2024 (12) TMI 511 - HC - GST

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

Gujarat HC allowed the petition challenging rejection of unutilized input tax credit refund application. The court held that Notification No. 14/2022 ... Clarificatory / curative amendment - retrospective operation of subordinate legislation - refund of unutilised input tax credit under inverted duty structure - applicability of amended Rule 89(5) to pending/earlier refund applications - non-discrimination under Article 14 in grant of statutory refund - rectification application within statutory limitation under section 54(1)Clarificatory / curative amendment - retrospective operation of subordinate legislation - applicability of amended Rule 89(5) to pending/earlier refund applications - Whether Notification No.14/2022 amending Rule 89(5) is clarificatory/curative and therefore applicable retrospectively to refund or rectification applications filed within the twoyear period under section 54(1). - HELD THAT: - The Court compared the amended and unamended texts of Rule 89(5) and the legislative history, including the Supreme Court's direction to the GST Council to remove anomalies in the formula. The amendment substituted a harmonising denominator (ITC availed on inputs and input services) which cured the anomaly between numerator and denominator in the formula. Having regard to (a) the purpose of the amendment to remove the anomaly identified by the Apex Court, (b) the curative character of the change which aligns the Rule with the statutory mandate in section 54(3), and (c) authorities recognising retrospective effect for clarificatory/curative amendments, the Court held that the amendment is clarificatory/curative in nature and must be given retrospective effect. Consequently, the amended formula is applicable to refund and rectification applications filed within the twoyear period prescribed by section 54(1), irrespective of whether the initial refund had been sanctioned earlier under the old formula. [Paras 41, 42, 44, 45, 47]Notification No.14/2022 amending Rule 89(5) is clarificatory/curative and applicable retrospectively to refund or rectification applications filed within two years under section 54(1).Refund of unutilised input tax credit under inverted duty structure - rectification application within statutory limitation under section 54(1) - non-discrimination under Article 14 in grant of statutory refund - Whether the petitioner, having filed a rectification application within two years, is entitled to claim refund computed as per the amended Rule 89(5) and whether refusal based on CBIC Circular dated 10.11.2022 is sustainable. - HELD THAT: - The Court observed that section 54(1) permits filing refund applications within two years from the relevant date and that the petitioner filed rectification within that limitation. Applying the conclusion that the amendment is clarificatory and retrospective, the Court found that denying the petitioner the benefit of the amended formula solely because an earlier refund had been sanctioned under the old formula would produce an unjustified disparity between assessees similarly situated. The impugned Circular, which stated the amendment was not clarificatory and applied only prospectively, was held to be contrary to the purport of the amendment and the GST Council's decision made pursuant to the Apex Court's directions. The Court therefore concluded that the petitioner is entitled to have its rectification/refund assessed as per the amended formula. [Paras 43, 47, 48]The petitioner, having filed rectification within the twoyear period, is entitled to claim refund computed under the amended Rule 89(5); the CBIC Circular to the contrary is unsustainable.Quashing of administrative order and circular - Whether the impugned adjudicatory order rejecting the rectification/refund and the CBIC Circular (No.181/13/2022GST dated 10.11.2022) should be quashed. - HELD THAT: - Applying the conclusions on retrospective applicability and entitlement, the Court held that the impugned order rejecting the petitioner's rectification/refund was incorrect. The Circular's observation that the amendment was not clarificatory was found to be contrary to the amendment's purpose and the GST Council's decision; accordingly, the Circular was quashed to the extent it negatived retrospective application. The Court made the rule absolute to this limited extent and set aside the impugned order. [Paras 43, 48]Impugned order dated 24.08.2023 is quashed and set aside; Circular No.181/13/2022GST dated 10.11.2022 is quashed insofar as it declares the amendment nonclarificatory and denies retrospective application.Final Conclusion: The petition is allowed to the extent that Notification No.14/2022 amending Rule 89(5) is held clarificatory/curative and applicable retrospectively to refund and rectification applications filed within two years under section 54(1); the impugned rejection order is quashed and the CBIC Circular dated 10.11.2022 is quashed insofar as it denies retrospective effect. The petitioner is entitled to have its refund/rectification considered in accordance with the amended formula. 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.