2023 (10) TMI 924 - HC - GST

Rule 36(4) CGST: Circular on provisional ITC unenforceable; recovery quashed and refund with 6% interest ordered

HC held that Rule 36(4) CGST Rules, 2017 is complete in itself and that its first proviso, applicable for February 2020 to August 2020, relaxes the 10% ... Cumulative application of the proviso to Rule 36(4) of the CGST Rules, 2017 - deeming fiction treating February 2020 to August 2020 as a single tax period for applicability of Rule 36(4) - provisional entitlement to input tax credit and self-assessment under Section 16 and Section 41 - inapplicability/enforcement failure of administrative Circular where inconsistent with statutory amendment - restitution for excess recovery and entitlement to interest on unlawful recovery - no implied stay of recovery in writ proceedings absent express interim orderCumulative application of the proviso to Rule 36(4) of the CGST Rules, 2017 - deeming fiction treating February 2020 to August 2020 as a single tax period for applicability of Rule 36(4) - cumulative adjustment to be furnished in GSTR-3B for September 2020 - Scope and effect of the first proviso to Rule 36(4) - whether the eligible ITC for February 2020 to August 2020 must be computed month by month as per GSTR 1/GSTR 2A dates or cumulatively for that block and adjusted in the GSTR 3B for September 2020. - HELD THAT: - The first proviso to Rule 36(4) must be read as creating a limited statutory deeming fiction for the period February 2020 to August 2020, permitting the condition in sub rule (4) to be applied cumulatively for that period. The proviso deliberately erases the monthly partitions for that specified period and allows registered persons to make a cumulative adjustment of ITC in the GSTR 3B for the tax period September 2020. That cumulative adjustment contemplates taking the ITC aggregated for the block (with the additional percentage permitted by the rule at the relevant time) and comparing it with the ITC availed for the block, rather than mechanically applying the month to month computation prescribed by the main part of sub rule (4). The legislative choice to require the September 2020 return to be furnished with a 'cumulative adjustment' indicates the cumulative figure is to be given effect in the September 2020 return; reading the proviso as doing no more than deferring computation to dates when suppliers filed GSTR 1 would negate the purpose and language of the proviso. The court therefore rejects the revenue's contention that the proviso merely delayed or fixed the computation to the supplier's GSTR 1 due dates and holds that the proviso authorises block/cumulative treatment for February August 2020, to be reflected in GSTR 3B for September 2020. [Paras 74, 75, 76, 77, 78]The proviso to Rule 36(4) must be applied cumulatively for February 2020 to August 2020 and the cumulative adjustment of ITC is to be made in the GSTR 3B for September 2020; month to month reconciliation alone is not the correct test for that specified period.Inapplicability/enforcement failure of administrative Circular where inconsistent with statutory amendment - effect of Notification No.30/2020 and Circular No.136/2020 - Whether Circular No. 123/42/219 GST dated 11.11.2019 (and the interpretation placed on it by revenue) can be invoked to require month to month reconciliation for the period February 2020 to August 2020 in the face of the first proviso to Rule 36(4). - HELD THAT: - A Circular is an administrative clarification and cannot override a later statutory amendment. The first proviso to Rule 36(4), introduced by Notification No.30/2020 and explained by Circular No.136/2020, altered the legal position for the period February 2020 to August 2020 by permitting cumulative application of sub rule (4). To the extent the earlier Circular dated 11.11.2019 was inconsistent with that proviso insofar as it required month to month reconciliation based on the supplier's GSTR 1 due dates, it lost efficacy for the specified period. The revenue's reliance on the earlier Circular to insist on a month wise application for the block February August 2020 is therefore misplaced and contrary to the amended statutory rule; the Circular cannot be enforced to defeat the statutory proviso. [Paras 80, 81, 82]Circular No. 123/42/219 GST dated 11.11.2019 cannot be applied contrary to the first proviso to Rule 36(4) for the period February 2020 to August 2020; where inconsistent, the statutory proviso prevails.Restitution for excess recovery and entitlement to interest on unlawful recovery - no implied stay of recovery in writ proceedings - Legitimacy of revenue's recovery during pendency of writ and remedy for amounts recovered in excess of the disputed demand, including interest. - HELD THAT: - The court recognised the settled principle that there is no implied stay of recovery in writ proceedings absent an express order; accordingly, revenue was not in error in effecting recovery of the disputed demand during pendency. However, while recovery may be made, the revenue was obliged to account for amounts already pre deposited by the petitioner and must not effect an unlawful excess recovery. The respondents had recovered the entire disputed tax and penalty and, in addition, recovered an amount beyond the disputed demand. The impugned order adopting month to month reconciliation was quashed; the excess amount recovered must be refunded. The court directed restitution of the entire amount recovered and awarded interest at 6% on the excess recovery amount from the date of such excess recovery until refund. The court also left open the right of the State to recover up to 10% of that interest from field/supervisory officers responsible for the excess recovery in proportion to their culpability. [Paras 87, 88, 89]Impugned recovery is quashed; the entire amount recovered shall be returned and the petitioner is entitled to interest at 6% on the excess recovery of the pre deposited amount; revenue may pursue proportionate recovery from culpable officers for a part of the interest.Final Conclusion: Writ petition allowed. The first proviso to Rule 36(4) is to be applied cumulatively for February 2020 to August 2020 and the cumulative adjustment of ITC is to be made in the GSTR 3B for September 2020; the earlier CBIC Circular of 11.11.2019 cannot be enforced so as to contradict that proviso for the specified period. The impugned order is quashed; amounts recovered must be refunded and the petitioner is entitled to interest at 6% on the excess recovery, with liberty to the State to recover up to 10% of that interest from responsible officers. Issues Involved:1. Primary Relief Against Order Dated 7.4.20212. Recovery of Disputed Amount During Pendency of Writ Petition3. Interpretation of Rule 36(4) and First Proviso of CGST Rules, 20174. Validity and Applicability of Circular No. 123/42/219-GSTSummary:1. Primary Relief Against Order Dated 7.4.2021The petitioner challenged the order dated 7.4.2021 passed by the Deputy Commissioner, which directed the reversal of excess Input Tax Credit (ITC) amounting to Rs. 110,06,90,100.31 for the period February 2020 to August 2020. This was construed as a violation of Rule 36(4) of the CGST Rules, 2017, leading to a total demand of Rs. 235.52 crores, including interest and penalty. The petitioner had provisionally deposited Rs. 11,00,69,010/- against the disputed demand but disputed the entire liability.2. Recovery of Disputed Amount During Pendency of Writ PetitionDespite the stay application pending, the respondents recovered the entire tax amount and penalty, excluding interest, totaling Rs. 220,13,80,200.60. The court noted that there is no implied stay of recovery unless granted by the court, and the revenue authorities were not in error for recovering the disputed amount during the pendency of the writ petition. However, it was unacceptable that the authorities recovered 110% of the disputed amount without accounting for the pre-deposited amount.3. Interpretation of Rule 36(4) and First Proviso of CGST Rules, 2017The primary issue was the interpretation of the first proviso to Rule 36(4) of the CGST Rules, 2017. The court held that the cumulative adjustment of ITC for the months February 2020 to August 2020 should be considered as a single tax period for the purpose of filing the return for September 2020. The court rejected the revenue's contention that the ITC should be computed on a month-to-month basis and emphasized that the proviso allowed for a cumulative adjustment to be made in the return for September 2020.4. Validity and Applicability of Circular No. 123/42/219-GSTThe court found that the reliance on Circular No. 123/42/219-GST dated 11.11.2019 by the revenue authorities was misplaced. The circular, being an administrative instruction, could not override the statutory law introduced by the first proviso to Rule 36(4). The court held that the circular lost its enforceability for the period February 2020 to August 2020 due to the statutory intervention made by the first proviso to Rule 36(4).Conclusion:The impugned order was quashed, and the court directed the refund of the entire amount recovered within six weeks, along with interest at 6% on the excess recovery of Rs. 11,00,69,010/-. The court also left it open for the respondent State to recover up to 10% of the interest amount from the erring officers. The writ petition was allowed with no order as to costs.