Notification 54/2018 applies prospectively from October 9, 2018, cannot recover refunds granted before notification date

Gujarat HC quashed show cause notice dated 31.03.2023 seeking recovery of refund, holding it was without jurisdiction. Court ruled Notification No. 54/2018 Central Tax applies prospectively from 9.10.2018 only, not retrospectively. Petitioner's objection was upheld that refunds prior to notification date cannot be recovered. The impugned notice was set aside as amount quantified for period before 9.10.2018 towards alleged erroneous refund would not survive due to prospective application of notification.

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Issues Involved:

1. Retrospective vs. Prospective Application of Notification No. 54/2018-Central Tax.
2. Legality of the Show Cause Notice Issued under Section 74 of the GST Acts.
3. Compliance with Rule 96(10) of the CGST Rules.

Issue-wise Detailed Analysis:

1. Retrospective vs. Prospective Application of Notification No. 54/2018-Central Tax:

The primary issue was whether Notification No. 54/2018-Central Tax, which amended Rule 96(10) of the CGST Rules, should apply retrospectively or prospectively. The petitioner contended that the notification should be applied prospectively from its issuance date, 9th October 2018, as clarified by the Central Board of Indirect Taxes and Customs (CBIC) and reiterated by subsequent circulars. The petitioner argued that applying the notification retrospectively would unjustly affect previously sanctioned refunds. The court acknowledged the rectification order in the case of Cosmo Films Limited, which clarified that Notification No. 54/2018 was intended to be prospective, effective from 9th October 2018, not retrospectively from 23rd October 2017. This rectification corrected the apparent mistake in the earlier judgment, ensuring that the notification's application was aligned with the legislative intent and the CBIC's clarifications.

2. Legality of the Show Cause Notice Issued under Section 74 of the GST Acts:

The petitioner challenged the show cause notice dated 31st March 2023, which sought to recover IGST refunds for the period starting from October 2017, arguing it was based on a misinterpretation of Notification No. 54/2018. The court found that the notice was issued without jurisdiction as it relied on the retrospective application of the notification, contrary to the rectified understanding that it should apply prospectively. Consequently, the court quashed the show cause notice, holding that any recovery of refunds for the period prior to 9th October 2018 was unwarranted and without legal basis.

3. Compliance with Rule 96(10) of the CGST Rules:

The petitioner argued that they complied with the conditions of Rule 96(10) as amended by Notification No. 54/2018, which prohibited claiming IGST refunds if certain benefits were availed. The petitioner had ceased exporting on payment of IGST upon learning of the notification and had returned refunds for transactions conducted after the notification's effective date. The court recognized the petitioner's compliance efforts and noted that the retrospective imposition of conditions through Rule 96(10) was inappropriate, given the prospective application of the notification. This acknowledgment further supported the decision to quash the show cause notice and affirmed the petitioner's adherence to the applicable rules post-notification.

Conclusion:

The court concluded that Notification No. 54/2018-Central Tax should be applied prospectively from 9th October 2018, aligning with the rectification order in the Cosmo Films Limited case. The show cause notice issued based on a retrospective application was deemed without jurisdiction and was quashed. The petition was disposed of with the rule made absolute to the extent of the prospective application of the notification, with no order as to costs.

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