TaxTMI 
TaxTMI 
2026 (9) TMI 723
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....under section 73 / 74 of the CGST/KGST Act determining that the said ITC was wrongly availed or utilized. 3.0 Brief Facts of the Case: 3.1 The appellant is a Private Limited Company engaged in the manufacture of garments and is registered under the Goods and Services Tax laws bearing GSTIN 32AABCM4119Q1ZD. The appellant's inputs are taxable at a higher rate of 18%, whereas the output supplies are taxable at a concessional rate of 5%, resulting in accumulation of input tax credit on account of an inverted duty structure. 3.2 The Appellant, claimed an inverted duty structure refund under Section 54(3) of the CGST/KSGST Act, 2017 read with Rule 89(5) of the CGST/KSGST Rules, 2017 for the period July 2019 to September 2019 amounting to Rs. 18,41,280/- (IGST). 3.3 The adjudicating authority passed an order dated 28-01-2022 partially rejecting the refund claim to the extent of Rs. 9,72,027/- and sanctioning the balance amount of Rs. 8,69,253/- 3.4 Aggrieved by the said order, the appellant preferred an appeal before the First Appellate Authority on 28- 05-2022, challenging the rejection of refund to the extent of Rs. 9,72,027/-. 3.5 The First Appellate Authority, after ....
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....o all goods and services that facilitate, support, or are integrally connected with the business operations. 4.5 The input tax credit disallowed pertains to items such as consumables, maintenance materials, and safety equipment, all of which are procured and used in the ordinary course of its business. These items, though not forming part of the final product, are essential for ensuring continuity of production, upkeep of machinery, workplace safety, and compliance with statutory requirements. Such procurements are integrally connected with and incidental to the business of the appellant and therefore squarely fall under the expression "in the course or furtherance of business." The denial of input tax credit on the ground that such items are not essential ingredients for purpose of business overlooks the functional and operational role of these inputs in the business. 4.6 Appellate Authority has erred in effectively substituting its own understanding of what constitutes necessary or essential inputs for the business of the appellant. It is a settled principle that tax authorities cannot sit in the armchair of the assessee and decide the commercial expediency or necessity of ....
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....-162-CESTAT-BANG g. Qualcomm India Pvt. Ltd. v. CC, CE & ST, 2020 (43) G.S.T.L. 402 (Tri.-Hyd.) 5.3. Although rendered under the CENVAT regime, the principle applies with equal force to the corresponding structure of the CGST Act. In the present case, there being no allegation or proceeding under sections 73 or 74 challenging the impugned ITC on the ground of absence of business use, personal use or section 17(5), its eligibility could not lawfully have been reopened for the first time while adjudicating the refund claim. 6.0 Submissions of the Respondent / Revenue 6.1 The Appellant contends that SCN in Form GST RFD-08 was vague and lacked invoice details. It is submitted that RFD-08 specifically put the taxpayer on notice that the refund claim of Rs. 9,72,027/- included ineligible credit (capital goods, input services, and mismatched periods). The Appellant submitted detailed invoice lists in response, demonstrating full understanding of the allegations. Furthermore, complete invoice-by-invoice verification was conducted, and partial relief of Rs. 2,64,860/- was already extended by the First Appellate Authority. No prejudice whatsoever was caused to the Appellant....
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....ssets/infrastructure rather than raw inputs. c. Nickel Screens & Heavy Equipment (Screen-O-Tex India Pvt Ltd): Nickel screens represent capital plant accessories used in textile printing machinery having an extended useful life. Under Section 2(19) of CGST Act, capital goods are goods capitalized in the books of accounts. They cannot be camouflaged as 'Inputs' in Annexure-B to inflate 'Net ITC' 6.6 The following judicial decisions were also cited by the Revenue in support of their contentions: a. Union of India v. VKC Footsteps India Pvt. Ltd. (2021) 52 GSTL 513 (SC): The Hon'ble Supreme Court categorically held that refund under Section 54(3)(ii) is a statutory entitlement confined strictly to 'inputs' as defined under Section 2(59), and explicitly excludes capital goods and input services from the purview of Net ITC. b. Maruti Suzuki Ltd. v. Commissioner of Central Excise (2009) 240 ELT 641 (SC): The Supreme Court established that for an item to qualify as an input in manufacturing, there must be a direct nexus with the integral manufacture of final commercial products. c. TVS Motor Company Ltd. v. State of Tamil Nadu (2018) 19 GSTL 182 (SC)....
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....allegations in the show cause notice are not specific and are on the contrary vague, lack details and/or unintelligible that is sufficient to hold that the noticee was not given proper opportunity to meet the allegations indicated in the show cause notice. 7.6 The learned AR in response to the Appellant's contentions that SCN was vague has stated that the Appellant has submitted detailed invoice lists in response to the SCN demonstrating full understanding of the allegations. Furthermore, it is stated that complete invoice-by-invoice verification was conducted and therefore no prejudice whatsoever was caused to the Appellant. 7.7 However, we observe that the mere fact that the assessee produced detailed invoice lists cannot take away from the fact that the SCN, when read independently, is per se vague and has therefore caused enormous prejudice to the assessee in defending his case. As to the complete invoice by invoice verification, we find no narration / findings in the OIO to the effect that such verification was carried out and its result thereof. 7.8 We find that right at the outset, even at the SCN stage itself, the present proceedings are vitiated on account of bein....
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.... Appellate Authority also needs to be set aside for this reason alone. 9. We also note that the Appellant has made a strong plea on the question of law to the effect that: a. The eligibility and lawful availment of input tax credit fall for determination under sections 16 and 17 of the CGST Act. b. Once such credit has been availed in the statutory returns and has not been challenged through proceedings under sections 73 or 74, the refund proceedings under section 54(3), read with rule 89(5), cannot be converted into collateral proceedings for re-adjudicating the very eligibility of that credit. c. The adjudicating authority may verify the quantum of "Net ITC", the relevant period, the turnover and other conditions prescribed by section 54 and rule 89; however, it cannot, without a specific notice and proceedings under the applicable provisions, declare the underlying credit inadmissible for the first time while deciding the refund application. d. Paragraphs 20 and 21 of Circular No. 8 125/44/2019-GST dated 18-11-2019 also recognize this distinction by requiring that, where rejection of refund is founded upon ineligibility of ITC, the notice m....
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....D-08, under section 54 of the CGST Act, read with section 73 or 74 of the CGST Act, requiring the applicant to show cause as to why: (a) the refund amount corresponding to the ineligible ITC should not be rejected as per the relevant provisions of the law; and (b) the amount of ineligible ITC should not be recovered as wrongly availed ITC under section 73 or section 74 of the CGST Act, as the case may be, along with interest and penalty, if any. 21. The above notice shall be adjudicated following the principles of natural justice and an order shall be issued, in FORM GST RFD-06, under section 54 of the CGST Act, read with section 73 or section 74 of the CGST Act, as the case may be. 10.4 In the light of the above circular, it is self-evident that any determination of eligibility of ITC has to be strictly in terms of section 73/74 and the appellant's contention that "once ITC has been availed in the statutory returns and has not been challenged through proceedings under sections 73 or 74, the refund proceedings under section 54(3), read with rule 89(5), cannot be converted into collateral proceedings for re-adjudicating the very eligibility of that cred....
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.... also provisions for recovery of interest as well as imposition of penalties if any Cenvat credit is irregularly availed. Therefore we agree with the appellant that the rejection of refund of Cenvat credit partly on the ground that input services are not eligible for Cenvat credit at all is not correct in law. d. Decision of Telangana High Court dated 28/9/2021 in the case of CCE Hyderabad IV vs Qualcomm India Pvt Ltd 2021 (11) TMI 72 wherein the honorable High Court found as follows: 15. It is not in dispute that Rule 14 of the Rules provides that in case of irregular availment of Cenvat, credit or its utilization the authorities under the Finance Act are empowered to recover the same from the assessee. It is also an admitted fact that the said provisions have not been invoked by the appellant / revenue against the respondent / assessee. 16. As the availment of Cenvat credit by the appellant under Rule 3 of the Rules is not called in question, the denial to grant refund under Rule 5 of the Rules without there being proceedings under Rule 14 of the Rules by seeking to deny the refund on the ground that the respondent / assessee availed credit on input ser....