High Court Upholds Taxpayer's Right to Claim Unutilized Input Tax Credit, Directs Prompt Refund Review Under GST Rules

HC ruled in favor of the petitioner, quashing deficiency memos related to Input Tax Credit (ITC) refund. The court directed respondent to reconsider the refund application for unutilized ITC from inverted duty structure, emphasizing that previous zero-rated export refunds do not preclude additional ITC claims. Respondent must review supporting documents and decide on refund within four weeks.

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Issues involved:
The judgment deals with three writ petitions challenging deficiency memos issued by the respondent regarding unutilized Input Tax Credit (ITC) arising from an inverted duty structure and refund of IGST on zero-rated exports.

Issue 1: Unutilized ITC due to inverted duty structure
The petitioner, a textile manufacturing company, claimed unutilized ITC due to the inverted duty structure where the tax on raw material (12%) exceeded the tax on the final product (5%). The petitioner also undertook export sales and received IGST refunds for zero-rated exports. However, the refund application for unutilized ITC was rejected based on deficiency memos citing reasons related to previous refunds and lack of debit entries.

Issue 2: Rejection of refund application
The deficiency memos specified reasons for rejecting the refund claim, including the petitioner's previous receipt of refunds for zero-rated exports and the absence of debit entries for the refund claim. The respondent argued that the petitioner could file a fresh refund application after rectifying the deficiencies.

Judgment:
The court quashed the deficiency memos and remanded the matter for re-consideration. It was clarified that receiving refunds for zero-rated exports does not prevent the petitioner from claiming a refund for unutilized ITC under Section 54 of the GST Act. The court also emphasized the importance of submitting all necessary supporting documents to establish the claim for refund related to input goods affected by an inverted duty structure. The respondent was directed to consider any further supporting documents provided by the petitioner within two weeks and dispose of the refund applications within four weeks thereafter.

Conclusion:
The writ petitions were disposed of with no costs, and the associated miscellaneous petitions were closed as per the terms outlined in the judgment.

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