2022 (12) TMI 1026 - HC - GST

Refund of unutilized input tax credit allowed despite non-compliance with circular procedure under Section 54

Gujarat HC allowed the petition for refund of unutilized input tax credit on zero-rated supplies. The court held that despite non-compliance with Circular ... Refund of unutilised input tax credit - zero rated supplies - non-compliance with the procedure mentioned in para 3.2 of the Circular dated 04.09.2018 by not debiting the amount of IGST of Rs.21,71,74,611/-, which was available in the balance - HELD THAT:- Section 16 of the Act permits registered person to take credit of input tax credit of GST paid on capital goods and input services subject to such conditions and restrictions and in the manner as prescribed in Section 49 of the Act - Rule 89 of the CGST Rules, 2017, deals with application for refund of tax, interest, penalty, fees or any other amount. Sub-Rule (3) of Rule 89 says that 'where the application relates to refund of input tax credit, electronic credit ledger shall be debited by the applicant by an amount equal to refund so claimed.' It is the uncontroverted fact that petitioner debited the amount equal to the refund claim out of credit of the tax amount lying in its electronic ledger. It is not in dispute that the refund claim application was in accordance with section 54 of the Act and the amount equal to the refund claim was debited from the electronic credit ledger in compliance of Rule 89(4) of the CGST Rules. Therefore, the provisions of law and Rules were complied with by the petitioner. Admittedly, the respondent did not issue any deficiency memo within 15 days as provided in Rule 89(4) of the Rules. Furthermore, the appellate authority had accepted the refund claim of the petitioner on merits and the petitioner's entitlement to refund was not in dispute. When the entitlement of the petitioner for refund is not in dispute and the appellate authority has confirmed the claim of the petitioner and the conditions of section 54(3) of the Act and Rule 89(4) of the Rules are complied with, in such facts and circumstances, even if the procedure laid down in the circular for getting refund stands at variance or if it was not observed by the petitioner for nonculpable reasons, the providence and procedure in the circular would not prevail over the statutory prescription under which the right of the petitioner to get refund is established. Even if the procedure of claiming refund, contemplated in paragraph 3.2 of the Circular could not be adhered to, but on the other hand, there was a substantive right of the petitioner created to claim the refund in law, then non-compliance of the procedure of Circular would only amount to irregularity and not illegality. Petition allowed. Issues Involved:1. Validity of the order dated 30.06.2020 by the appellate authority allowing refund after debiting IGST.2. Validity of the communication dated 14.07.2020 issued by respondent no.3.3. Validity of paragraph 3.2 of the Circular dated 04.09.2018.4. Entitlement of the petitioner to refund of unutilised input tax credit without IGST debit.5. Claim for interest on the refund amount beyond 60 days from the date of filing the refund application.Detailed Analysis:1. Validity of the order dated 30.06.2020 by the appellate authority allowing refund after debiting IGST:The petitioner filed a Special Civil Application under Article 226 of the Constitution of India to set aside the order dated 30.06.2020 passed by the respondent no.3 appellate authority. The order allowed refund to the petitioner after debiting the Integrated Goods and Services Tax (IGST) standing in the credit ledger account of the petitioner. The petitioner contended that the appellate authority's condition to debit IGST was not justified as the petitioner had already debited the required amount from the CGST and SGST balances as per Rule 89(3) of the CGST Rules. The court held that the petitioner's entitlement to the refund was not in dispute and the appellate authority had accepted the refund claim on merits.2. Validity of the communication dated 14.07.2020 issued by respondent no.3:The petitioner also sought to set aside the communication dated 14.07.2020 issued by respondent no.3, which reiterated the need to debit the IGST amount before processing the refund. The court found that the petitioner had complied with the provisions of Section 54(3) of the CGST Act and Rule 89(4) of the CGST Rules by debiting the total amount equal to the refund claim from the electronic credit ledger. The court declared that the communication dated 14.07.2020 was not valid as the petitioner had met the statutory requirements for claiming the refund.3. Validity of paragraph 3.2 of the Circular dated 04.09.2018:The petitioner challenged paragraph 3.2 of the Circular dated 04.09.2018, which required the refund amount to be debited in a specific sequence from the electronic credit ledger. The court observed that the circular was an administrative instruction issued under Section 168(1) of the CGST Act and could not override the statutory provisions of the Act and the Rules. The court held that the circular could not substitute, amend, or curtail the ambit or operation of Rule 89(3) of the CGST Rules, which the petitioner had duly observed. The court concluded that non-compliance with the sequence mentioned in the circular was an irregularity and not an illegality.4. Entitlement of the petitioner to refund of unutilised input tax credit without IGST debit:The petitioner claimed a refund of unutilised input tax credit on account of zero-rated supplies made without payment of tax. The court noted that the petitioner had debited the total amount of the refund claim from the electronic credit ledger as required by Rule 89(3) of the CGST Rules. The court held that the petitioner was entitled to the refund as the conditions of Section 54(3) of the CGST Act and Rule 89(4) of the CGST Rules were complied with. The court declared that non-compliance with the procedure in paragraph 3.2 of the circular would not dis-entitle the petitioner from claiming the refund amount.5. Claim for interest on the refund amount beyond 60 days from the date of filing the refund application:The petitioner claimed interest on the amount of Rs. 14,94,881/- for the period beyond 60 days from 17.04.2019, the date of filing the refund application, till actual payment. The court directed the respondent to make the payment of the refund amount of Rs. 21,71,74,611/- with statutory interest within eight weeks from the date of receipt of the order.Conclusion:The petition was allowed, and the court set aside the order dated 30.06.2020, the communication dated 14.07.2020, and the order in original dated 14.07.2020. The court declared that non-compliance with the procedure in paragraph 3.2 of the circular dated 04.09.2018 would not dis-entitle the petitioner from claiming the refund amount. The respondent was directed to make the payment of the refund with statutory interest within eight weeks.