2024 (12) TMI 511 - HC - GST

Notification 14/2022 amending Rule 89(5) applies retrospectively to all unutilized input tax credit refund applications

Ascent Meditech Ltd Versus Union of India & Ors.

Gujarat HC allowed the petition challenging rejection of unutilized input tax credit refund application. The court held that Notification No. 14/2022 ... Refund of unutilized input tax credit - refund application filed by the petitioner was rejected by the impugned order dated 24.08.2023 relying upon Circular dated 10.11.2022 on the ground that new formula can apply only to refund applications filed after 05.07.2022 - HELD THAT:- Comparing the amendment with the unamended Rule 89 (5), it is clear that for the inverted rated supply of goods and service instead of “the adjusted total turnover” the words “ITC availed on inputs and input services” has been substituted. Thus, the “adjusted total turnover” which is defined in sub-clause (b) as per the sub-rule (4) has been given a go-by. Therefore, numerator and denominator are made in harmony which was not there prior to the amendment which had resulted anomaly in the formula - Thus, it is apparent that the amendment made by the Notification No. 14/2022 is clarificatory only as per the decision of the GST Council pursuant to the direction issued by the Hon’ble Apex Court. The impugned Circular No. 181/2022 dated 10.01.2022 which provides the clarification is contrary to the purport of the amendment brought on statute pursuant to the recommendation of the GST Council as per the direction issued by the Hon’ble Apex Court to remove the anomaly in the formula in Rule 89 (5). Reliance placed by the petitioner on the decision in case of Allied Motors (P.) Ltd [1997 (3) TMI 9 - SUPREME COURT] would be squarely applicable in the facts of the case wherein the Hon’ble Apex Court has held 'In fact the amendment would not serve its object in such a situation unless it is construed as retrospective. The view, therefore, taken by the Delhi High Court cannot be sustained.' In case of Collector of Central Excise, Shilong vs. Wood Craft Products Ltd [1995 (3) TMI 93 - SUPREME COURT], the Hon’ble Apex Court has held that a clarificatory notification would take effect retrospectively and such a notification merely clarifies the position. Clarificatory notifications have been issued to end the disputes between the parties. Therefore, Notification No. 14/2022 dated 05.07.2022 cannot be applied prospectively for the refund claim which were made within two years as prescribed under section 54 (1) of the GST Act. It is not in dispute that the petitioner has filed refund claims within two years as stipulated in section 54 (1) of the Act. Considering the provisions of the GST Act, the same would be applicable in the facts of the case irrespective of the notification issued by the CBIC pursuant to the decision taken by the GST council as per the direction issued by the Hon’ble Supreme Court. The petitioner cannot be denied the refund as per the provision of 54 (3) of the Act only because the petitioner has been granted the refund prior to 05.07.2022 as it would create a discrimination resulting into inequality between the assesses who have been granted refund prior to 05.07.2022 and the assesses who have applied for refund after 05.07.2022. The impugned circular is therefore contrary to the provisions of the Act as it cannot be said that the refund applications filed after 05.07.2022 would only be entitled to the benefit of the amended Rule 89 (5) of the Act - In the facts of the case the petitioner has made rectification applications for refund as per new amended formula within two years. Moreover, as held by this Court in the decisions in case of Shree Renuka Sugars Ltd (supra) and in case of Pee Gee Fabrics Ltd [2023 (9) TMI 905 - GUJARAT HIGH COURT], there is no embargo on preferring second refund application if the petitioner is entitled to the same within the period of two years. The impugned order dated 24.08.2023 is hereby quashed and set aside. The Circular No. 181/22 dated 10.11.2022 so far as it clarifies that the amendment is not clarificatory in nature is quashed and set aside and it is held that the Notification No. 14/2022 is applicable retrospectively as the amendment brought in Rule 89 (5) of the Rules is curative and clarificatory in nature and the same would be applicable retrospectively to the refund or rectification applications filed within two years as per the time period prescribed under section 54 (1) of the Act. Rule is made absolute to the aforesaid extent. Petition allowed. Issues Involved:1. Validity of the circular dated 10.11.2022 and its prospective application.2. Retrospective applicability of the amendment to Rule 89(5) of the GST Rules.3. Discrimination between refund applicants based on the timing of their applications.4. Interpretation of statutory amendments as clarificatory or curative.Issue-wise Detailed Analysis:1. Validity of the Circular Dated 10.11.2022 and Its Prospective Application:The petitioner challenged the circular dated 10.11.2022, which clarified that the amended formula under Rule 89(5) of the GST Rules would apply prospectively from 05.07.2022. The petitioner argued that the circular was contrary to the legislative history and the Supreme Court's directions, which intended to remove anomalies in the formula for refund calculation. The court found that the circular's interpretation was inconsistent with the purpose of the amendment, which was to clarify and correct the formula as per the Supreme Court's directive. Therefore, the circular's prospective application was deemed contrary to the amendment's intent.2. Retrospective Applicability of the Amendment to Rule 89(5) of the GST Rules:The petitioner contended that the amendment to Rule 89(5) should be applied retrospectively, as it was curative and clarificatory in nature. The court agreed, citing precedents that clarificatory amendments typically have retrospective effect. The court emphasized that the amendment was intended to align the formula with the statutory provision under Section 54(3) of the GST Act, correcting defects in the previous formula. Consequently, the amendment was applicable to refund applications filed within the statutory period of two years, even if filed before the amendment's notification date.3. Discrimination Between Refund Applicants Based on Timing:The petitioner argued that applying the amended formula only to applications filed after 05.07.2022 created discrimination among taxpayers. Those who filed before this date were deprived of the benefits of the corrected formula, despite being part of the same class of taxpayers. The court found this approach discriminatory and inconsistent with the principles of equality under Article 14 of the Constitution. It ruled that all refund applications filed within the statutory period should be processed using the amended formula, regardless of the filing date, to ensure fairness and equality.4. Interpretation of Statutory Amendments as Clarificatory or Curative:The court examined whether the amendment to Rule 89(5) was clarificatory or substantive. It concluded that the amendment was clarificatory, as it sought to rectify anomalies and align the formula with legislative intent. The court referenced the Supreme Court's decision in Allied Motors (P.) Ltd. v. Commissioner of Income Tax, which held that curative amendments should be applied retrospectively. The court emphasized that the amendment was designed to ensure the provision's workability and reasonableness, warranting its retrospective application.Conclusion:The court quashed the impugned order dated 24.08.2023 and set aside the circular dated 10.11.2022 to the extent it declared the amendment non-clarificatory. It held that the amendment to Rule 89(5) was applicable retrospectively, allowing refund or rectification applications filed within two years to benefit from the amended formula. The decision emphasized the need for equitable treatment of taxpayers and adherence to legislative intent in interpreting statutory amendments.