2025 (10) TMI 111 - HC - GST

Order denying refund of IGST under impugned notification quashed; revenue to redecide refund with interest within 12 weeks

S.N. Tradelink Pvt Ltd. Versus State Of Gujarat & Ors.

HC quashed the order denying refund of IGST paid pursuant to the impugned notification and directed revenue authorities to pass a fresh de-novo order ... Refund of the amount of IGST paid by the Petitioner pursuant to Entry No. 10 of N/N. 10/2017-IGST (Rate) dated 28.6.2017 along with appropriate interest - the refund was based on the notification having been declared unconstitutional by the Hon’ble Supreme Court [2022 (5) TMI 968 - SUPREME COURT] - it was submitted that the respondents have verified the reversal of credit utilised under SGST towards IGST by filing Form GST DRC-03 and such reversal was found to be correct - HELD THAT:- The impugned order of rejecting the refund claim of the petitioner is hereby quashed and set aside and the respondent authorities are directed to pass a fresh de-novo order to grant refund to the petitioner in view of decision of Hon’ble Apex Court in case of Mohit Minerals Pvt. Ltd. [2022 (5) TMI 968 - SUPREME COURT] and other decisions of this Court cited by learned advocate for the petitioner. Such exercise shall be completed within a period of 12 weeks from the date of receipt of a copy of this order. Petition disposed off ISSUES PRESENTED AND CONSIDERED 1. Whether limitation under section 54 of the CGST Act applies to refund claims based on a notification subsequently declared unconstitutional. 2. Whether refund of IGST paid on ocean freight can be rejected as time-barred where the claim follows a judicial declaration invalidating the statutory basis for levy. 3. Whether refund can be denied on the ground that Input Tax Credit (ITC) under IGST head was 'utilised' when credits available under CGST/SGST heads were subsequently reversed to IGST. 4. Whether rectification of returns or electronic reversal (Form DRC-03) to revive IGST balance is permissible to enable a refund claim, and the effect of such reversal on the refund entitlement. 5. Whether the authority's orders rejecting refund applications should be quashed and remitted for fresh decision in light of higher judicial precedent and factual reversal of credits. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Applicability of section 54 limitation where levy/notification declared unconstitutional Legal framework: Section 54 prescribes time limit and conditions for claiming refund of tax under the CGST Act. Constitutional invalidation of a levy or notification removes the legal basis for collection of tax. Precedent Treatment: The Court relied on the principle established by the Supreme Court that when a statute or notification is held unconstitutional, claims for restitution/ refund arise notwithstanding ordinary limitation periods applicable to statutory refund schemes. Interpretation and reasoning: The Court reasoned that the refund claim is founded on the invalidity of the notification (i.e., the tax was collected without lawful authority). In such circumstances limitation under section 54 cannot operate to deny a remedy for recovery of amounts paid pursuant to an unconstitutional provision, because the payment was without lawful cause. Ratio vs. Obiter: Ratio - Limitation under section 54 does not bar refund claims where payment is shown to flow from a provision subsequently declared unconstitutional. Conclusions: The Court held that the statutory time bar in section 54 is not a complete bar to refund in cases where the tax/notification has been declared unconstitutional; the refund claim therefore is not time-barred on that ground alone. Issue 2 - Rejection of refund as time-barred for claims relating to earlier years after a later judicial pronouncement Legal framework: Claims for refund must comply with the procedural and temporal requirements of the statute unless an exception applies; restitution for payments made under void enactments is a distinct remedial principle. Precedent Treatment: The Court followed earlier decisions of the High Court applying the Supreme Court's approach to refunds arising from invalid levies and held that temporal limits cannot defeat such restitutionary claims. Interpretation and reasoning: The Court observed that the petitioner's applications followed the higher court's decision and were supported by documentary evidence including CA certificates; thus the timing of applications after the judicial declaration did not alone justify rejection where the underlying collection was invalid. Ratio vs. Obiter: Ratio - Temporal delay post pronouncement does not ipso facto preclude refund of amounts collected under an invalid provision; authorities must consider substantive entitlement. Conclusions: The Court concluded that the authorities erred in rejecting refund applications solely on the ground that they pertained to earlier periods; the applications could not be summarily dismissed as time-barred in view of the invalidity of the impugned provision. Issue 3 - Effect of 'utilisation' of IGST credit and availability of CGST/SGST credits on refund entitlement Legal framework: Section 49(5) and Rule 88A govern the order of utilisation of input tax credit across IGST, CGST and SGST ledgers; section 54(3) sets out conditions for refund where unutilized ITC is involved. Precedent Treatment: The Court relied on earlier High Court decisions addressing the doctrine that automatic ledger utilisation does not mean substantive constructive utilisation such that refund becomes unavailable; authorities have recognized that reversal or rectification can restore balances if appropriately shown. Interpretation and reasoning: The Court noted the respondents' contention that IGST was 'availed and utilized' and observed that the petitioner had asserted correct order of utilisation in accordance with section 49(5) and Rule 88A. The Court further observed that mere ledger entries reflecting utilisation do not extinguish the substantive right to restitution where credits are legitimately reversed to IGST and documentary proof exists. Ratio vs. Obiter: Ratio - Where an applicant demonstrates (and subsequently effectuates) reversal of credits to revive IGST balance, the fact of prior automatic utilisation does not conclusively defeat a refund claim; authorities must consider the actual ledger position and documentary evidence. Conclusions: The Court found that the denial of refund on the ground of utilisation was not justified in the circumstances, particularly in view of the petitioner's reversal by filing Form DRC-03 and verification by respondent authorities that such reversal was correct. Issue 4 - Permissibility and effect of rectification/DRC-03 reversal to enable refund Legal framework: The GST procedural scheme permits rectification of returns and adjustments in electronic credit ledger by prescribed forms (e.g., DRC-03) subject to verification; such steps can alter ledger balances relevant to refund eligibility. Precedent Treatment: The Court treated prior High Court orders as supporting the view that post-claim rectification and reversal can be effective to revive an IGST balance and thereby render an applicant eligible for refund, provided the reversal is bona fide and verified. Interpretation and reasoning: The Court recorded that the petitioner filed DRC-03 to reverse SGST credits to IGST and that the respondents verified and accepted the reversal. Given verification, the Court held that the authorities must proceed to decide refund on the fresh facts including the revived IGST balance. Ratio vs. Obiter: Ratio - Valid reversal effected through prescribed mechanisms (Form DRC-03) and accepted on verification by authorities will be treated as restoring the requisite IGST balance for refund purposes; authorities must consider such reversal when adjudicating refund claims. Conclusions: The Court concluded that the reversal by Form DRC-03, having been verified as correct, renders the petitioner eligible to press the refund claim and that the prior rejection on account of utilisation is unsustainable. Issue 5 - Necessity to quash impugned orders and remit for fresh decision in light of law and verified facts Legal framework: Judicial review under Article 226 permits quashing of administrative orders that fail to consider binding legal principles or relevant verified factual changes, and remittal for de-novo consideration. Precedent Treatment: The Court applied established practice of setting aside orders where authorities applied incorrect legal tests (e.g., rigid application of limitation or treating automatic ledger utilisation as conclusive) and remitting for reconsideration in light of controlling judicial precedent and updated ledger positions. Interpretation and reasoning: Given the legal position that refunds following invalidation of a levy are maintainable and the factual position that credits were reversed and verified, the Court found the impugned rejection orders unsustainable. The Court directed fresh adjudication de-novo within a fixed timeframe to ensure effective relief consistent with precedent and the verified ledger position. Ratio vs. Obiter: Ratio - Administrative orders rejecting refund claims must be quashed where they ignore binding judicial decisions or verified factual reversals; the proper course is remittal for fresh decision within a reasonable time. Conclusions: The Court quashed the impugned orders and directed the authority to pass a fresh de-novo order on the refund claims within twelve weeks from receipt of the order, taking into account the judicially declared invalidity of the impugned provision and the verified DRC-03 reversal.