TaxTMI 
TaxTMI 
2024 (12) TMI 511
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....is of the circular dated 10.11.2022. The petitioner has therefore, also challenged the said circular. 5. The petitioner is engaged in the business of manufacturing orthopedic soft goods for upper extremity, lower extremity and spine as well as mobility assistive devices for home and hotel use. 6. The applicable rate of tax on output supplies of the products manufactured by the petitioner is 5% as its majority of goods are classifiable under HSN90211000 whereas, the applicable rate of tax on main inputs used by the petitioner to manufacture its product ranges from 12% to 18%. 7. The petitioner also availed input services which attracted GST rate of 18%. The petitioner had utilized input tax credit on account of such facts as the rate of tax on the input being more than the rate of tax on the output supply. 8. The petitioner therefore made an application under section 54 (3) of the GST Act to get the refund of unutilized input tax credit as per the formula prescribed in Rule 89 (5) of the Central/Gujarat Goods and Services Tax Rules, 2017 (for short 'the Rules'). 9. The petitioner was granted refund computed as per the formula under the inverted duty structure for all ....
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....inputs and input services)}]. Explanation: - For the purposes of this sub-rule, the expressions - (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 sub-rules (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).]" 12. The Hon'ble Supreme Court while upholding the validity of Rule 89 (5) of the Rules however directed the GST Council to remove the anomalies in the formula stated therein as under: "132. In our view, the justification of the formula under Rule 89 (5) given by the ASG to create a legal bifurcation is valid. In this context, it would be material to advert to the provisions of Rule 42. Rule 42 (1) provides that the ITC in respect of input goods or input services which attract the provisions of sub-Section (1) or sub-Section (2) of Section 17 being partly used for the purpose of business and partly for other purposes or partly used for affecting taxable supplies including zero rated supplies and partly for effecting exempts supplies shal....
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....etween input goods and input services for grant of refund. Once the principle behind Section 54 (3) (ii) of the CGST Act is upheld, the formula cannot be struck down merely for giving effect to the same." xxxxx 142. The above judicial precedents indicate that in the field of taxation, this Court has only intervened to read down or interpret a formula if the formula leads to absurd results or is unworkable. In the present case however, the formula is not ambiguous in nature or unworkable, nor is it opposed to the intent of the legislature in granting limited refund on accumulation of unutilised ITC. It is merely the case that the practical effect of the formula might result in certain inequities. The reading down of the formula as proposed by Mr Natarjan and Mr Sridharan by prescribing an order of utilisation would take this Court down the path of recrafting the formula and walk into the shoes of the executive or the legislature, which is impermissible. Accordingly, we shall refrain from replacing the wisdom of the legislature or its delegate with our own in such a case. However, given the anomalies pointed out by the assessees, we strongly urge the GST Council to ....
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....e 8 of the aforesaid Rules, amendment is made in Rule 89 of the GST Rules as under: "8. In the said rules, in rule 89, - (a) in sub-rule (1), after the fourth proviso, the following Explanation shall be inserted, namely: - 'Explanation. - For the purposes of this sub-rule, "specified officer" means a "specified officer" or an "authorised officer" as defined under rule 2 of the Special Economic Zone Rules, 2006.'; (b) in sub-rule (2), - (i) in clause (b), after the words "on account of export of goods", the words *, other than electricity" shall be inserted; (ii) after clause (b), the following clause shall be inserted, namely: - "(ba) a statement containing the number and date of the export invoices, details of energy exported, tariff per unit for export of electricity as per agreement, along with the copy of statement of scheduled energy for exported electricity by Generation Plants issued by the Regional Power Committee Secretariat as a part of the Regional Energy Account (REA) under clause (nnn) of sub-regulation 1 of Regulation 2 of the Central Electricity Regulatory Commission (Indian Electricity Grid Code) Regulat....
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....titioner filed a rectification application for differential refund as per the new amended formula. A show-cause notice was issued proposing to reject the refund on the ground that the refund was not admissible since the refund as per the old formula was already granted to the petitioner. 19. The refund application filed by the petitioner was rejected by the impugned order dated 24.08.2023 relying upon Circular dated 10.11.2022 on the ground that new formula can apply only to refund applications filed after 05.07.2022. 20. Being aggrieved, the petitioner has preferred this petition challenging the impugned order of rejection of the refund application as well as the Circular No. 181/13/2022-GST dated 10.11.2022 issued by the Central Board of Indirect Taxes and Custom ['CBIC' for short]. 21. Learned advocate Mr. Uchit Sheth for the petitioner submitted that the amendment in formula under Rule 89 (5) of the GST Rules is only clarificatory in nature as the GST Council pursuant to the direction issued by the Hon'ble Apex Court in case of VKC Footsteps India Pvt. Ltd (supra) has amended the formula to remove the anomalies so as to enable grant of refund of the entire unutilized i....
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....ourt in case of Commissioner of Income Tax vs. Alom Extrusions Ltd reported in (2010) 1 SCC 489. 27. It was further submitted that this Court has also held that a clarificatory amendment in GST Rules would have retrospective effect even though the amendment was incorporated prospectively. Reliance was also placed in case of Otsuka Pharmaceutical Pvt. Ltd vs. Union of India and ors in Special Civil Application No. 13209/2023 and allied matters decided on 27.03.2024. 28. Learned advocate Mr. Sheth for the petitioner submitted that observation in the impugned circular that the amendment is not clarificatory in nature is contrary to the legislative history of amendment which includes the directions of the Hon'ble Supreme Court in case of VKC Footsteps India Pvt. Ltd (supra). It was therefore, submitted that the impugned circular dated 10.11.2022 issued by the CBIC observing that the amendment is not clarificatory in nature is contrary and therefore, required to be quashed and set aside. 29. It was submitted that in fact, the circular does not state a new formula will for the subsequent period but it only states that the Circular will apply to new refund applications filed afte....
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....iolation of Article 14 of the Constitution of India as well as contrary to the prescribed time limit for filing refund application as stipulated under section 54 (1) of the Act. 33. It was further submitted that this Court has held that multiple refund applications can be filed for the same period within the statutory period of limitation. Reliance was placed on the decision of Shree Renuka Sugars Ltd vs. State of Gujarat reported in Special Civil Application No. 22339/2022 decided on 13.07.2023 and in case of Pee Gee Fabrics Pvt. Ltd vs. Union of India in Special Civil Application No. 5010/2021 decided on 15.09.2023. 34. It was therefore submitted that in the facts of the case, the period in question is December 2021, while refund as per existing formula was granted vide order dated 30.03.2022 and the rectification application for differential amount of refund as per the new amended formula was made on 13.06.2023. It was therefore, submitted that rectification application was filed within two years as per section 54 (1) of the GST Act. It was further submitted that rectification application for refund was made after 05.07.2022 and therefore, respondent ought to have granted ....
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....ere is now an amendment in the Rule 89 (4) itself; as such we refrain ourself from deliberating upon prayer no. 1 and 2 i.e. for setting aside part of paragraph 47 of Circular No. 125/44/2019-GST dated 18.11.2019 and also the alternative contention for declaring the stipulation contained in paragraph 47 of the aforesaid circular as not applicable in these cases. We are confining our interpretation on the question of retrospective effect of the amendment that came in the year 2022, so far as its applicability in the aforesaid writ applications for the sole reason that the vires of the said rule is not under challenge. 12. As far as the explanation inserted by way of amendment in Rule 89 (4) of the CGST Rules, 2017, vide Notification No. 14/2022-Central Tax dated 5.7.2022 is concerned; these rules were not in existence at the time of passing of the Order in Appeal dated 11.10.2021. Rule 1 (2) of 2022 Amendment Rules, specifically provides that "save as otherwise provided in these rules, they shall come into force on the date of their publication in the Official Gazette". Except for Rules 7, 9, 10, and 19 for which dates with retrospective operation have been provide....
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....ion in the officials' gazette. From the said notification it is also evident that except for Rule 7, 9, 10 and 19 for which dates with retrospective operation have been provided, no other rules have been given any retrospective effect. Actually, the legislature expressly indicated the date of application of respective rules and for Rule 89 (4), no retrospective date has been indicated in the notification itself; thus, from bare perusal of the notification itself the amendment made to Rule 89 (4) by Rule 8 of Amendment Rules will have a prospective effect." 41. Having heard learned advocates for the respective parties and having considered the facts of the case and comparing the amendment with the unamended Rule 89 (5), it is clear that for the inverted rated supply of goods and service instead of "the adjusted total turnover" the words "ITC availed on inputs and input services" has been substituted. Thus, the "adjusted total turnover" which is defined in sub-clause (b) as per the sub-rule (4) has been given a go-by. Therefore, numerator and denominator are made in harmony which was not there prior to the amendment which had resulted anomaly in the formula. 42. Thus, it is app....
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....to be read into the section to give the section a reasonable interpretation, requires to be treated as retrospective in operation so that a reasonable interpretation can be given to the section as a whole. 14. This view has been accepted by a number of High Court. In the case of Commissioner of Income-Tax v. Chandulal Venichand ([1994] 209 ITR 7), the Gujarat High Court has held that he first proviso to section 43B is retrospective and sales-tax for the last quarter paid before the filing of the return for the assessment year is deductable. This decision deals with assessment year 1984-85. The Calcutta High Court in the case of Commissioner of Income-tax v. Sri Jagannath Steel Corporation ([1991] 191 ITR 676), has taken a similar view holding that the statutory liability for sales-tax actually discharge after the expiry of accounting year in compliance with the relevant stature is entitled to deduction under Section 43B. The High Court has held the amendment to be clarificatory and, therefore, retrospective. The Gujarat High Court in the above case held the amendment to be curative and explanatory and hence retrospective. The Patna High Court has also held the amendment in....