TaxTMI 
TaxTMI 
2023 (4) TMI 46
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....onstitutional for the reasons stated in the grounds; c. Issue a writ of certiorari or any other appropriate writ to quash impugned order passed by Respondent No. 3 in Form GST-RFD-06 dated 30.06.2020, enclosed as Annexure C for the reasons stated in the grounds; d. Issue a writ of mandamus or any other appropriate writ directing the Respondent No. 3 to accept the six refund applications in Form GST-RFD-01 on 25.05.2020, 27.05.2020 and on 28.05.2020 for the tax periods May 2018, July 2018, August 2018, November 2018, December 2018 and March 2019 (enclosed in Annexures D1, D2, D3, D4, D5 and D6) and grant refund of taxes in accordance with law along with interest; And e. Grant such other consequential relief a this Hon'ble High Court may think fit including refund of amounts paid, if any and the cost of this writ petition. 2. Apart from other issues, the validity of Rule 89(4C) of the Central Goods and Services Tax Rules, 2017 (for short 'the CGST Rules') as amended vide Para 8 of the Notification No.16/2020-CT dated 23.03.2020 is the subject matter of the present petition. Prior to the aforesaid amendment, Rule 89(4C) of the CGST Rules, read as....
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.... was required to be given in terms of the amended Rule 89(4)(C) of the CGST Rules and that therefore, the refund claims could not be considered. 3.3 The petitioner submitted replies dated 04.06.2020, 08.06.2020 and 09.06.2020 to the show cause notices inter-alia stating that the amended Rule 89(4)(C) of the CGST Rules would not be applicable in the instant case, as the period for which refund was being claimed (i.e., May 2018 to March 2019) was much prior to the amendment of Rule 89(4)(C) (i.e., on 23.03.2020) and that therefore, the petitioner would be governed by the old/un-amended Rule 89(4)(C) and not the amended Rule 89(4)(C). 3.4 In pursuance of the same, the respondents proceeded to pass the impugned order dated 30.06.2020 rejecting the refund claim of the petitioner, who is before this Court by way of the present petition not only assailing the impugned order but also the validity of Rule 89(4)(C) of the CGST Rules as well as the Explanation to Rule 93 of the CGST Rules. 4. Heard Sri.V.Raghuraman, learned Senior Counsel along with Sri.J.S.Bhanumurthy for the petitioner and Smt.K.R.Vanitha, learned counsel for the respondents-revenue and perused the material on reco....
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.... credit is restricted only in cases falling under Section 16(3)(a) of the IGST Act, i.e., in cases where export of goods is made without payment of duty under a Bond/Letter of Undertaking(LUT); however, no such restriction is imposed on cases falling under Section 16(3)(b) of the IGST Act, i.e., in cases where export of goods is made after payment of duty; by virtue of the above, there is a hostile discrimination between two class of persons, viz., (i) the class of exporters, who opt to obtain refund of unutilized input tax credit where export of goods are made without payment of duty under a bond/LUT in terms of Section 16(3)(a) of the IGST Act read with Rule 89(4) of the CGST Rules and, (ii) the class of exporters who opt to obtain refund of tax after payment of duty in terms of Section 16(3)(b) of the IGST Act read with Rule 96A of the rules; the guarantee of equal protection of the laws must extend even to taxing statutes; if person or property of the same character has to be taxed, the taxation must be by the same standard, so that the burden of taxation may fall equally on all persons holding that kind and extent of property; if the same class of property or....
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....that the words "like goods" and "similarly placed supplier" in the impugned Rule 89(4)(C) are completely open-ended and are not defined anywhere in the CGST Act/Rules or the IGST Act/Rules; in this context, it was submitted that considering the business of the petitioner, it is not possible to have any "like goods" and "same or similar placed supplier" for the unique and customized products being manufactured by the petitioner and the preciseness of definitions as found in the customs legislation is missing herein. 5.8 In this context, it was submitted that the impugned Rule fails to clarify, as to what would be the consequence if there are no goods supplied in the domestic market and value of like goods provided by other suppliers is not available or as to what would be the consequences in respect of a supplier who may have different pricing policy for different local customers nor what would be the consequences in respect of a supplier who would be pricing the local goods differently in different states for the same products being exported. It was therefore submitted that when it is impossible for any exporter to show proof of value of "like goods" domestically supplied by the....
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.... (xvii) U.P. Power Corporation vs. Sant Steels & Alloys Pvt. Ltd., - (2008) 2 SCC 777; Respondents' Contentions: 6. Per contra, learned counsel for the respondents-revenue, in addition to reiterating the various contentions urged in the statement of objections submitted that the petition was not maintainable and was liable to be dismissed. It was submitted that the petitioner has not submitted the proof that the export turnover mentioned in the instant claim is 1.5 times the value of like goods domestically supplied by the same or similarly placed supplier and hence, zero-rated turnover declared by the petitioner cannot be accepted for the purpose of calculation of eligible refund amount. Thus repudiating the various contentions of the petitioner, it was submitted that there was no merit in the petition and the same was liable to be dismissed. Analysis and Findings: 7. Before adverting to the rival contentions and the relevant statutory provisions, a brief overview of the GST scheme is required; in this context, it is relevant to state that the entire scheme of indirect taxes in India has undergone transformation upon introduction of GST with effect from 01.07.20....
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....he final burden of tax. • GST is therefore a destination-based tax on consumption of goods and services. It is levied at all stages right from manufacture up to final consumption with 'credit' of taxes paid at previous stages of supply chain available as setoff. In a nutshell, only value addition will be taxed, and burden of tax is to be borne by the final consumer. 12. In the case of All India Federation of Tax Practitioners Vs Union of India - (2007) 7 SCC 527, the Apex Court held as under: "6. At this stage, we may refer to the concept of "Value Added Tax" (VAT), which is a general tax that applies, in principle, to all commercial activities involving production of goods and provision of services. VAT is a consumption tax as it is borne by the consumer. 7. In the light of what is stated above, it is clear that service tax is a VAT which in turn is destination based consumption tax in the sense that it is on commercial activities and is not a charge on the business but on the consumer and it would, logically, be leviable only on services provided within the country. Service tax is a value added tax." 13. In the case of Union of India v. VKC Fo....
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............ (2)xxxxxxxxxxxxxxxxxxxxxxxx (3) Subject to the provisions of sub-section (10), a registered person may claim refund of any unutilised input tax credit at the end of any tax period: Provided that no refund of unutilised input tax credit shall be allowed in cases other than (i) zero rated supplies made without payment of tax; (ii) where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies (other than nil rated or fully exempt supplies), except supplies of goods or services or both as may be notified by the Government on the recommendations of the Council: Provided further that no refund of unutilised input tax credit shall be allowed in cases where the goods exported out of India are subjected to export duty: Provided also that no refund of input tax credit shall be allowed, if the supplier of goods or services or both avails of drawback in respect of central tax or claims refund of the integrated tax paid on such supplies. (4) xxxxxxxxxxxxxxxxxxxxxxxxxxx Rule 89(4) of the CGST Rules, 2017 reads as under: "89. Application for refu....
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....or services would have already suffered tax and only the final output product would be exempted. • When the output is exempted, tax laws do not allow availment/utilization of credit on the inputs and input services used for supply of the exempted output. Thus, in a true sense, the entire supply is not zero-rated. • To overcome the above anomalies, export of goods and services to destinations outside India have been "zero-rated" in the GST regime. The effect of "zero-rating" is that the entire supply chain of a particular zero-rated supply (i.e., export) is tax free i.e., there is no burden of tax either on the input side or output side. • The detailed write-up on 'zero rating of supplies' issued by the Director General of Taxpayer Services, CBIC(Annexure- K to the writ petition) clarifies the position as under: What is the need for Zero Rating? As per section 2(47) of the CGST Act, 2017, a supply is said to be exempt, when it attracts nil rate of duty or is specifically exempted buy a notification or kept out of the purview of tax (i.e. a non-GST) supply). But if a good or service is exempted from payment of tax, it cannot be....
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.... - "refund" includes refund of tax paid on zero-rated supplies of goods or services or both or on inputs or input services used in making such zero-rated supplies, or refund of tax on supply of goods regarded as deemed exports, or refund of unutilised input tax credit as provided under sub-section (3). - Thus, even if a supply is exempted, the credit of input tax may be availed for making zero-rated supplies. A registered person making zero rated supply can claim refund under either of the following options, namely:-- - a) he may supply goods or services or both under bond or Letter of Undertaking, subject to such conditions, safeguards and procedures as may be prescribed, without payment of integrated tax and claim refund or unutilised input tax credit; or - b) he may supply goods or services or both, subject to such conditions, safeguards and procedure as may be prescribed, on payment of integrated tax and claim refund of such tax paid on goods or services or both supplied, in accordance with the provisions of section 54 of the CGST Act, 2017 or the rules made there under. - As per Section 54(3) of the CGST Act, 2017, any unutilised inp....
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....paid wherever such refund is on accounts of zero rated supplies. As per section 54(8) of the CGST Act, 2017, the refundable amount, if such amount is relatable to refund of tax paid on zero-rated supplies of goods or services or both or on inputs or input services used in making such zero-rated supplies, shall instead of being credited to the Fund, be paid to the applicant. 15. The detailed write-up on 'refund of integrated tax paid on account of zero rated supplies' issued by the Director General of Taxpayer Services, CBIC, (Annexure-L to the writ petition) clarifies the position as under:- Under GST, Exports and supplies to SEZ are zero rated as per section 16 of the IGST Act, 2017. By zero rating it is meant that the entire supply chain of a particular zero rated supply is tax free i.e. there is no burden of tax either on the input side or output side. This is in contrast with exempted supplies, where only output is exempted from tax but tax is suffered on the input side. The essence of zero rating is to make Indian goods and services competitive in the international market by ensuring that taxes do not get added to the cost of exports. The objectiv....
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....ST and then claim refund of the IGST so paid. In these cases, the suppliers will have to file refund claim in FORM GST RFD-01 on the common portal, a per Rule 89 of the CGST Rules, 2017. Service Exporter need to file a statement containing the number and date of invoices and the relevant Bank Realisation Certificate, a the case may be, along with the refund claim. In so far as refund is on account of supplies made to SEZ, the DTA supplier will have to file the refund claim in such cases. The second proviso to Rule 89 stipulates that in respect of supplies to a Special Economic Zone unit or a Special Economic Zone developer, the application for refund shall be filed by the- (a) Supplier of goods after such goods have been admitted in full in the Special Economic Zone for authorised operations, as endorsed by the specified officer of the Zone; (b) Supplier of services along with such evidence regarding receipt of services for authorised operations as endorsed by the specified officer of the Zone. Thus, proof of receipt of goods or service as evidenced by the specified officer of the zone is a pre-requisite for filing of refund claim by the DTA supp....
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.... would be exempt both at input stage as well as output stage. • There is no bar on availing/utilizing credit of input taxes paid for making/providing the output supply in an export transaction. • It is seen that the above intention is effectuated vide Section 16 of the IGST Act. Section 16(1)(a) of the IGST Act says that "zero-rated supply" means export of goods and services. Further, Section 16(2) of the IGST Act says that "credit of input tax" may be availed for making zero-rated supplies, notwithstanding that such supply may be an exempt supply. • Since GST would have been suffered at the input stage, either by actual payment thereof or through utilization of credit of input tax, Section 16(3) of the IGST Act says that a registered person making zero rated supply shall be eligible to claim refund such taxes paid in accordance with Section 54 of the CGST Act by exercising either of the following options, but subject to such conditions, safeguards and procedure as may be prescribed. • He may supply goods or services or both under bond or LUT without payment of IGST and claim refund of unutilized input tax credit; or â€....
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.... The effect of the impugned amendment to Rule 89(4)(C) is demonstrated by the petitioner vide the Illustration in the table at Annexure-N as under:- Sl.No. Export / Domestic No.of goods Value per Goods Turnover Turnover of zero-rated supply of goods as per Rule 89(4): Before amendment Turnover of zero-rated supply of goods as per Rule 89(4): After amendment 1. Export goods 10 100 1000 1000 450 i.e., 1.5*30*10 = 450 or 1000 whichever is less. Refund is 450 and balance 550 is lost: Like goods domestically sold 10 30 300 2. Export goods 10 100 1000 1000 0 i.e., 1.5*0*10 = 0 or 1000 whichever is less. Like goods domestically sold 0 0 0 17. In my considered opinion, the impugned amendment to Rule 89(4)(C) of the CGST Rules is illegal, arbitrary, unreasonable, irrational, unfair, unjust and ultra vires Section 16 of the IGST Act and Section 54 of the CGST Act for the following reasons:- (a) Rule 89(4)(C) of the CGST Rules is ultra vires Section 54 of the CGST Act read with Section 16 of the IGST Act; the very intention of the zero-rating it to make entire supply chain of "expor....
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....ifferentia must have a rational relation with the object sought to be achieved by the statute; the impugned Rule 89(4)(C) of the CGST Rules is arbitrary and unreasonable in as much as it bears no rational nexus with the objective sought to be achieved by Section 16 of the IGST Act in that while Section 16 of the IGST Act seeks to make exports tax-free by "zero-rating" them, the impugned Rule 89(4)(C) of the CGST Rules aims to do just exactly the opposite by restricting the quantum of refund of tax available to the expended in making such exports; consequently, including domestic turnover in the definition of zero rated supply which is meant to cover only exports is clearly arbitrary and unreasonable. (d) It is significant to note that in exports, availability of the rotation of funds is essential for the business to thrive; the entire concept of refund of unutilized input tax credit relating to zero-rated supply would be obliterated in case the respondents are permitted to put any limitation and condition that takes away petitioner's right to claim refund of all the taxes paid on the domestic purchases used for the purpose of zero-rated supplies; the incentive given to the....
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....6 of the IGST Act, 2017 which would mean that the taxes on exports do not get refunded adequately; these aspects are contained in the clarifications issued by the respondents at Annexure K and L referred to supra. (h) The object of zero rating would be lost if exports are made to suffer GST as the exporter would either pass it on to the foreign supplier or would absorb it himself; firstly it would mean that taxes are exported which is against the policy of zero rating supra and secondly, it would make exports uncompetitive being against the stated policy of the Government. The amending words therefore, do not sub serve the objectives set out in Section 16 of the IGST Act, 2017 nor Section 54 of the CGST Act, 2017 and are contrary to the clarifications given above. (i) The impugned amendment is also unreasonable and arbitrary as adequate reasoning is not present; this would make such amendment unreasonable for the reason that it bears no rational nexus with the objective sought to be achieved by Section 16 of the IGST Act (supra). While Section 16 of the IGST Act seeks to make exports tax-free by "zero-rating" them, the impugned Rule 89(4)(C) of the CGST Rules, as ....
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....gue laws may trap the innocent by not providing fair warning. Such a law impermissibly delegates basic policy matters to policemen and also judges for resolution on an ad hoc and subjective basis, with the attendant dangers of arbitrary and discriminatory application. More so uncertain and undefined words deployed inevitably lead citizens to "steer far wider of the unlawful zone than if the boundaries of the forbidden areas were clearly marked.' 69. Judged by the standards laid down in the aforesaid judgments, it is quite clear that the expressions used in 66A are completely open-ended and undefined. 76. Quite apart from this, as has been pointed out above, every expression used is nebulous in meaning. What may be offensive to one may not be offensive to another. What may cause annoyance or inconvenience to one may not cause annoyance or inconvenience to another. Even the expression "persistently" is completely imprecise - suppose a message is sent thrice, can it be said that it was sent "persistently"? Does a message have to be sent (say) at least eight times, before it can be said that such message is "persistently" sent? There is no demarcating line conveyed by....
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....ases would be an exercise which can be termed to have been made by the respondents only to deny the exemption granted to petitioners by way of original notification in pursuance to which they have altered their position. This action on the part of respondents can be termed to be arbitrary in nature." 24. In Sant Steel's case (supra), the Apex Court held as under:- "30. It is highly against the public morality that the incumbent who have felt persuaded on account of the representation made by the State Government that they will be given certain benefits and they acted on that representation, it does not behove on the part of the appellant Corporation to withdraw the said benefit before expiry of the stipulated period by issuing the notification revoking the same which the respondents were legitimately entitled to avail. We fail to understand why the appellant Corporation which made a representation and allowed the other party to act upon such representation could resile and leave the citizens in a lurch. In such a situation, the principle of promissory estoppel which has been evolved by the courts which is based on public morality cannot permit the State to act in such a....
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....lic interest as projected by the respondents. This is because there has been no individual identification of such bogus manufacturers and the action of respondents vide impugned notifications would prejudice the rights of those genuine manufacturers who on the promise of the State, have altered their position and are involved in fair industrial activities. In view of the above discussion, I am of the opinion that there is no supervening public interest in withdrawing the exemption by way of impugned notifications." 25. It is also relevant to note that in the aforesaid GST Council Meeting, it was stated that the FOB value of exports will not be changed, which would mean that there is no doubt about the valuation of the goods; therefore, if there is no doubt about the value of the goods, the artificial restriction of refunds by taking the value of domestic supplies seems irrational. Further, the policy of the Government itself will have to satisfy the test of rationality and must be free from arbitrariness and discrimination. In Pepsi Foods (case) supra, the Apex Court held as under:- "27. We have already seen how unequals have been treated equally so far as assessees who....