Curative GST refund formula amendment held retrospective, restoring entitlement to inverted duty structure refunds.

A curative amendment to Rule 89(5) of the CGST Rules that removes an anomaly in the refund formula for inverted duty structure operates retrospectively, because it is clarificatory and makes the provision workable. The amended computation of net ITC, including input services, therefore applied to refund and rectification applications filed within the statutory period under Section 54(1). The Court held that the refund claims were wrongly rejected on an incorrect legal understanding and upheld entitlement to refund of accumulated input tax credit under Section 54(3) of the CGST Act. The refund rejection orders and appellate order were quashed.

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Issues: Whether Notification No. 14/2022-Central Tax dated 05.07.2022 and the amended Rule 89(5) of the CGST Rules, 2017 applied retrospectively to refund applications filed before 05.07.2022, and whether the petitioner was entitled to refund of accumulated input tax credit arising from inverted duty structure under Section 54(3) of the CGST Act, 2017.

Analysis: The amendment to Rule 89(5) was introduced to remove the anomaly in the refund formula by bringing the treatment of input services into the computation of net ITC. The clarification issued by Circular No. 181/13/2022-GST stated that the amendment was prospective, but the Court held that the amendment was curative and clarificatory in nature. The Court applied the settled principle that a curative or declaratory amendment intended to remedy an unintended consequence and make the provision workable ordinarily operates retrospectively. On that basis, the amended formula was held applicable to refund and rectification applications filed within the statutory period under Section 54(1). The Court also found that the appellate authority had failed to apply the correct legal position and had wrongly rejected the refund claims.

Conclusion: The amendment and notification were held to apply retrospectively, and the petitioner was held entitled to refund under Section 54(3) of the CGST Act, 2017 on account of inverted duty structure.

Final Conclusion: The refund rejection orders and the appellate order were quashed, and the petitioner's entitlement to refund on the revised formula was upheld.

Ratio Decidendi: A curative amendment to the GST refund formula that removes an anomaly in the computation of refund under inverted duty structure is retrospective in operation and applies to refund applications filed within the statutory limitation period.

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