Appellate Authority can quash the order of refund which was based on a repugnant Circular

The Hon’ble Rajasthan High Court Bench at Jaipur in M/S MO INDUSTRIES VERSUS UNION OF INDIA AND OTHERS - 2024 (9) TMI 1284 - RAJASTHAN HIGH COURTset aside the order of the Appellate Authority denying refund solely relying upon Circular No.135/05/2020-GST dated March 31, 2020(“the Circular”)because the said circular had already been held to be in conflict with section 54(3)(ii) of the CGST Act, 2017(“the CGST Act”).

Facts:

M/s MO Industries (“The Petitioner”) was engaged in the business of manufacturing of the Mustard Oil, Palm Oil and Mustard Oiled Cake. The Petitioner filed an application dated on July 29, 2021 for the refund amounting to Rs. 19,62,616/- of the Input Tax Credit (“ITC”) accumulated due to the Inverted Tax Structure. The refund was for the period starting from March 2021 and the refund was allowed on August 05, 2021. The Department filed an appeal against the refund allowed. Consequently, the refund order was quashed relying upon Circular vide order dated April 02, 2023 (“the Impugned Order”).

The Petitioner contented that the Circular relied upon the by the Appellate Authority is abhorrent and in conflict with the Section 54(3) (ii) of the CGST Act as per the Hon’ble Rajasthan High Court in the case of BAKER HUGHES ASIA PACIFIC LIMITED VERSUS UNION OF INDIA, THE STATE OF RAJASTHAN, THE DEPUTY COMMISSIONER, STATE TAX, CIRCLE BARMER, RAJASTHAN, CENTRAL BOARD OF INDIRECT TAXES AND CUSTOMS - 2022 (7) TMI 73 - RAJASTHAN HIGH COURT, which stated that the Circular being a subordinate legislation, is repugnant and conflicting to the parent legislation i.e. Section 54(3)(ii) of the CGST Act and hence, the same cannot be applied to oust the legitimate claim for accumulated ITC refund application.

Hence, aggrieved by the Impugned Order, the present writ petition was filed by the Petitioner.

Issue:

Whether the Appellate Authority can quash the order of refund which was based on a repugnant Circular?

Held:

The Hon’ble Rajasthan High Court in M/S MO INDUSTRIES VERSUS UNION OF INDIA AND OTHERS - 2024 (9) TMI 1284 - RAJASTHAN HIGH COURT held as under:

• Observed that, the Circular was in conflict with the Section 54(3)(ii) of the CGST Act. It was also considered that the application to claim refund of ITC was initiated prior to date of issuance of the Circular.
• Held that, the Appellate Authority had allowed the appeal solely relying upon the Circular, which did not stand the judicial scrutiny. Consequently, the Impugned Order was set aside and the matter was remitted back to the Appellate Authority to decide the appeal again in accordance with the law.

Our Comments:

The Hon’ble Guwahati High Court in the case of BMG INFORMATICS PVT. LTD., VERSUS THE UNION OF INDIA AND 3 ORS., THE COMMISSIONER CENTRAL GOODS AND SERVICE TAX GUWAHATI, THE JOINT COMMISSIONER (APPEALS) CGST CENTRAL EXCISE AND CUSTOMS GUWAHATI, THE ASSISTANT COMMISSIONER CGST AND CENTRAL EXCISE DIVISION II - 2021 (9) TMI 472 - GAUHATI HIGH COURT observed that categorically disapproved the stipulation made in the circular providing that even though different tax rates may be attracted at different points of time but the refund of accumulated unutilised tax credit will not be available under section 54(3)(ii) of the CGST Act where the input and output supplies are same. It has been directed by the Guwahati High Court that this Circular would have to be ignored in situations akin to the case at hand.

Similar view was taken by Hon'ble Calcutta High Court in the case of M/S. SHIVACO ASSOCIATES & ANR. VERSUS JOINT COMMISSIONER OF STATE TAX, DIRECTORATE OF COMMERCIAL TAXES & ORS - 2022 (4) TMI 118 - CALCUTTA HIGH COURT

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