2019 (8) TMI 159 - HC - GST

Court Invalidates GST Refund Denial Under Inverted Tax Structure

SHABNAM PETROFILS PVT. LTD. Versus UNION OF INDIA AND 1 other (s)

The court quashed Notification No. 20/2018 and Circular No. 56/30/2018-GST, ruling them ultra vires and beyond the scope of Section 54(3)(ii) of the CGST ... Refund of excess duty - inverted tax (duty) structure - Ultra virus of notification - reduction in GST rate on man-made fiber yarns from 18% to 12% - Central Goods and Service Tax Act, 2017 - Notification dated 26.07.2018 bearing No.20/2018 and Circular dated 24.08.2018 bearing Circular No.56/30/2018-GST - HELD THAT:- In the case of Collector of Central Excise V/s. Dai Ichi Karkaria Ltd. [1999 (8) TMI 920 - SUPREME COURT] , the Apex Court in the context of rule 57A to 57J of the Central Excise Rules, 1944 has held that a manufacturer obtains credit for central excise duty on raw material to be used by him in the production of an excisable product immediately it makes the requisite declaration and obtains an acknowledgment thereof. Therefore, it is entitled to use the credit at any time thereafter when making payment of excise duty on the excisable product. The Court held that the credit is indefeasible. In the case of Eicher Motors Ltd. [1999 (1) TMI 34 - SUPREME COURT] , the Apex Court has observed that a right accrued to the assessee on the date when they paid the tax on the raw materials or the inputs and that right would continue until the facility available thereto gets worked out or until those goods existed. Therefore, the impugned Notification dated 26.07.2018 bearing No.20/2018 and Circular dated 24.08.2018 bearing Circular No.56/30/2018-GST to the extent it provides that the input tax credit lying unutilized in balance, after payment of tax for and upto the month of July, 2018, on the inward supplies received upto the 31st day of July, 2018, shall lapse, are hereby quashed and set aside and are hereby declared as untra vires and beyond the scope of section 54(3)(ii) of the CGST Act, as section 54(3)(ii) of the CGST Act does not empower to issue such notifications and consequently, it is held that the petitioners and members of the petitioners are entitled for the credit and it be granted to them. Power of central government u/s 54(3) of the CGST Act - available/eligible ITC can be withdrawn using rule making power when separate provision exist in this respect - HELD THAT:- The CGST Act itself provides for the lapsing of the ITC at Sections 17(4) and 18(4) respectively of the CGST Act. Thus, where the legislature wanted the ITC to lapse, it has been expressly provided for in the Act itself. No such express provision has been made in Section 54(3) of the CGST Act - No inherent power can be inferred from the provision of Section 54(3) of the CGST Act empowering the Central Government to provide for the lapsing of the unutilised ITC accumulated on account of the rate of tax on inputs being higher than the rate of tax on output supplies. It is a well settled principle that the delegated legislation has to be in conformity with the provisions of the parent statute. By prescribing for lapsing of ITC, the Notification No.05/2017-C.T. (Rate) dated 28.06.2017, as amended by Notification No.20/2018-C.T. (Rate) dated 26.07.2018, has exceeded the power delegated under Section 54(3)(ii) of the CGST Act - thus, proviso (ii) of the opening paragraph of the Notification No.05/2017-C.T. (Rate) dated 28.06.2017, inserted vide Notification No.20/2018- C.T. (Rate) dated 26.07.2018, is ex-facie invalid and liable to be strike down as being without any authority of law. Issues Involved:1. Challenge to the provisions of the Central Goods and Services Tax Act, 2017, and related notifications and circulars.2. Validity of Notification No. 20/2018 and Circular No. 56/30/2018-GST.3. Lapsing of accumulated input tax credit (ITC) under the inverted tax structure.4. Interpretation of Section 54(3) of the CGST Act.5. Constitutional validity under Articles 14 and 19(1)(g) of the Constitution of India.6. Applicability of prior judicial decisions on ITC.Issue-Wise Detailed Analysis:1. Challenge to the Provisions of the CGST Act and Related Notifications and Circulars:The petitioners challenged the provisions of the Central Goods and Services Tax Act, 2017, specifically Section 54(3), and the related Notification No. 20/2018 and Circular No. 56/30/2018-GST, arguing that these provisions unlawfully deny the refund of excess duty under the inverted tax structure.2. Validity of Notification No. 20/2018 and Circular No. 56/30/2018-GST:The petitioners contended that the impugned Notification No. 20/2018 and Circular No. 56/30/2018-GST were contrary to Section 54(3) of the CGST Act and violated Articles 14 and 19(1)(g) of the Constitution. They argued that these provisions unjustly restricted the utilization of unutilized ITC, causing significant financial loss to the assessees.3. Lapsing of Accumulated ITC under the Inverted Tax Structure:The petitioners argued that the impugned notification extended the restriction on the utilization of unutilized ITC up to July 2018 and mandated that inward supplies received up to 31st July 2018 shall lapse. They contended that there was no statutory provision under the CGST Act empowering the respondents to issue notifications providing for the lapsing of ITC. They emphasized that a valid claim of ITC creates an indefeasible right in favor of the taxable person.4. Interpretation of Section 54(3) of the CGST Act:The court analyzed Section 54(3) of the CGST Act, which allows refund of unutilized ITC in two circumstances: zero-rated supplies made without payment of tax and accumulation due to the inverted tax structure. The court held that Section 54(3)(ii) does not empower the Central Government to frame rules providing for the lapsing of ITC. The court relied on the decisions of the Apex Court in Dal Ichi Karkaria Ltd. and Eicher Motors Ltd., which established that ITC is indefeasible once validly taken.5. Constitutional Validity under Articles 14 and 19(1)(g) of the Constitution of India:The petitioners argued that the impugned notification and circular were unconstitutional as they took away the vested right of the assessee without any justifiable reason, violating Articles 14 and 19(1)(g) of the Constitution. The court agreed, stating that the notification and circular exceeded the powers delegated under Section 54(3)(ii) of the CGST Act and were discriminatory.6. Applicability of Prior Judicial Decisions on ITC:The court referred to several judicial decisions, including Dipak Vegetable Oil Industries Ltd. v. Union of India, Eicher Motors Ltd. v. Union of India, and others, which held that ITC, once validly taken, is indefeasible and cannot be taken away retrospectively. The court concluded that the impugned notification and circular were contrary to these judicial precedents.Conclusion:The court quashed and set aside Notification No. 20/2018 and Circular No. 56/30/2018-GST to the extent they provided for the lapsing of ITC lying unutilized in balance after payment of tax for and up to July 2018. The court declared these provisions ultra vires and beyond the scope of Section 54(3)(ii) of the CGST Act. Consequently, the petitioners and their members were entitled to the credit, and it was to be granted to them.