TaxTMI 
TaxTMI 
TaxTMI 
2024 (12) TMI 1607
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....dvocate waives service of notice of rule for on behalf of the respondent No. 1; learned Assistant Government Pleader Ms. Shrunjal Shah waives service of notice of rule for and on behalf of the respondent Nos. 2 and 4 and Mr. Hirak Shah, learned Advocate waives service of notice of rule for and on behalf of the respondent No. 3. Since the controversy involved is short, the matter is finally heard and disposed of. 3. These petitions are filed under Article 226 of the Constitution of India where the common issue of rejection of refund applications based on Section 54(3) of the GST Act read with Rule 89(5) of the GST Rules is involved. 4. The petitioners therefore made applications 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'). 5. The petitioners were granted partial refund computed as per the formula under the inverted duty structure for all the applications made prior to 05.07.2022 on the ground that prior to 05.07.2022, by unamended formula, the petitioners were not entitled to include the input services as part of th....
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....4 to 45) 7. DISCUSSION & FINDINGS:- The formula for calculating the refund under Rule 89(5) of the GST Rules was challenged before different High Courts on the ground that it was ultra vires to section 54(3) of the GST Act and as the refund in respect of unutilized input tax credit attributable to input services was not being granted and, in the alternative, it was urged that the formula was defective as the entire input tax credit pertaining to inputs was first adjusted towards output tax liability for computing refund under Rule 89(5) of the GST Rules. Accordingly in many of these petitions, suitable amendments were moved to challenge the Notification No. 14/2022 dated 05.07.2022 read with Circular dated 10.11.2022. 8. It would be germane to refer to the amended and unamended Rule 89(5). Unamended rules prior to 05.07.2022 was as under: "89(5) In the case of refund on account of inverted duty structure, refund of input tax credit shall be granted as per the following formula: Maximum Refund Amount = {(Turnover of inverted rated supply of goods and services) x Net ITC+ Adjusted Total Turnover} - tax payable on such inverted rated supply of goods and services. Explanatio....
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....y business and partly for any other purpose, the amount of credit shall be restricted to so much of the input tax as is attributable to the purpose of its business. Sub-Section (2) of Section 17 provides that where the goods or services or both are used by a registered person partly for effecting taxable supplies including zero rated supplies under the CGST Act or under the IGST Act and partly for effecting exempt supplies the amount of credit shall be restricted to so much of the input tax as is attributable to the taxable supplies including zero rated supplies. Rule 42, in other words, provides for the manner in which the attributions of ITC in respect of the input or input services under sub-Sections (1) or (2) of Section 17 shall be carried out. Rule 43 similarly provides the manner in which ITC in respect of capital goods attracting the provisions of sub-Section (1) of Section 17, used partly for business and partly for other purposes or partly for effecting taxable supplies including zero rated supplies and partly for effecting exempt supplies would be attracted to the purpose of business or for effecting taxable supplies. Both Rules 42 and 43 provide for a formula for attr....
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....ules for calculation of the refund of unutilized input tax credit on account of inverted duty structure as under: "7.2 The Principal Commissioner, GST Policy Wing informed that the Hon'ble Supreme Court of India in case of UOI vs. M/s. VKC Footsteps vide its order dated 13.09.2021 had upheld the vires of Rule 89(5) of the Central goods and Service Tax Rules, 2017 but had taken cognizance of the anomalies in the formula prescribed under Rule 89(5) of the CGST Rules, 2017. The Hon'ble Supreme Court had upheld the exclusion of ITC availed on input services from the computation of Net ITC. However, the Apex Court had noted that the formula prescribed in Rule 89(5) assumed that the tax payable on inverted rated supply of goods and services had been paid by utilizing input tax credit on inputs only and that there had been no utilization of the ITC on input services, such as assumption skewed the formula in favour of the revenue. The Apex Court had, therefore urged the GST Council to reconsider the formula. 7.3 The issue was deliberately by the Law Committee and in the absence of any empirical data, Law Committee had recommended to consider utilisation of ITC on account of inputs and ....
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....ng Bill or Bill of Export form, as the case may be, as per the Shipping Bill and Bill of Export (Forms) Regulations, 2017; or (ii) the value declared in tax invoice or bill of supply, whichever is less."; (d) in sub-rule (5), for the words "tax payable on such inverted rated supply of goods and services", the brackets, words and letters "{tax payable on such inverted rated supply of goods and services x (Net ITC~ ITC availed on inputs and input services)}." shall be substituted;" 12. As per the aforesaid Rules, sub-rule (2) of the Rules provides as under: "(2) Save as otherwise provided in these rules, they shall come into force on the date of their publication in the Official Gazette." 13. Rule 8(d) of the Amended Rules, 2022 provides that in sub-rule (5) for the words "tax payable on such inverted rated supply of goods and services", the brackets, words and letters "{tax payable on such inverted rated supply of goods and services, x (Net ITC / ITC availed on inputs and input services)} has been substituted". 14. Thereafter, the CBIC has issued circular dated 10.11.2022 for clarification as under: "Clarification: Vide Notification No. 14/2022-Central Tax dated 05.07.2....
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....spute that the petitioner has filed refund claims within two years as stipulated in section 54(1) of the Act. 46. It is also not disputed by the respondent that the petitioner is entitled to the refund as per sub-section 3(ii) of section 54 of the Act being difference in the GST rates due to inverted rated structure and accordingly, the petitioner was granted refund though petitioner has filed refund applications pursuant to the deficiency memo issued repeatedly. 47. Considering the above provisions of the GST Act, the same would be applicable in the facts of the case irrespective of the notification issued by the CBIC pursuant to the decision taken by the GST council as per the direction issued by the Hon'ble Supreme Court. The petitioner cannot be denied the refund as per the provision of 54(3) of the Act only because the petitioner has been granted the refund prior to 05.07.2022 as it would create a discrimination resulting into inequality between the assesses who have been granted refund prior to 05.07.2022 and the assesses who have applied for refund after 05.07.2022. The impugned circular is therefore contrary to the provisions of the Act as it cannot be said that the ref....