Court Invalidates GST Refund Denial Under Inverted Tax Structure

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 Act. The provisions denying refund of unutilized input tax credit (ITC) under the inverted tax structure were set aside, allowing the petitioners and their members to claim the credit. The court held that once ITC is validly claimed, it becomes indefeasible and cannot be retrospectively taken away, in line with established judicial precedents.

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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.

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