Amendment to Rule 89(4) CGST Rules 2017 Applies Prospectively, Refund Denials Quashed for Pre-Amendment Period

The HC held that the amendment to Rule 89(4) of the CGST Rules, 2017, introduced by Notification No. 14/2022 dated 05.07.2022, is substantive and applies prospectively, not retrospectively. The amendment, which mandates a comparison between two values for refund of unutilised ITC of compensation cess on zero-rated supplies, was not in effect at the time of the impugned orders. Since the period in question predates the amendment, the court quashed and set aside the impugned orders denying refunds. The writ applications were allowed accordingly.

---

---

Issues Involved:
1. Validity of Paragraph 47 of Circular No. 125/44/2019-GST dated 18.11.2019.
2. Applicability of amended Rule 89(4) of CGST Rules, 2017, introduced by Notification No. 14/2022-Central Tax dated 05.07.2022.

Summary:

Issue 1: Validity of Paragraph 47 of Circular No. 125/44/2019-GST

The petitioner challenged Paragraph 47 of Circular No. 125/44/2019-GST dated 18.11.2019, which stipulates that while processing refund claims in case of exports, the lower of the values indicated in the tax invoice and the shipping bill should be taken into account. The petitioner argued that this stipulation is beyond the purview of and ultra vires the provisions of the CGST Act, 2017, and the CGST Rules, 2017, and is arbitrary, unreasonable, and violative of Articles 14 and 19(1)(g) of the Constitution of India.

The court refrained from deliberating upon the validity of Paragraph 47 due to the subsequent amendment in Rule 89(4) of the CGST Rules, 2017, which introduced an explanation similar to Paragraph 47.

Issue 2: Applicability of Amended Rule 89(4) of CGST Rules, 2017

The petitioner contended that the amendment to Rule 89(4) of the CGST Rules, 2017, introduced by Notification No. 14/2022-Central Tax dated 05.07.2022, should not have retrospective effect. The court examined whether the amendment, which introduced a new stipulation for comparison between two values, is substantive or clarificatory. It was determined that the amendment brought about a substantive change and should operate prospectively. The court noted that the amendment was not in existence at the time of passing the Order in Appeal dated 11.10.2021, and the notification did not indicate any retrospective effect for Rule 89(4).

Conclusion:

The court held that the amendment to Rule 89(4) of the CGST Rules, 2017, which came into effect on 05.07.2022, is not clarificatory and thus will have a prospective effect. Consequently, the respective impugned orders in the writ applications were quashed and set aside, and the writ applications were allowed.

---