9911796707
TMI Blog2023 (11) TMI 209X X X X Extracts X X X X X X X X Extracts X X X X ..... different tax periods ventilating its grievance on account of rejection of its claim for refund of unutilised input tax credit. For brevity and convenience, the facts stated in D. B. Civil Writ Petition No. 8476/2021 are being referred to. 2. The petitioner, a public limited company, seeks to assail orders dated 06.10.2020 and 11.05.2021 passed by Respondent No. 3, Additional Commissioner (Appeals), Central Goods and Services Tax, Jaipur, whereby, petitioner's appeals, against the orders rejecting its claim for refund, have been disposed off. 3. Facts of the case: Quint essential facts necessary for adjudication of controversy involved in these writ petitions are in narrow encompass and stated infra: 3.1 The petitioner-company is engaged in manufacturing of textiles and its operation thereof ranging from spinning, weaving and processing. It is registered under the provisions of the Central Goods and Services Tax Act, 2017 (hereinafter referred to as 'the CGST Act, 2017'). In the process of manufacturing, the petitioner uses various raw materials. Rate of goods and services tax (hereinafter referred to as 'GST') on inputs varies from 5% to 28%. The raw materials used are cotto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellate Authority is under challenge in these writ petitions. 4. Submissions on behalf of the petitioner: 4.1 Learned counsel appearing on behalf of the petitioner contended that the impugned order of rejection of its claim for refund of unutilised input tax credit is illegal and based on complete misinterpretation and misconstruction of not only against the letter, but also the spirit of the statutory scheme of refund engrafted under Section 54, sub-section(3) of the CGST Act, 2017. According to him, the scheme of refund under Section 54(3) of the CGST Act, 2017 is attracted where the credit, as input tax credit, has accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies. This gives rise to a situation of inverted duty structure during a particular tax period and, therefore, the credit accumulated due to inverted duty structure entitled the petitioner to claim refund as per the mechanism of refund specified under Rule 89 of the CGST Rules, 2017 through application of a specified formula applied for relevant tax period. 4.2 Further submission is that there being no dispute that packing material, consumables, spares etc. used as raw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ground of rejection is not referable to any of the provisions of the law. It is based only on the consideration that the output sales is to the extent of 80% of goods having 5% duty only and input too is majorly of 5% rate. Hence, the rate being more or less the same, it is not a case of inverted duty structure, which consideration is not permissible while examining as to whether it is a case of inverted duty structure. The submission is that 100% cotton goods are only 50% of the total goods and the rest is cotton dominated blends for which other inputs have rates of 18% whereas output rate is 5%. Further, rest of the outputs are synthetic dominated blends and 100% polyester/viscose for which inputs bear rate of 12%, 18% and 28%. Legal submission is that the law does not recognise the words, "more or less". Even if overall rate of all inputs is marginally higher than the rate of output, credit accumulations would entitle refund under "inverted rated structure" as provided under Section 54(3) of the CGST Act, 2017. 4.5 Further submission is that other ground of rejection is that refund is mainly due to high input purchases and they are in stock during the claim period is again not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rrect way of arriving at the refund amount. The formula envisages that the ITC gets apportioned on the basis of the turnover, i.e., it gets allocated to inverted duty supplies and to supplies other than inverted. Assuming, though not admitting, that the method used by the department is correct, there is accumulation in various periods. Referring to the language narrated in Section 54 of the CGST Act, 2017, it is contended that the term "output supplies" has been used in plural form which is indicative of legislative intention that all output supplies are to be included for ascertaining inversion and not just one output. Rejection of claim of the petitioner is based on misinterpretation of the words, "output supplies" as only output whereas the definition as well as the formula prescribed under Rule 89(5) of the CGST Rules, 2017 will only include supplies where the rate of tax on output is lower than rate of tax on inputs. 5. Submissions on behalf of the respondents: 5.1 Referring to the pleadings in the reply, learned counsel for the respondents would submit that the petitioner's claim for refund was scrutinised and after due application of mind to various grounds and the facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wherein it has been clarified that the refund of unutilised ITC in case of inverted duty structure, as provided in Section 54(3) of the CGST Act, 2017, is available only where ITC remains unutilised even after setting off of available ITC for payment of output tax liability. He would further submit that the petitioner, having availed input tax credit for the particular tax period, utilised the same for payment of output tax liability and, therefore, there was, in fact, no accumulation of tax as claimed by the petitioner. Relying upon clarificatory circular dated 18.11.2019, it is submitted that no refund is available in respect of unutilised transitional credit which is of earlier tax regime (TRAN-1). A chart has been annexed with the written submissions to demonstrate that there was no accumulation of ITC. The authorities found that the petitioner was engaged in the manufacturing of cotton yarn, cotton blended yarn, polyester/viscose yarn, polyester/viscose blended yarn and the major inputs of the taxpayer was cotton, manmade fibre which constituted 75% to 85% of total inputs of taxable value received during the relevant period at the rate of 5% GST whereas during the relevant pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of two years of the relevant date. Further, Section 54(3) of the CGST Act, 2017 provides for a claim of refund of unutilised ITC. The provision contained in sub-sections (1), (2) and (3) of Section 54 of the CGST Act, 2017, being relevant for adjudication of controversy involved in these petitions, is extract below: "54. Refund of tax (1) Any person claiming refund of any tax and interest, if any, paid on such tax or any other amount paid by him, may make an application before the expiry of two years from the relevant date in such form and manner as may be prescribed: PROVIDED that a registered person, claiming refund of any balance in the electronic cash ledger in accordance with the provisions of sub-section (6) of section 49, may claim such refund in [such from and] manner as may be prescribed. (2) A specialised agency of the United Nations Organisation or any Multilateral Financial Institution and Organisation notified under the United Nations (Privileges and Immunities) Act, 1947 (46 of 1947), Consulate or Embassy of foreign countries or any other person or class of persons, as notified under section 55, entitled to a refund of tax paid by it on inward supplies of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Total turnover" and "relevant period" shall have the same meaning as assigned to them in sub-rule (4).]]]" 6.3 Thus, under the statutory scheme of the CGST Act, 2017 and CGST Rules, 2017, claim of refund of any unutilised input tax credit at the end of any tax period can be allowed subject to fulfillment of statutory limitations and in accordance with the formula as provided in Rule 89(5) of the CGST Rules, 2017. 6.4 The statutory scheme of refund of tax under Section 54(3) of the CGST Act, 2017 came up for consideration before the Hon'ble Supreme Court in its authoritative pronouncement in the case of Union of India & Others Vs. VKC Footsteps India Private Limited (supra). The divergence between the views of two High Courts in the matter of challenge to constitutional validity of Rule 89(5) of the CGST Rules, 2017 on the ground that it is ultra vires Section 54, sub-section (3)(ii) of the CGST Act, 2017 formed subject matter of consideration of the Hon'ble Supreme Court. The background which led to enactment of Section 54(3) of the CGST Act, 2017 providing for refund of accumulated credit due to inverted duty structure was noted by the Hon'ble Supreme Court as below: "2. Whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 interpretation of sub-section (3) of Section 54 can be distributed in its main tier and the three provisos. The main part of sub-section (3) provides that a registered person may claim refund of any unutilised ITC at the end of any tax period. Tax period is defined in Section 2(106) as the period for which the return is required to be furnished. While enacting Section 54(3), Parliament has envisaged a claim for the refund of unutilised ITC by a registered person at the end of the tax period. The first tier is the main provision of Section 54(3) which lays down four conditions: (i) A claim of refund; (ii) By a registered tax person; (iii) Of any unutilised ITC; and (iv) At the end of any tax period, subject to the provisions of sub-section (10). 77. The second tier is the first proviso. The first proviso begins with the expression "no refund of unutilised ITC shall be allowed in cases other than" which is followed by clauses (i) and (ii). The opening line of the first proviso contains two expressio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 unutilised input tax credit". Undoubtedly, any unutilised ITC would include credit on account of tax charged on any supply of goods or services or both. The opening sentence of Section 54(3) provides for (i) a claim of refund by a registered person; (ii) of any unutilised input tax credit; (iii) at the end of any tax period. But the impact of the first proviso, as its opening words indicate, is that: 82.1. "No refund" of unutilised ITC "shall be allowed" "in cases other than" (i) and (ii). 82.2. The expression "claim" in the substantive part must be distinguished from the phrase "shall be allowed" in the opening sentence of the first proviso. Likewise, the expression "may claim refund" in the opening part must be distinguished from "no refund" in the opening part of the first proviso. 82.3. The impact of the first proviso is that a refund of unutilised ITC shall be allowed only in cases falling under (i) and (ii). The expression "only" in the previous sentence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 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 of the inputs and output supplies would be clear from following table: Description of output Rate of GST on output Inputs utilised in manufacture of output Rate of GST applicable on inputs Cotton yarn 5% Cotton 5% Packing material 12% Other inputs 28% Store consumables and spares 18% Cotton blended yarn 5% Cotton 5% Manmade fibre 18% Packing material 12% Other inputs 28% Store consumables and spares 18% Polyester/Viscose blended yarn 12% Cotton 5% Manmade fibre 18% Packing material 12% Other inputs 28% Store consumables and spares 18% Polyester/viscose Yarn 12% Manmade fibre 18% Packing material 12% Other inputs 28% &nbs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lectively 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" and "output supplies". 7.5 It 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. 7.6 The Hon'ble Supreme Court in the case of Commis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 where there is single input and single output supply. Taking into consideration the legislative intendment, objective of the scheme of refund, the literal interpretation has to be given full effect to. Consequently, the scheme of refund in case of inverted duty structure will continue to apply irrespective of the number of inputs and number of output supplies. At this stage, it would be apposite to refer to pertinent observations made in this regard by the Hon'ble Supreme Court in the case of Union of India & Ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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% whereas the rates of tax on output supplies are 0.1%, 5% and 12%. Obviously, the rate of tax on inputs is certainly higher than the rate of tax on output supplies/various end products. Merely because present cases involve multiple inputs and multiple output supplies, the scheme of refund based on inverted duty structure cannot be held to be inapplicable. 7.9 The orders passed by the Adjudicating Authority and the Appellate Authority, impugned before this Court, h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 that total ITC claimed on inputs during the claim period gets consumed in respect of the turnover of the claim period. Obviously, once refund is sanctioned, the ITC claimed for the relevant tax period cannot be carried forward to the subsequent claim periods (tax periods). Thus, determining factor for applicability of Section 54(3) of the CGST Act, 2017 read with Rule 89(5) of the CGST Rules, 2017 is rate of tax and quantum of ITC content and not the value/quantu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on) 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 those factual aspects. However, since in all the cases, the legal premise on which claim of refund has been rejected is contrary to the letter and spirit of the scheme of refund as provided under Section 54(3) of the CGST Act, 2017 read with Rule 89(5) of the CGST Rules, 2017, we are inclined to set aside all the orders, impugned in these writ petitions, passed by the Adjudicating Authority and the Appellate Authority with a direction to the Adjudicating Aut ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
