means that in case of zero rating, not only is the output exempt from payment of tax, there is no bar on taking/availing credit of taxes paid on the input side for making/providing the output supply. Such an approach would in true sense make the goods or services zero rated. - All supplies need not be zero-rated. As per the GST Law exports are meant to be zero rated the zero rating principle is applied in letter and spirit or exports and supplies to SEZ. The relevant provisions are contained in Section 16(1) of the IGST A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... supplies "exempt supply" means supply of any goods or services or both which attracts nil rate of tax which may be wholly exempt from tax under section 11 of CGST Act or under section 6 of the IGST Act, and includes not-taxable supply "zero rated supply" shall have the meaning assigned to it in section 16 No tax on the outward exempted supplies, however, the input supplies used for making exempt supplies to be taxed No tax on the outward supplies; Input supplies also to be tax free Credit of input tax needs to be reversed, it taken; no ITC on the exempted supplies Credit of input tax may be availed for making zerorated supplies, even if such supply is an exempt supply IIC allowed on zero-rated supplies Value of exempt supplies, for apportionment of ITC, shall include supplies on which the recipient is liable to pay tax on reverse charge basis, transactions in securities, sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building. Value of zero rated supplies shall be added along with the taxable supplies for apportionment of ITC Any person engaged exclusively in the business of supplying goods or services or both that are not liable to tax or w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under either of the following options, namely:-- * He may supply goods or service or both under bond or Letter of Undertaking, subject to such conditions, safeguards and procedure as may be prescribed, without payment of integrated tax and claim refund of unutilised input tax credit of CGST, SGST/UTGST and IGST; or * He may be supply good or services or both, subject to such conditions, safeguards and procedure as may be prescribed, on payment of integrated tax and claim refund of such tax paid on goods or services or both supplied. The second category pertain to refund of integrated tax paid for the zero-rated supplies made by suppliers who opt for the route of export on payment of integrated tax and claim refund of such tax paid. There can be two sub-categories of such suppliers namely: 1. Exporter of goods 2. Service of exporters and persons making supplies to SEZ. Export of Goods The normal refund application in GST RFD-01 is not applicable in this case. There is no need for filing a separate refund claim as the shipping bill filed by the exporter is itself treated as a refund claim. As per rule 96 of the CGST Rules, 2017 the shipping bill filed by an ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... one developer; 2. A statement containing the number and date of invoices, the evidence regarding the endorsement specified in the second proviso to sub-rule(1) and the details of payment, along with the proof thereof, made by the recipient to the supplier for authorised operations a defined under the Special Economic Zone Act, 2005, in a case where the refund is on account of supply of services made to a Special Economic Zone unit or a Special Economic Zone developer; 3. A declaration to the effect that the Special Economic Zone unit or the Special Economic Zone developer has not availed the input tax credit of the tax paid by the supplier of goods or services or both, in a case where the refund I on account of supply of goods or services made to a Special Economic Zone unit or a Special Economic Zone developer. Grant of Provisional Refund The above category of persons making zero rated supplies will be entitled to provisional refund of 90% of the claim in terms of Section 54(6) of CGST Act, 2017. Rule 91 of CGST Rules, 2017 provide that the provisional refund is to be granted within 7 day from the date of acknowledgement of the refund claim. An order for provisional ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le on making zero-rated supplies. * Section 16 of the IGST Act contemplates that exports are "zero rated" (in other words, exports are tax free) and that therefore, refund can be claimed of input tax credit lying unutilized on account of such zero-rated supplies (i.e., exports) as also on the output tax. * Section 54 of the CGST Act provides for refund of GST; Section 54(3) provides that a registered person may claim refund of any unutilized input tax credit at the end of any tax period. * Rule 89 of the CGST Rules contains the machinery provisions to operationalize Section 54 of the CGST Act where exports are done without payment of output tax under bond or LUT. * The method of calculation of refund under Rule 89 of the CGST Rules prior to its amendment dated 23.03.2020 provided that the refund of unutilized input tax credit is computed by identifying the proportionate input tax credit utilized for export of goods to total supplies, viz., refund value = (turnover of zero-rated supply of goods and/or services ÷ adjusted total turnover) X Net input tax credit for the period; in other words, refund will be in proportion of export turnover to the total turnover duri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under Section 16(3)(a) of the IGST Act, i.e., in cases where export of goods is made without payment of duty under a Bond/Letter of Undertaking(LUT); however, no such restriction is imposed on cases falling under Section 16(3)(b) of the IGST Act, i.e., in cases where export of goods is made after payment of duty; by virtue of the above, there is a hostile discrimination between two class of persons, viz., (i) the class of exporters who opt to obtain refund of unutilized input tax credit where export of goods are made without payment of duty under a bond/LUT in terms of Section 16(3)(a) of the IGST Act read with Rule 89(4) of the CGST Rules and (ii) the class of exporters who opt to obtain refund of tax after payment of duty in terms of Section 16(3)(b) of the IGST Act read with Rule 96A of the rules; the guarantee of equal protection of the laws must extend even to taxing statutes; if person or property of the same character has to be taxed, the taxation must be by the same standard, so that the burden of taxation may fall equally on all persons holding that kind and extent of property; if the same class of property or persons similarly situated is subjected to an incidence of tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; in this context, it is relevant to state that considering the business of the petitioner, it is not possible to have any "like goods" and "same or similar placed supplier" for the unique and customized products being manufactured by the petitioner and the preciseness of definitions as found in the customs legislation is missing herein. (f) The impugned Rule also fails to clarify, as to what would be the consequence if there are no goods supplied in the domestic market and value of like goods provided by other suppliers is not available or as to what would be the consequences in respect of a supplier who may have different pricing policy for different local customers nor what would be the consequences in respect of a supplier who would be pricing the local goods differently in different states for the same products being exported; when it is impossible for any exporter to show proof of value of "like goods" domestically supplied by the "same or, similarly placed, supplier", the refund itself cannot be denied to such exporter and consequently, Rule 89(4)(C) of the CGST Rules merely being a machinery provision cannot impose a rigorous condition to take away right to obtain refund ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t will be noticed that a Constitution Bench of this Court in Indian Express Newspapers (Bombay) (P) Ltd. v. Union of India [Indian Express Newspapers (Bombay) (P) Ltd. v. Union of India, (1985) 1 SCC 641 : 1985 SCC (Tax) 121] stated that it was settled law that subordinate legislation can be challenged on any of the grounds available for challenge against plenary legislation. This being the case, there is no rational distinction between the two types of legislation when it comes to this ground of challenge under Article 14. The test of manifest arbitrariness, therefore, as laid down in the aforesaid judgments would apply to invalidate legislation as well as subordinate legislation under Article 14. Manifest arbitrariness, therefore, must be something done by the legislature capriciously, irrationally and/or without adequate determining principle. Also, when something is done which is excessive and disproportionate, such legislation would be manifestly arbitrary. We are, therefore, of the view that arbitrariness in the sense of manifest arbitrariness as pointed out by us above would apply to negate legislation as well under Article 14." 20. In Shreya Singhal's case (supra), the Ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... luable foreign exchange for the country. It should be noted that exporters would have factored in such incentives in the pricing mechanism when they quote and therefore, the restriction of the same would be highly unreasonable, given the objective of the Government that exports should be zero rated and taxes should not be exported. 22. The respondents-revenue contend that the impugned amendment was based on the minutes of the GST Council's 39th meeting held on 14.03.2020, which discloses that the above the only ground for amendment seems to be a possible misuse without any factual data supporting the same; the reasons for such amendments based on possible misuse without adequate defining data cannot be countenanced as having a reasonable basis in law. Issue of misuse cannot be generalized. Every such misuse is required to be ascertained and verified before asserting that there has been misuse. It is also well settled that if the government perceives that there could be a possibility of abuse of a provision, it should adopt measures to keep a check on the same; however, the law cannot be amended on the premise of distrust. 23. In Reckitt Benckiser's case supra, the High Court of J ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re evolved to reduce and to make good the losses. Restructuring benefit to 17% of Tariff 4(A) (demand charges) are the factors which are aimed to make the losses good for the Corporation. This is not case in which serious public repercussion was involved. These are not the factors which put together can constitute a public interest. Theft of the energy if it was proved by cogent data that as a result of giving this benefit to the entrepreneurs in the hill areas, they were misusing it or there was theft of the energy at a large scale by these persons to whom the concession had been given then of course such factors, if all the datas were brought on record of course could have persuaded the Court to take a different view of the matter. But simply because there was theft of energy the State cannot persuade us to hold that the revocation of such concession can be said to be in public interest. Since the benefit was given to these units in the hill areas, there should have been overwhelming evidence to show some mala fide on the part of these consumers which have persuaded the Corporation to revoke it. If there was no misuse of the energy by these units in the hill areas to whom the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s ground also. 27. Insofar as the other contentions urged by the respondents - revenue in their statement of objections and before this Court, the same are neither relevant nor germane for adjudication of this petition and consequently, the same have not been referred to in detail in this order. 28. For the foregoing reasons, I am of the considered opinion that the impugned Rule 89(4)(C) of the CGST Rules, 2017 as amended vide Para 8 of the Notification No.16/2020-Central Tax dated 23.03.2020 deserves to be declared ultra vires and invalid and consequently deserves to be quashed. So also, the impugned order dated 30.06.2020 which is based on the impugned amended Rule also deserves to be quashed and consequently, respondents are to be directed to accept the refund applications of the petitioner and grant refund in favour of the petitioner together with applicable interest within a stipulated time frame. 29. The issue regarding validity of the Explanation to Rule 93 of the CGST Rules is however kept open to be dealt with in an appropriate case. 30. In the result, I pass the following:- ORDER (i) The writ petition is hereby allowed; (ii) The impugned offending words, "or the va ..... X X X X Extracts X X X X X X X X Extracts X X X X
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