2023 (10) TMI 639 - HC - GST

GST refund petition allowed on remand due to supplier's HSN classification error under Rule 36(4) CGST Rules

Delhi HC allowed petition by remand in GST refund case involving unutilized Input Tax Credit under inverted duty structure. Petitioner's refund was denied ... Denial of refund of the unutilized Input Tax Credit (ITC) - inverted duty structure - Denial on the ground that the one of the suppliers had erroneously mentioned HSN 6404 in respect of the goods supplied in its invoices notwithstanding that it had also furnished the certificate acknowledging the same - HELD THAT:- The controversy relates to the six invoices issued by one of the suppliers (M/s V.K. Polymers). Undisputedly, the said supplier had charged the GST at the rate of 18% which is chargeable on PVC straps. There is no cavil that the tax chargeable on footwear (compete finished products) is 5% or 12%, depending on the value of the said product. The supplies made by M/s V. K. Polymers under the six invoices in question, were below the price of ₹1,000/-. Thus, if the said supplier had supplied a complete product, it would have charged GST at the rate of 5%. According to the petitioner, the petitioner had produced a certificate from the said supplier acknowledging that it had incorrectly classified the goods under HSN 6404 instead of HSN 6406. The fact that the GST had been charged by the said supplier at the correct rate is a material factor to be considered by the Adjudicating Authority. Whilst the concerned authorities have accepted the classification of the product supplied by a singular supplier, M/s V. K. Polymers, under six invoices, as correct; they have not accepted the classification of goods as far as the other suppliers are concerned. This is notwithstanding that there is no dispute that all suppliers have correctly charged the GST. Whether the petitioner would be entitled to the refund notwithstanding that the ITC availed for the month of October, 2020 and November, 2020 was in excess of the limit as specified in Rule 36(4) of the CGST Rules? - HELD THAT:- It is material to note that the learned counsel appearing for the respondents does not dispute that if the petitioner is correct that the mismatch is only on account of the suppliers filing the quarterly returns, the petitioner would be entitled to the refund. He, however, states that the petitioner did not submit the relevant documents to establish this claim - the learned counsel appearing for the parties state that in the aforesaid circumstances, the matter be remanded to the Adjudicating Authority to consider the matter afresh, with liberty to the petitioner to produce all the documents as to substantiate its claims. The matter is remanded to the Adjudicating Authority to consider the petitioner’s claim regarding availing ITC in excess of the limit as prescribed under Rule 36(4) of the CGST Rules - petition allowed by way of remand. Issues Involved:1. Refund of unutilized Input Tax Credit (ITC) due to the inverted duty structure.2. Mismatch of figures in ITC claims.3. Ineligible ITC under Rule 36(4) of the CGST Rules.4. Incorrect classification of supplies by one of the suppliers.Summary:Issue 1: Refund of Unutilized ITC Due to Inverted Duty StructureThe petitioner, engaged in the business of selling footwear, sought a refund of Rs. 5,47,894/- for the period of July 2020 to December 2020, citing the inverted duty structure where inputs were taxed at a higher rate than outputs. The application for refund was submitted in FORM GST RFD-01 and acknowledged by the respondents in FORM GST RFD-02. However, a show cause notice in FORM GST RFD-08 was issued, flagging four issues.Issue 2: Mismatch of Figures in ITC ClaimsThe first two issues in the show cause notice pertained to mismatches in figures relating to eligible ITC between RFD-01, GSTR-3B, Annexure B, and GSTR-2A. The petitioner provided explanations which were accepted by the Adjudicating Authority, making these issues irrelevant for the present appeal.Issue 3: Ineligible ITC Under Rule 36(4) of the CGST RulesThe third issue concerned the violation of Rule 36(4) of the CGST Rules, which restricts ITC claims to not more than 20% of the eligible credit for invoices and debit notes not uploaded by the supplier. The petitioner was found to have availed excess ITC of Rs. 1,03,210.09/- for October and November 2020. The petitioner argued that this excess was due to suppliers filing quarterly returns, causing a mismatch in ITC claims for different months. The Adjudicating Authority rejected this explanation, citing the lack of supporting documents.Issue 4: Incorrect Classification of Supplies by One SupplierThe fourth issue related to one supplier, M/s V.K. Polymers, who erroneously classified PVC straps under HSN 6404 (finished products) instead of HSN 6406, despite charging the correct GST rate of 18%. The Adjudicating Authority rejected the petitioner's explanation and the supplier's certificate acknowledging the error, suspecting the petitioner of attempting to gain a cash refund through incorrect declarations.Court's Decision:The court found the Adjudicating Authority's suspicion-based rejection of the petitioner's explanation unsubstantiated. It emphasized that the correct GST rate charged by the supplier was a material factor and accepted the petitioner's explanation regarding the misclassification of goods. The court also noted that the claim for refund should not be denied solely due to the mismatch caused by quarterly returns of suppliers.Remand for Fresh Consideration:The court set aside the impugned orders dated 05.04.2021 and 18.02.2022, remanding the matter to the Adjudicating Authority for fresh consideration. The petitioner was given the liberty to submit all relevant documents to substantiate its claims. The Adjudicating Authority was directed to pass a fresh order within eight weeks.Conclusion:The petition was disposed of with directions for the Adjudicating Authority to reconsider the petitioner's claims regarding the excess ITC and incorrect classification issues, ensuring a fair reassessment based on the provided documents.