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TMI Blog2023 (11) TMI 209X X X X Extracts X X X X X X X X Extracts X X X X ..... plies. The statute purposely uses the words, inputs and output supplies . t is well settled that a taxing statute is to be strictly construed. Conscious use of the plural words, inputs and output supplies by the legislature has to be given full effect to. Use of the word, inputs signifies a situation where there may be more than one input and it is not possible to read inputs as input alone, so as to restrict its meaning. In other words, one of the basic principles of interpretation of statute is to read the statute as it is. The Hon ble Supreme Court in the case of COMMISSIONER OF INCOME-TAX VERSUS KASTURI AND SONS LTD. [ 1999 (3) TMI 6 - SUPREME COURT] , while explaining the principle of strict construction of taxing statute and relying upon its various earlier decisions, propounded that in a taxing Act, one has to only look fairly at the language used therein. The Supreme Court in VKC Footsteps India Private Limited having analysed the report of the Joint Committee, Empowered Committee of State Finance Ministers on Business Process for GST and on Refund Process published in August, 2015, noted that under the proposed GST law, ITC will be allowed, so as to remove the cascading ef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the CGST Rules, 2017 which provides for a formula for making such computation. In a case of accumulation of unutilised input tax credit on account of rate of tax on inputs being higher than the rate of tax on output supplies, the refund mechanism is governed by the said formula providing for maximum limit of refund and therefore, refund claim is to be determined on the basis of computation based on statutory formula prescribed in Rule 89(5) of the CGST Rules, 2017 and not on the basis of any other mode of computation and determination of actual amount of refund payment under the law. Impugned order set aside - petition allowed. - HON'BLE MR. JUSTICE MANINDRA MOHAN SHRIVASTAVA And HON'BLE MR. JUSTICE ANIL KUMAR UPMAN For the Petitioners : Mr. M.P. Devnath Advocate through Video Conferencing assisted by Mr. Pranav Malik Advocate For the Respondents : Mr. Kinshuk Jain Advocate assisted by Mr. Jay Updhayay Advocate Mr. Saurabh Jain Advocate ORDER ( Per Manindra Mohan Shrivastava, J. ) 1. As the common issue of law arises for consideration in these petitions, this common order shall govern disposal of these writ petitions filed by one and the same petitioner with reference to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inverted duty structure . Vide order dated 24.08.2020, the adjudication proceedings eventually culminated in rejection of petitioner s claim for refund on the ground that the petitioner s case does not fall in the category of inverted duty structure. 3.4 Feeling aggrieved, the petitioner preferred separate appeals against rejection of claim for refund for different tax periods before the Commissioner (Appeals), Central Excise and CGST, Jaipur (hereinafter referred to as the Appellate Authority ). Those appeals came to be disposed off by the learned Appellate Authority vide two common orders dated 06.10.2020 and 11.05.2021, affirming the findings recorded by the Adjudicating Authority that the petitioner s case does not fall in the category of inverted duty structure and it is not entitled to refund of unutilised ITC through invocation of the provisions contained in Section 54(3) of the CGST Act, 2017. 3.5 Though Section 112 of the CGST Act, 2017 provides for further appeal before Goods and Service Tax Appellate Tribunal (GSTAT), there being no Appellate Tribunal in existence, rejection of petitioner s claim by the Adjudicating Authority and its affirmation by the Appellate Authori ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hen the formula is logically interpreted, the same envisages consideration of all inputs and all outputs. 4.3 Next submission of learned counsel for the petitioner is that denominator Adjusted Total Turnover as contained in under Rule 89 of the CGST Rules, 2017, expressly provides for inclusion of all products quantified under the expression sum total of the value of . Thus, it is contended, law provides for refund calculation GSTIN wise and not productwise. 4.4 The formula as specified in Rule 89(5) of the CGST Rules, 2017 envisages that the output liability on all inverted rated supplies is deducted from the input tax credit apportioned to such inverted rated supplies and when such ITC is more than the output liability, refund amount will be positive and would give rise to a claim for refund. It is also contended that GSTN portal, which itself only allows filing of refund application GSTIN wise and the portal only allows the claimant to file a refund application for one tax period only once, it is neither permissible, nor possible to claim refund by filing multiple refund applications product wise for the same tax period. It is further contended that ground of rejection is not re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t and many inputs whereas present being a case of many inputs and many outputs, is also not based on correct understanding and import of the aforesaid circular. In any case, that was not a ground for rejection of the claim of the petitioner by the Adjudicating Authority. Therefore, the affirmation of rejection of the claim of the petitioner by the Appellate Authority on such ground was not available. 4.7 Further submission is that reference to table presented by the department to buttress the submission that there is no accumulation in two quarters in the financial year 2019-20 was not the basis for the order passed by the Commissioner (Appeals). There is no challenge to the computation of inverted rated supplies but the claim is denied on the ground that present is not a case of inverted duty structure. Computation of accumulated credit on account of inverted rated supplies has to be only in accordance with the provisions contained in Section 54 of the CGST Act, 2017 by applying the formula prescribed in Rule 89 of the CGST Rules, 2017 and not otherwise. Deduction of total output liability from total ITC (as contained in the chart) is not the correct way of arriving at the refund ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igher than the rate of tax on output supplies, but also that the credit has accumulated on that count only. He would further submit that refund is allowable only by application of the formula specified in Rule 89(5) of the CGST Rules, 2017. In the present case, rate of tax of inputs was found to be more or less 5%, 12% and 18% whereas the tax rate on output supply was also 5%, 12% and 18%. ITC availed on the inputs procured at the rate of 28% GST was very negligible. Taking into consideration these peculiar facts obtaining on record, the Adjudicating Authority as well as the Appellate Authority were of the view that tax rate on the inputs and outputs are more or less the same and thus, the petitioner does not qualify for refund and, therefore, present is not a case covered under inverted duty structure. As the authorities were of the opinion that inverted duty structure scenario is not present, there was no occasion to apply the formula mentioned in Rule 89(5) of the CGST Rules, 2017. 5.3 Learned counsel for the respondents also places reliance upon the clarificatory circulars issued by the Central Government on 31.12.2018 and 18.11.2019 wherein it has been clarified that the refun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing upon Circular dated 31.12.2018. Relying upon the decision of the Hon ble Supreme Court in the case of Union of India Others Vs. VKC Footsteps India Private Limited (2022) 2 SCC 603, it is submitted that stipulation in the first proviso to Section 54(3) of the CGST Act, 2017, namely, no refund shall be allowed , and in cases other than , operate as limitation on the expression claim used in substantive part of Section 54(3) of the CGST Act, 2017. Therefore, the provision is couched in negative language which manifests intention of the legislature to confine refund only to two specific situations as stipulated in sub-clause (i) and (ii) of first proviso to Section 54(3) of the CGST Act, 2017. He would further submit that refund, not being a fundamental right or constitutional right, cannot be claimed de hors the statutory scheme. 6. Statutory provisions: 6.1 Section 54 of the CGST Act, 2017 provides for refund of tax. Under sub-section (1) of Section 54 of the CGST Act, 2017, a person claiming refund of any tax and interest , if any, paid on such tax or any other amount paid, is required to make an application within a period of two years of the relevant date. Further, Section 54 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ailed provisions with regard to application for refund of tax, interest, penalty, fees or any other amount. Rule 89(5) of the CGST Rules, 2017 specifically deals with refund on account of inverted duty structure by providing a specific formula which, for ready reference, is extracted as below: 89. Application for refund of tax, interest, penalty, fees or any other amount (1) xxxxxx (2) xxxxxx (3) xxxxxx (4) xxxxxx (5) In the case of refund on account of inverted duty structure, refund of input tax credit shall be granted as per the following formula:- Maximum Refund Amount = {(Turnover of inverted rated supply of goods and services) x Net ITC Adjusted Total Turnover} [{tax payable on such inverted rated supply of goods and services x (Net ITC ITC availed on inputs and input services)}]. Explanation: For the purposes of this sub-rule, the expression- (a) Net ITC shall mean input tax credit availed on inputs during the relevant period other than the input tax credit availed for which refund is claimed under subrule (4A) or (4B) or both; and [(b) Adjusted Total turnover and relevant period shall have the same meaning as assigned to them in sub-rule (4).]]] 6.3 Thus, under the statutor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he provisions of Section 16 and Section 49 indicate the following position: 73.1. The ITC in the electronic credit ledger may be availed of for making any payment towards output tax under the CGST Act or under the IGST Act. 73.2. The amount available in the electronic cash ledger may be used for making any payment towards tax, interest, penalty, fees or any other amount payable under the CGST Act or its Rules. 73.3. The balance in the electronic cash ledger or electronic credit ledger after the payment of tax, interest, penalty, fees or any other amount payable under the Act or Rules may be refunded in accordance with the provisions of Section 54. 73.4. Sub-section (6) of Section 49, in other words contemplates a refund of the balance which remains in the electronic cash ledger or electronic credit ledger in the manner stipulated by the provisions of Section 54. The Hon ble Supreme Court analysed and interpreted Section 54(3) of the CGST Act, 2017 as below: 76. The crux of the dispute in the present case pertains to how sub-section (3) to Section 54 and Explanation 1 to sub-section (1) of Section 54 are to be understood and interpreted. For convenience of analysis, the interpretati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exhaustive list of circumstances, the accumulation may be due to: (a) an inverted duty structure when the GST on output supplies is less than the GST on inputs; (b) stock accumulation; (c) capital goods; and (d) partial reverse mechanism for certain services. There could be other reasons as well, such as excessive discounts or predatory pricing. The legislative intent behind enacting clause (ii) of the first proviso to Section 54(3) of the CGST Act, 2017 was noted by the Hon ble Supreme Court as below: 82. While enacting clause (ii) of the first proviso to Section 54(3) in the CGST Act, Parliament, took legislative notice of a specific eventuality, namely, where the credit has accumulated on account of the rate of tax on inputs being higher than the rate of tax on output supplies . Parliament would be cognizant of the fact that ITC may accumulate for a variety of reasons, of which an inverted duty structure is one situation. Parliament was legislating to provide for a refund and therefore restricted it to the two situations spelt out in clauses (i) and (ii) of the first proviso. The opening words of the substantive part of Section 54(3) contemplate a claim of refund of any unutili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ports; and (d) refund of unutilised ITC as provided under sub-section(3) of Section 54. 82.8. Explanation 1 indicates that with reference to exports, the legislature has brought within its fold ITC on input goods and input services. In contrast, in the case of domestic supplies it has contemplated refund of unutilised ITC as provided under sub-section(3) . The Explanation is a clear indicator that in respect of domestic supplies, it is only unutilised credit which has accumulated on the rate of tax on input goods being higher than the rate of output supplies of which a refund can be allowed. Clause (ii) of the first proviso in other words is a restriction and not a mere condition of eligibility. 7. Analysis and Conclusion: 7.1 The petitioner-company manufactures cotton yarn, cotton blended yarn, polyester/viscose yarn, polyester/viscose blended yarn. The rate of GST on these output supplies varies from 0.1% to 12%. Raw material used for manufacturing of aforesaid goods is cotton, manmade fibre, packing material, store consumables and spares and other inputs on which rate of GST varies from 5% to 28%. The description of inputs and output supplies and respective rate of tax on each o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ables and spares as also other inputs carry rate of tax higher than the rate of tax on such output supply. Under the heading other outward supply , the rate of GST is only 0.1% whereas all the inputs (raw materials) used to manufacture carry higher rate of GST, i.e. 5%, 12%, 18% and 28%. 7.3 The above comparative analysis clearly shows that all the inputs taken together and utilised through the process of manufacturing, the output supplies would carry higher rate of GST as compared to the rate of GST on such inputs, either taken individually or collectively both. The rate of tax on output is ranging from 0.1% to 5% or 12% whereas rate of tax applicable on some inputs may be 5% or 12%, but on remaining inputs, rate of GST is certainly higher than 5% or 12%. 7.4 The provision contained in proviso (ii) to Section 54(3) of the CGST Act, 2017, as it stands and on its plain reading, uses the expression, where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies . The language of the aforesaid provision is plain and simple signifying the plurality of both inputs and output supplies. The statute purposely uses the words, inputs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mlal, (1976) 4 SCC 643, it has been held that every taxing statute has a fiscal philosophy-a feel of which is necessary to gather the intent and effect of its different clauses. Fiscal philosophy and legislative intent behind enacting and introducing refund clause in the case of inverted duty structure, as discerned and analysed by the Hon ble Supreme Court in the case of Union of India Others Vs. VKC Footsteps India Private Limited (supra), extensively relied upon and quoted hereinabove, provides a beacon light in placing appropriate interpretation and construction of clause (ii) of proviso to Section 54, sub-section (3) of the CGST Act, 2017. With regard to the objective behind the scheme of refund of unutilised input tax credit on inverted duty structure, the words inputs and output supplies need to be given full effect to without placing any restriction on these words, much less restricting the same to a situation of singular input and singular output supply. In other words, the scheme of refund of unutilised input tax credit which has accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies cannot be restricted only to those cases wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s). 7.8 We are not oblivious of the legal position as adumbrated in Para no. 106 of the decision of the Hon ble Supreme Court in the case of Union of India Others Vs. VKC Footsteps India Private Limited (supra), which was made clear while relying upon the dictum in the case of Assistant Commissioner of Commercial Taxes (Asst.) Dharwar Others Vs. Dharmendra Trading Company Others (1988) 3 SCC 570, that the principles governing a benefit, by way of refund of tax paid, may well be construed on an analogous frame with an exemption from the payment of tax or reduction in liability. However, in view of our considerations and interpretation placed on the provisions contained in clause (ii) of proviso to Section 54(3) of the CGST Act, 2017, while applying the rule of literal construction and strict interpretation, the statutory scheme of refund of unutilised input tax credit is applicable despite there being multiple inputs and output supplies provided it fulfills statutory precondition that accumulation of unutilised input tax credit is on account of rate of tax on inputs exceeding the rate of tax on output supplies. In the present case, the rates of tax on inputs are 5%, 12%, 18% and 28% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nated blends and 100% polyester/viscose for which inputs bear rates of 12%, 18% and 28%. The factual assertions made in this regard in the writ petitions have not been denied by the respondents. Therefore, we have to accept the submission of learned counsel for the petitioner that even if the overall rate of all inputs is marginally higher than rate of output supplies, the accumulation of unutilised input tax credit on such account will bring it within the net of inverted duty structure. 7.10 The other ground of rejection of claim of refund is equally unsustainable in law as it proceeds on the ground that the claim of refund is mainly due to high input purchases and they were in stock during the claim period(tax period). The authorities, while examining the claim of refund of the petitioner, were not only obliged to apply the statutory scheme as contained in Section 54(3) of the CGST Act, 2017, in its true spirit, but also to keep in view the law providing for refund mechanism as contained in Rule 89(5) of the CGST Rules, 2017, which does not talk of the stock, but refers to output turnover (adjusted turnover) during the claim period. Rule 89(5) of the CGST Rules, 2017 envisages th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imum limit of refund and therefore, refund claim is to be determined on the basis of computation based on statutory formula prescribed in Rule 89(5) of the CGST Rules, 2017 and not on the basis of any other mode of computation and determination of actual amount of refund payment under the law. 7.13 During the course of arguments and in the written submissions filed by the parties, facts and figures of relevant tax periods (giving rise to more than one petition) have been placed before this Court. In some of the cases, learned counsel for the respondents highlighted that in respect of certain tax periods, there is no accumulation of unutilised input tax credit. Learned counsel for the petitioner referred to some of the figures to submit that even if it is assumed that in respect of certain tax periods, there was no accumulation of unutilised input tax credit, in many cases such position obtains on record. Since the orders impugned in these writ petitions are not based on such factual premises but the rejection of claim of refund is based on erroneous interpretation of law and on considerations, we find such factual premises to be untenable in law. Therefore, we would not enter into ..... X X X X Extracts X X X X X X X X Extracts X X X X
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