2020 (12) TMI 356 - Commissioner - GST

Appellant's Refund Claims Denied Due to Ineligible Goods under CGST Act

The appellant's claims for refund under the CGST Act due to an inverted duty structure were rejected as the goods supplied did not qualify as 'inputs' ... Input as defined under Section 2(59) of the CGST Act, 2017 - refund of unutilised input tax credit on account of inverted duty structure under Section 54(3)(ii) of the CGST Act, 2017 - treatment of traded goods supplied 'as such' for purposes of input tax credit refund - applicability of Rule 89(5) formula for refund on account of inverted duty structureInput as defined under Section 2(59) of the CGST Act, 2017 - refund of unutilised input tax credit on account of inverted duty structure under Section 54(3)(ii) of the CGST Act, 2017 - treatment of traded goods supplied 'as such' for purposes of input tax credit refund - Whether the goods procured and supplied as such by the appellant qualify as 'input' and entitle the appellant to refund of accumulated ITC under the inverted duty structure provision of Section 54(3)(ii). - HELD THAT: - The appellant traded in Scientific and Technical Instruments, Apparatus and Equipment procured on payment of tax at 18% and supplied some consignments to public funded research institutes at a concessional 5% rate under specified notifications while supplying identical goods to other purchasers at 18%. The adjudicating authority and the Commissioner (Appeals) examined the definition of 'input' (goods other than capital goods used or intended to be used by a supplier in the course or furtherance of business) and the proviso in Section 54(3)(ii) which permits refund where credit has accumulated because rate of tax on inputs is higher than on outputs. The authority found that the appellant made sales of the same goods both at the reduced rate and at the full rate, performed no further processing, and effected no value addition; consequently the goods could not be treated as 'inputs' qualifying for refund under the inverted duty structure proviso. The Commissioner (Appeals) held that on these facts the proviso for refund under Section 54(3)(ii) is not attracted and the case law relied upon by the appellant did not apply squarely to these factual circumstances.The goods supplied by the appellant as such do not qualify as 'input' for the purposes of refund under Section 54(3)(ii); the refund claims are not allowable.Final Conclusion: The appeals are dismissed and the impugned order rejecting the refund claims for the periods April to September 2019 and October to December 2019 is upheld. Issues Involved:1. Applicability of the definition of 'inputs' under Section 2(59) of the CGST Act, 2017.2. Eligibility for refund under Section 54(3)(ii) of the CGST Act, 2017 due to inverted duty structure.3. Interpretation of trading activities in the context of the CGST Act, 2017.Issue-wise Detailed Analysis:1. Applicability of the definition of 'inputs' under Section 2(59) of the CGST Act, 2017:The appellant argued that the goods in question, i.e., Scientific and Technical Instruments, Apparatus, Equipment, should be classified as 'inputs' as per Section 2(59) of the CGST Act, 2017. The definition of 'input' includes any goods other than capital goods used or intended to be used by a supplier in the course or furtherance of business. The appellant contended that these goods are used in the course of their business and thus fall under the definition of 'inputs.'However, the adjudicating authority rejected this claim, stating that the goods were supplied as such without any repacking or further processing, thereby not qualifying as 'inputs' for the purpose of refund under the inverted duty structure. The adjudicating authority emphasized that the goods were supplied directly to Public Funded Research Institutes at a reduced rate of 5% GST, which led to the accumulation of ITC.2. Eligibility for refund under Section 54(3)(ii) of the CGST Act, 2017 due to inverted duty structure:The appellant filed refund claims under Section 54(3)(ii) of the CGST Act, 2017, for the periods April to September 2019 and October to December 2019, citing the inverted duty structure. The adjudicating authority rejected the refund claims, arguing that the goods supplied at a reduced rate of 5% GST did not qualify for refund under the inverted duty structure because they were not considered 'inputs' as per the CGST Act.The appellant argued that Section 54(3) does not bar refunds for trading concerns and that the only limitations specified are related to goods exported out of India subject to export duty or where drawback is availed. The appellant also cited case law to support their claim, but the adjudicating authority found that the cited case law was not applicable to the present case.3. Interpretation of trading activities in the context of the CGST Act, 2017:The appellant contended that their trading activities, including the procurement and supply of goods without repacking, should be considered as activities carried out in the course or furtherance of business. They argued that the term 'business' under Section 2(17) of the CGST Act includes trading activities, and thus their activities should qualify for refunds under the inverted duty structure.The adjudicating authority, however, held that since the appellant did not perform any value addition, such as checking, testing, or inspection of the goods, and supplied them as procured, the goods could not be treated as 'inputs.' Consequently, the goods did not meet the criteria for refund under the inverted duty structure as provided under Section 54(3)(ii) of the CGST Act, 2017.Conclusion:The adjudicating authority concluded that the goods supplied by the appellant did not qualify as 'inputs' under Section 2(59) of the CGST Act, 2017, and thus were not eligible for refunds under the inverted duty structure as per Section 54(3)(ii) of the CGST Act, 2017. The appeals filed by the appellant were rejected, and the impugned order was upheld.