Refund application for accumulated Input Tax Credit under inverted duty structure filed within two-year limitation period

Gujarat HC held that petitioner's refund application for accumulated Input Tax Credit under inverted duty structure was filed within two-year limitation period. Original application dated 17.09.2018 for 2017-18 was timely filed, and subsequent application dated 2.01.2020 after deficiency memo was continuation of first application. Following precedent in LA-GAJJAR MACHINERIES case, HC quashed rejection order dated 20.02.2020 based on limitation grounds and restored refund application for fresh consideration on merits. Petition allowed.

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Issues Involved:
1. Eligibility for refund of accumulated Input Tax Credit (ITC) due to inverted duty tax structure.
2. Time limit for filing refund application.
3. Validity of manual refund applications.
4. Applicability of Circulars and Notifications regarding refund claims.
5. Exclusion of time period due to deficiency memos.

Detailed Analysis:

1. Eligibility for Refund of Accumulated ITC:
The petitioner, a partnership firm engaged in textile dyeing and printing, claimed eligibility for a refund of accumulated ITC due to an inverted duty tax structure from July 2017 under Section 54(3)(ii) of the Central Goods and Services Tax Act, 2017 (CGST Act). The petitioner filed the necessary forms and applications for the refund.

2. Time Limit for Filing Refund Application:
The petitioner filed the refund application on 17.09.2018. However, due to jurisdictional ambiguities, the application was transferred and refiled on 10.12.2019. Respondent No. 2 issued a show cause notice stating that the refund application was time-barred as it exceeded the two-year limit from the due date of filing the return under Section 39 of the CGST Act. The petitioner contended that the original application date should be considered for the limitation period.

3. Validity of Manual Refund Applications:
Due to the non-availability of the refund module on the common portal, the petitioner filed the refund application manually, as permitted by Circular No. 24/24/2017-GST dated 21.12.2017. The petitioner argued that the manual filing was valid and should be considered for the refund claim.

4. Applicability of Circulars and Notifications:
The petitioner cited Circular No. 17/2017, which allowed manual refund applications, and argued that the respondent authorities could not deny the refund based on Circular No. 37/2018, which was not applicable to their case. The petitioner also referred to a prior judgment (M/s. LA-Gajjar Machineries Private Limited v. Union of India) which held that the original refund application date is relevant for considering the limitation period.

5. Exclusion of Time Period Due to Deficiency Memos:
The petitioner received deficiency memos asking for additional documents and filed the rectified applications accordingly. The court considered whether the period from the original filing to the issuance of the deficiency memo should be excluded from the limitation period. The court referred to the Delhi High Court's decision in National Internet Exchange of India, which held that the limitation period stops running from the date of the original application, even if further documents are required.

Judgment:
The court concluded that the original refund application filed on 17.09.2018 should be considered within the period of limitation. The subsequent applications filed after receiving deficiency memos were deemed to be in continuation of the original application. The court cited Notification No. 15/2021, which clarifies that the time period from the filing of the original refund claim to the communication of deficiencies should be excluded from the two-year limitation period.

Order:
The court allowed the petitions, quashing the impugned order dated 20.02.2020, which rejected the refund application on the ground of limitation. The refund application dated 17.09.2018 was restored for consideration by the proper officer, who was directed to pass a fresh order on merits within 12 weeks. The rule was made absolute to the extent specified, with no order as to costs.

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