Sub Rule (4B) of Rule 89 CGST Rules applies to refund claims for unutilized ITC on zero-rated exports under LUT

Gujarat HC held that Sub Rule (4B) of Rule 89 of CGST Rules, 2017 applies to refund claims for unutilized ITC on zero-rated export supplies under LUT. The court directed remand to Assistant Commissioner for fresh determination using input/output ratio formula. The Joint Commissioner (Appeals) order was upheld as it correctly applied Sub Rule (4B) and remitted the matter, while the original Joint Commissioner order dated 19th July 2021 was quashed. Appeal allowed in part with matter remanded for proper calculation of refund amount.

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Issues Involved:
1. Constitutional validity of Sub Rule (4B) of Rule 89 of the CGST Rules.
2. Entitlement to refund claims under Rule 89(4) vs. Rule 89(4B) of the CGST Rules.
3. Rejection of refund claims and subsequent orders by the Assistant Commissioner and Joint Commissioner (Appeals).

Issue-wise Detailed Analysis:

1. Constitutional Validity of Sub Rule (4B) of Rule 89 of the CGST Rules:
The writ applicants challenged the constitutional validity of Sub Rule (4B) of Rule 89 on the grounds that it is ultra vires Sections 54 and 164 of the CGST Act, Section 16 of the IGST Act, and Articles 14 and 19(1)(g) of the Constitution of India. However, the court decided not to address this issue in the current judgment, stating that it could be agitated in another appropriate litigation.

2. Entitlement to Refund Claims Under Rule 89(4) vs. Rule 89(4B) of the CGST Rules:
The primary contention was whether the refund claims should be processed under Rule 89(4) or Rule 89(4B). The applicants argued that Rule 89(4) provided a formula for calculating refunds, whereas Rule 89(4B) did not. The Assistant Commissioner and Joint Commissioner (Appeals) held that the claims should be processed under Rule 89(4B). The court noted that the Principal Commissioner, in the affidavit-in-reply, stated that manufacturers should be aware of the input-output ratio of inputs/raw materials used in manufacturing exported goods, and this ratio could be used to determine the refund claims. The court concluded that the Assistant Commissioner should re-evaluate the refund claims using the input-output ratio as a workable formula.

3. Rejection of Refund Claims and Subsequent Orders by the Assistant Commissioner and Joint Commissioner (Appeals):
The Assistant Commissioner initially rejected the refund claims for November 2019, stating that the claims should have been filed under Rule 89(4B) instead of Rule 89(4). The Joint Commissioner (Appeals) remitted the matter back to the Assistant Commissioner for fresh consideration under Rule 89(4B). The Joint Commissioner (CGST and Central Excise, Vadodara-II) later ordered the recovery of the entire amount sanctioned earlier, along with interest and penalties. The court quashed this order, directing the Assistant Commissioner to re-evaluate the claims based on the input-output ratio formula provided in the Principal Commissioner’s affidavit.

Conclusion:
The court ordered the Assistant Commissioner to re-evaluate the refund claims based on the input-output ratio of inputs/raw materials used in manufacturing the exported goods, as explained in the Principal Commissioner’s affidavit. The order dated 19th July 2021, which sought to recover the sanctioned refund amount, was quashed. The entire exercise was to be completed within eight weeks from the date of receipt of the court’s order. The connected writ application was also disposed of on similar grounds, ensuring that the earlier claims would not be considered time-barred due to the fresh adjudication process.

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