2022 (2) TMI 1002 - HC - GST

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 ... Refund of unutilized input tax credit - Rule 89(4B) of the CGST Rules - Rule 89(4) of the CGST Rules - input-output ratio - quashing of recovery and penalty order - remand for fresh adjudicationRefund of unutilized input tax credit - Rule 89(4B) of the CGST Rules - Rule 89(4) of the CGST Rules - input-output ratio - Applicability of Rule 89(4B) (rather than Rule 89(4)) for adjudication of the writ applicant's refund claim and the manner of quantification of refund. - HELD THAT: - The Court held that the appellant's refund claim is to be adjudicated under Sub rule (4B) of Rule 89 and not under Sub rule (4). While Sub rule (4B) does not itself incorporate the formula set out in Sub rule (4), the quantification of refund under (4B) must take into account the portion of ITC that has gone into making the exported goods. The Court accepted the administrative stance that input output ratios and allocation of inputs used in exports are ascertainable and held that the Assistant Commissioner should determine the claim under Rule 89(4B) keeping in mind the input/output ratio principle articulated in the Principal Commissioner's affidavit. The Court declined to decide the constitutional challenge to Sub rule (4B) and proceeded on this short legal ground to direct fresh adjudication accordingly. [Paras 26, 28, 30, 32]Refund claim to be adjudicated under Rule 89(4B) with quantification guided by input/output ratio; constitutional challenge left open.Quashing of recovery and penalty order - recovery under Section 74(1) of the CGST Act - Validity of the order of the Joint Commissioner dated 19th July 2021 which confirmed demand, interest and penalty for amounts alleged to be erroneously sanctioned. - HELD THAT: - The Court found it necessary to set aside the impugned order dated 19th July 2021 which confirmed demand, interest and penalty on the premise that refunds were not due under Rule 89(4). Given the remand to the adjudicating authority to determine eligibility and quantification under Rule 89(4B) (with input/output analysis), the recovery and penalty order premised on the earlier conclusion cannot stand and is accordingly quashed and set aside. [Paras 31, 32]Order dated 19th July 2021 confirming demand, interest and penalty quashed and set aside.Remand for fresh adjudication - time-bound direction - Direction to remit the matter to the Assistant Commissioner for fresh adjudication and timeline for completion. - HELD THAT: - The Court remitted the matter to the Assistant Commissioner for fresh consideration of the refund claim in accordance with the directions of the appellate authority and this Court's guidance (i.e., application of Rule 89(4B) while applying input/output ratio principles). The adjudicating authority is required to give the appellant opportunity to produce records and to pass a speaking order on merits. The Court directed that the exercise be completed and the claim determined and paid, if due, within eight weeks from receipt of the writ of this order; earlier claims shall not be treated as time barred for this fresh adjudication, subject to clearance of any deficiency memo. [Paras 20, 32, 33]Matter remanded to Assistant Commissioner for fresh adjudication under Rule 89(4B) with input/output ratio to be applied; adjudication to be completed within eight weeks; previous claims not to be treated as time barred for this purpose.Final Conclusion: Writ succeeds in part: the order dated 19th July 2021 confirming demand, interest and penalty is quashed and set aside; the refund claims for the period January 2018 to October 2019 are remitted to the Assistant Commissioner for fresh adjudication under Rule 89(4B) applying input/output ratio principles, with determination and payment, if due, to be completed within eight weeks; the constitutional challenge to Sub rule (4B) is left open. 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.