High Court grants refund of unutilised input tax credit, clarifies circular application

The High Court allowed the writ application filed by M/s Mega Jewels Private Ltd., setting aside the order denying refund of unutilised input tax credit under the CGST Act, 2017. The Court held that circular No. 14/14/2017-GST operates prospectively and cannot be enforced for transactions before its issuance, thus directing the Deputy Commissioner, CGST, to refund the credit with interest. The judgment clarified the application of circulars and notifications in refund cases, emphasizing their prospective nature.

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Issues:
Challenge to impugned order for refund of unutilised input tax credit under CGST Act, 2017.
Interpretation of circular No. 14/14/2017-GST dated 06.11.2017 for refund applications.
Applicability of circular and notification on transactions prior to their issuance.

Analysis:
The petitioner, M/s Mega Jewels Private Ltd., filed a writ application challenging the order passed by the Additional Commissioner (Appeals) seeking refund of unutilised input tax credit under Section 54(3) of the CGST Act, 2017. The Department relied on circular No. 14/14/2017-GST dated 06.11.2017 to deny the refund, citing non-compliance with its requirements. The petitioner approached the High Court seeking relief as the Tribunal was not yet constituted. The respondent argued that the appeal should be made to the Appellate Tribunal once constituted. However, the Court found the petitioner was not remediless and rightly approached the Court for relief.

The respondent filed an affidavit explaining the difference in procedures for claiming refund by EOU units and normal exporters. The Court agreed with the Department that the circular operates prospectively from the date of notification, not retrospectively, and cannot be enforced for transactions before its issuance. It was clarified that there was no chance for a supplier to claim a double refund, as the circular provided safeguards against such claims. The Court concurred with the Revenue's counsel that the circular and notification did not apply to transactions from July to October 2017, justifying the denial of the refund to the petitioner.

Consequently, the High Court allowed the writ application, setting aside the impugned order dated 03.01.2020. Directions were issued to the Deputy Commissioner, CGST, to refund the unutilised input tax credit along with statutory interest within two weeks from the date of service of the order on the respondents. The judgment clarified the application of circulars and notifications in refund cases and upheld the prospective nature of such directives.

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