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2023 (11) TMI 209
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....ons filed by one and the same petitioner with reference to different tax periods ventilating its grievance on account of rejection of its claim for refund of unutilised input tax credit. For brevity and convenience, the facts stated in D. B. Civil Writ Petition No. 8476/2021 are being referred to. 2. The petitioner, a public limited company, seeks to assail orders dated 06.10.2020 and 11.05.2021 passed by Respondent No. 3, Additional Commissioner (Appeals), Central Goods and Services Tax, Jaipur, whereby, petitioner's appeals, against the orders rejecting its claim for refund, have been disposed off. 3. Facts of the case: Quint essential facts necessary for adjudication of controversy involved in these writ petitions are in narrow encompass and stated infra: 3.1 The petitioner-company is engaged in manufacturing of textiles and its operation thereof ranging from spinning, weaving and processing. It is registered under the provisions of the Central Goods and Services Tax Act, 2017 (hereinafter referred to as 'the CGST Act, 2017'). In the process of manufacturing, the petitioner uses various raw materials. Rate of goods and services tax (hereinafter referred to as 'GST') ....
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....ioner's claim by the Adjudicating Authority and its affirmation by the Appellate Authority is under challenge in these writ petitions. 4. Submissions on behalf of the petitioner: 4.1 Learned counsel appearing on behalf of the petitioner contended that the impugned order of rejection of its claim for refund of unutilised input tax credit is illegal and based on complete misinterpretation and misconstruction of not only against the letter, but also the spirit of the statutory scheme of refund engrafted under Section 54, sub-section(3) of the CGST Act, 2017. According to him, the scheme of refund under Section 54(3) of the CGST Act, 2017 is attracted where the credit, as input tax credit, has accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies. This gives rise to a situation of inverted duty structure during a particular tax period and, therefore, the credit accumulated due to inverted duty structure entitled the petitioner to claim refund as per the mechanism of refund specified under Rule 89 of the CGST Rules, 2017 through application of a specified formula applied for relevant tax period. 4.2 Further submission is that there....
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....fund applications product wise for the same tax period. It is further contended that ground of rejection is not referable to any of the provisions of the law. It is based only on the consideration that the output sales is to the extent of 80% of goods having 5% duty only and input too is majorly of 5% rate. Hence, the rate being more or less the same, it is not a case of inverted duty structure, which consideration is not permissible while examining as to whether it is a case of inverted duty structure. The submission is that 100% cotton goods are only 50% of the total goods and the rest is cotton dominated blends for which other inputs have rates of 18% whereas output rate is 5%. Further, rest of the outputs are synthetic dominated blends and 100% polyester/viscose for which inputs bear rate of 12%, 18% and 28%. Legal submission is that the law does not recognise the words, "more or less". Even if overall rate of all inputs is marginally higher than the rate of output, credit accumulations would entitle refund under "inverted rated structure" as provided under Section 54(3) of the CGST Act, 2017. 4.5 Further submission is that other ground of rejection is that refund is main....
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....se. Deduction of total output liability from total ITC (as contained in the chart) is not the correct way of arriving at the refund amount. The formula envisages that the ITC gets apportioned on the basis of the turnover, i.e., it gets allocated to inverted duty supplies and to supplies other than inverted. Assuming, though not admitting, that the method used by the department is correct, there is accumulation in various periods. Referring to the language narrated in Section 54 of the CGST Act, 2017, it is contended that the term "output supplies" has been used in plural form which is indicative of legislative intention that all output supplies are to be included for ascertaining inversion and not just one output. Rejection of claim of the petitioner is based on misinterpretation of the words, "output supplies" as only output whereas the definition as well as the formula prescribed under Rule 89(5) of the CGST Rules, 2017 will only include supplies where the rate of tax on output is lower than rate of tax on inputs. 5. Submissions on behalf of the respondents: 5.1 Referring to the pleadings in the reply, learned counsel for the respondents would submit that the petitioner's c....
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....reliance upon the clarificatory circulars issued by the Central Government on 31.12.2018 and 18.11.2019 wherein it has been clarified that the refund of unutilised ITC in case of inverted duty structure, as provided in Section 54(3) of the CGST Act, 2017, is available only where ITC remains unutilised even after setting off of available ITC for payment of output tax liability. He would further submit that the petitioner, having availed input tax credit for the particular tax period, utilised the same for payment of output tax liability and, therefore, there was, in fact, no accumulation of tax as claimed by the petitioner. Relying upon clarificatory circular dated 18.11.2019, it is submitted that no refund is available in respect of unutilised transitional credit which is of earlier tax regime (TRAN-1). A chart has been annexed with the written submissions to demonstrate that there was no accumulation of ITC. The authorities found that the petitioner was engaged in the manufacturing of cotton yarn, cotton blended yarn, polyester/viscose yarn, polyester/viscose blended yarn and the major inputs of the taxpayer was cotton, manmade fibre which constituted 75% to 85% of total inputs of....
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....st", if any, paid on such tax or any other amount paid, is required to make an application within a period of two years of the relevant date. Further, Section 54(3) of the CGST Act, 2017 provides for a claim of refund of unutilised ITC. The provision contained in sub-sections (1), (2) and (3) of Section 54 of the CGST Act, 2017, being relevant for adjudication of controversy involved in these petitions, is extract below: "54. Refund of tax (1) Any person claiming refund of any tax and interest, if any, paid on such tax or any other amount paid by him, may make an application before the expiry of two years from the relevant date in such form and manner as may be prescribed: PROVIDED that a registered person, claiming refund of any balance in the electronic cash ledger in accordance with the provisions of sub-section (6) of section 49, may claim such refund in [such from and] manner as may be prescribed. (2) A specialised agency of the United Nations Organisation or any Multilateral Financial Institution and Organisation notified under the United Nations (Privileges and Immunities) Act, 1947 (46 of 1947), Consulate or Embassy of foreign countries o....
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....the expression- (a) Net ITC shall mean input tax credit availed on inputs during the relevant period other than the input tax credit availed for which refund is claimed under subrule (4A) or (4B) or both; and [(b) "Adjusted Total turnover" and "relevant period" shall have the same meaning as assigned to them in sub-rule (4).]]]" 6.3 Thus, under the statutory scheme of the CGST Act, 2017 and CGST Rules, 2017, claim of refund of any unutilised input tax credit at the end of any tax period can be allowed subject to fulfillment of statutory limitations and in accordance with the formula as provided in Rule 89(5) of the CGST Rules, 2017. 6.4 The statutory scheme of refund of tax under Section 54(3) of the CGST Act, 2017 came up for consideration before the Hon'ble Supreme Court in its authoritative pronouncement in the case of Union of India & Others Vs. VKC Footsteps India Private Limited (supra). The divergence between the views of two High Courts in the matter of challenge to constitutional validity of Rule 89(5) of the CGST Rules, 2017 on the ground that it is ultra vires Section 54, sub-section (3)(ii) of the CGST Act, 2017 formed subject matter of considera....
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.... the balance which remains in the electronic cash ledger or electronic credit ledger in the manner stipulated by the provisions of Section 54." The Hon'ble Supreme Court analysed and interpreted Section 54(3) of the CGST Act, 2017 as below: "76. The crux of the dispute in the present case pertains to how sub-section (3) to Section 54 and Explanation 1 to sub-section (1) of Section 54 are to be understood and interpreted. For convenience of analysis, the interpretation of sub-section (3) of Section 54 can be distributed in its main tier and the three provisos. The main part of sub-section (3) provides that a registered person may claim refund of any unutilised ITC at the end of any tax period. Tax period is defined in Section 2(106) as the period for which the return is required to be furnished. While enacting Section 54(3), Parliament has envisaged a claim for the refund of unutilised ITC by a registered person at the end of the tax period. The first tier is the main provision of Section 54(3) which lays down four conditions: (i) A claim of refund; (ii) By a registered tax person; (iii) Of any unutilised ITC; and (iv) At the end of an....
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....pecific eventuality, namely, "where the credit has accumulated on account of the rate of tax on inputs being higher than the rate of tax on output supplies". Parliament would be cognizant of the fact that ITC may accumulate for a variety of reasons, of which an inverted duty structure is one situation. Parliament was legislating to provide for a refund and therefore restricted it to the two situations spelt out in clauses (i) and (ii) of the first proviso. The opening words of the substantive part of Section 54(3) contemplate a claim of refund of "any unutilised input tax credit". Undoubtedly, any unutilised ITC would include credit on account of tax charged on any supply of goods or services or both. The opening sentence of Section 54(3) provides for (i) a claim of refund by a registered person; (ii) of any unutilised input tax credit; (iii) at the end of any tax period. But the impact of the first proviso, as its opening words indicate, is that: 82.1. "No refund" of unutilised ITC "shall be allowed" "in cases other than" (i) and (ii). 82.2. The expression "claim" in the substantive part must be distinguished from the phrase "shall be allowed" in the opening sent....
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....he rate of output supplies of which a refund can be allowed. Clause (ii) of the first proviso in other words is a restriction and not a mere condition of eligibility." 7. Analysis and Conclusion: 7.1 The petitioner-company manufactures cotton yarn, cotton blended yarn, polyester/viscose yarn, polyester/viscose blended yarn. The rate of GST on these output supplies varies from 0.1% to 12%. Raw material used for manufacturing of aforesaid goods is cotton, manmade fibre, packing material, store consumables and spares and other inputs on which rate of GST varies from 5% to 28%. The description of inputs and output supplies and respective rate of tax on each of the inputs and output supplies would be clear from following table: Description of output Rate of GST on output Inputs utilised in manufacture of output Rate of GST applicable on inputs Cotton yarn 5% Cotton 5% Packing material 12% Other inputs 28% Store consumables and spares 18% Cotton blended yarn 5% Cotton 5% Manmade fibre 18% Packing material 12% ....
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....ely, manmade fibre, store consumables and spares as also other inputs carry rate of tax higher than the rate of tax on such output supply. Under the heading "other outward supply", the rate of GST is only 0.1% whereas all the inputs (raw materials) used to manufacture carry higher rate of GST, i.e. 5%, 12%, 18% and 28%. 7.3 The above comparative analysis clearly shows that all the inputs taken together and utilised through the process of manufacturing, the output supplies would carry higher rate of GST as compared to the rate of GST on such inputs, either taken individually or collectively both. The rate of tax on output is ranging from 0.1% to 5% or 12% whereas rate of tax applicable on some inputs may be 5% or 12%, but on remaining inputs, rate of GST is certainly higher than 5% or 12%. 7.4 The provision contained in proviso (ii) to Section 54(3) of the CGST Act, 2017, as it stands and on its plain reading, uses the expression, "where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies". The language of the aforesaid provision is plain and simple signifying the plurality of both inputs and output supplies. T....
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....Act. 7.7 In the case of The Controller of Estate Duty, Gujarat Vs. Shri Kantilal Trikamlal, (1976) 4 SCC 643, it has been held that every taxing statute has a fiscal philosophy-a feel of which is necessary to gather the intent and effect of its different clauses. Fiscal philosophy and legislative intent behind enacting and introducing refund clause in the case of inverted duty structure, as discerned and analysed by the Hon'ble Supreme Court in the case of Union of India & Others Vs. VKC Footsteps India Private Limited (supra), extensively relied upon and quoted hereinabove, provides a beacon light in placing appropriate interpretation and construction of clause (ii) of proviso to Section 54, sub-section (3) of the CGST Act, 2017. With regard to the objective behind the scheme of refund of unutilised input tax credit on inverted duty structure, the words "inputs" and "output supplies" need to be given full effect to without placing any restriction on these words, much less restricting the same to a situation of singular input and singular output supply. In other words, the scheme of refund of unutilised input tax credit which has accumulated on account of rate of tax on input....
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....r cases, there are provisions based on recommendations of the Committee, providing for carrying forward of unutilised ITC to the next tax period(s). 7.8 We are not oblivious of the legal position as adumbrated in Para no. 106 of the decision of the Hon'ble Supreme Court in the case of Union of India & Others Vs. VKC Footsteps India Private Limited (supra), which was made clear while relying upon the dictum in the case of Assistant Commissioner of Commercial Taxes (Asst.) Dharwar & Others Vs. Dharmendra Trading Company & Others (1988) 3 SCC 570, that the principles governing a benefit, by way of refund of tax paid, may well be construed on an analogous frame with an exemption from the payment of tax or reduction in liability. However, in view of our considerations and interpretation placed on the provisions contained in clause (ii) of proviso to Section 54(3) of the CGST Act, 2017, while applying the rule of literal construction and strict interpretation, the statutory scheme of refund of unutilised input tax credit is applicable despite there being multiple inputs and output supplies provided it fulfills statutory precondition that accumulation of unutilised input tax credit ....
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....y 50% of the total goods and the rest is cotton dominated blends for which other inputs have rates of 18% whereas output rate is 5%. Balance outputs are synthetic dominated blends and 100% polyester/viscose for which inputs bear rates of 12%, 18% and 28%. The factual assertions made in this regard in the writ petitions have not been denied by the respondents. Therefore, we have to accept the submission of learned counsel for the petitioner that even if the overall rate of all inputs is marginally higher than rate of output supplies, the accumulation of unutilised input tax credit on such account will bring it within the net of inverted duty structure. 7.10 The other ground of rejection of claim of refund is equally unsustainable in law as it proceeds on the ground that the claim of refund is mainly due to high input purchases and they were in stock during the claim period(tax period). The authorities, while examining the claim of refund of the petitioner, were not only obliged to apply the statutory scheme as contained in Section 54(3) of the CGST Act, 2017, in its true spirit, but also to keep in view the law providing for refund mechanism as contained in Rule 89(5) of the CGST....
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....nput tax credit on account of rate of tax on inputs being higher than the rate of tax on output supplies, the refund mechanism is governed by the said formula providing for maximum limit of refund and therefore, refund claim is to be determined on the basis of computation based on statutory formula prescribed in Rule 89(5) of the CGST Rules, 2017 and not on the basis of any other mode of computation and determination of actual amount of refund payment under the law. 7.13 During the course of arguments and in the written submissions filed by the parties, facts and figures of relevant tax periods (giving rise to more than one petition) have been placed before this Court. In some of the cases, learned counsel for the respondents highlighted that in respect of certain tax periods, there is no accumulation of unutilised input tax credit. Learned counsel for the petitioner referred to some of the figures to submit that even if it is assumed that in respect of certain tax periods, there was no accumulation of unutilised input tax credit, in many cases such position obtains on record. Since the orders impugned in these writ petitions are not based on such factual premises but the reject....