2022 (9) TMI 420 - HC - GST

Refund of accumulated input tax credit allowed under inverted tax structure Section 54 CGST Act 2017

Micro Systems and Services (Sole Proprietorship) Versus The Union of India and 5 Others The Chairman, The State of Telangana, The Chief Commissioner of GST and Customs, The Joint Commissioner (Appeals - II), The Assistant Commissioner of Central Tax

The Telangana HC allowed a petition regarding refund of accumulated input tax credit under inverted tax structure provisions of Section 54 CGST Act, 2017. ... Effective date of clarificatory circular - Rejection of refund of accumulated unutilized tax credit - inverted tax structure in terms of Section 54 of CGST Act, 2017 read with appropriate CGST Rules, 2017 - HELD THAT:- Refund of accumulated input tax credit on account of inverted structure would be allowed in cases where accumulation of input tax credit is on account of rate of tax on output supply being less than the rate of tax on inputs (same goods) at the same point of time as per some concessional notification issued by the Government providing for lower rate of tax for some specified supplies subject to fulfilment of other conditions. The Circular dated 06.07.2022 is clarificatory in nature whereby paragraph 3.2 of the Circular dated 31.03.2020 has been substituted as supra. Being clarificatory, Circular dated 06.07.2022 inserting the above clarification would have the effect from the date when Circular dated 31.03.2020 came into effect - If this be the position, then the claim of the petitioner is liable to be re-considered on the basis of the Circular dated 31.03.2020 as clarified by the Circular dated 06.07.2022. The matter is remanded back to respondent No.6 for re-consideration in terms of the Circular dated 06.07.2022 - Petition allowed by way of remand. Issues:Refund claim rejection under inverted tax structure based on Circular dated 31.03.2020; Applicability of Circular dated 06.07.2022 for retrospective consideration.Analysis:The petitioner, engaged in the business of assembling computers, filed a refund claim under the CGST Act for Rs.77,91,857/- for the period from April 2019 to March 2020. The claim was based on selling goods under concessional/inverted tax rate to DRDO. However, the claim was rejected by respondent No.6 citing the Circular dated 31.03.2020, which stated that refund under Section 54(3)(ii) of the CGST Act is not applicable when input and output supplies are the same. This rejection was upheld in appeal by respondent No.5 on 09.04.2021.Upon review, it was noted that the Board issued a clarificatory Circular dated 06.07.2022, stating that the intent of the Circular dated 31.03.2020 was not to cover cases where a supplier is making supply of goods under a concessional notification with lower output tax rate than input tax rate. The Circular clarified that in such cases, refund of accumulated input tax credit on account of an inverted structure would be allowed. Consequently, the Circular dated 06.07.2022 substituted the relevant portion of the Circular dated 31.03.2020.The Court found that the Circular dated 06.07.2022 was clarificatory and should be applied from the date when the Circular dated 31.03.2020 came into effect. Therefore, the orders of rejection were set aside, and the matter was remanded back to respondent No.6 for reconsideration in light of the Circular dated 06.07.2022. The respondent was directed to re-examine the claim within eight weeks from the date of the Court's order. The writ petition was allowed, with no costs awarded.This judgment highlights the importance of interpreting tax laws in line with the latest clarifications issued by the tax authorities. It emphasizes the need for consistency and uniformity in applying tax refund provisions, ensuring that legitimate claims are not unjustly denied based on outdated interpretations of the law.