TaxTMI 
TaxTMI 
2026 (9) TMI 1740
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....2. Brief facts of the case: (I) The respondent /Registered person is a manufacturer and exporter of mild steel billets, which primarily require iron ore and scrap steel, along with coal and limestone, as raw materials for production. The respondent has extensive business operations covering both domestic and international markets. Being an exporter to the international market, the respondent duly furnished a Letter of Undertaking (LUT) to the Government for export of goods without payment of GST. (II) The raw materials, primarily coal, purchased for the production of steel billets attract Compensation Cess, whereas the final product, i.e., steel billets, is not subjected to Compensation Cess. This resulted in accumulation of unutilized Cess credit in the electronic credit ledger. Being an exporter, the respondent filed a refund claim for the unutilized Cess in Form GST RFD-01, in terms of Rule 89(1) of the CGST Rules, on 07.01.2024 vide Reference No. AA201024005764W, in respect of exports made during the period from April 2023 to September 2023. The adjudicating authority, vide FORM-GST-RFD-06(Rule92(1)) sanctioned Refund amounting to Rs. 42,77,081 dated 26.11.2024.(Reference....
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....period. As the reversal of the remaining Cess credit, which has no nexus whatsoever with the proportionate ITC forming the basis of the refund claim, is a post-refund accounting treatment undertaken solely to give effect to the clarification issued by the CBIC dated 18th November 2019. Hence, the said reversal is made only after the refund of the proportionate eligible ITC has been sanctioned, and not before, hence, this accounting adjustment pertains to the residual, unutilized ITC, and not the 'Net ITC' actually availed and claimed as refund under Rule 89(4) of the CGST Rules, 2017. 14. Further, the total ITC of Cess availed during the tax period April 2023 to June 2023 was only Rs. 97,05,500/-, which itself demonstrates that the reversal of Rs. 2,66,75,139/- could not possibly relate to ITC availed during the relevant period or to zero-rated supplies forming the basis of the present refund claim. Further, it is clearly evidenced from the electronic credit ledger wherein the ITC of Cess amounting to Rs. 1,89,54,688/- has been credited during the refund period. The said credited amount of ITC reflected in the electronic credit ledger after adjusting the reversal a....
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.... that the reversal of ITC Rs. 2,66,75,139/- is made in June 2023 in GSTR-3B was related to unutilized credit of earlier tax period is based on assumption without backed by any documentary evidence. Therefore, the order of the 1st Appellate Authority does not appear to be proper and legal. REPLY OF THE RESPONDENT 7. The respondent filed a memorandum of cross-objection and submitted that, throughout the memorandum of appeal, the appellant has conspicuously refrained from denying or even disputing the fundamental fact that the Cess amount reversed in June 2023pertained to tax periods wholly outside the refund period in question. 8. The Respondent further submitted that Rule 89(4)(B) of the CGST Rules, 2017, unequivocally defines NET ITC to mean only such input tax credit which has been availed during the relevant refund period. The Rule is deliberately precise, it speaks solely of "ITC availed" and makes no reference whatsoever to "ITC reversed," much less to reversals pertaining to periods outside the refund window. The omission is intentional and reflects the legislative design that the refund formula must be confined strictly to credits availed within the relevant period a....
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.... seeks to introduce a condition that the Rule itself does not contemplate. The Circular, in effect, attempts to redraft the statutory formula by importing elements that the legislature has consciously omitted. It is a well-settled principle that Circulars issued by the Board are merely administrative interpretations of law and do not bind the register person, nor can they override or expand the statutory provisions. Courts have consistently held that while Circulars may guide departmental officers, they cannot impose obligations or restrictions that do not emanate from the Act or the Rules. Any interpretation in a Circular that contradicts, supplements, or enlarges the statutory scheme is unenforceable and must yield to the express language of the law. Such an attempt is ultra vires the CGST Act and the Rules framed thereunder, and therefore cannot be relied upon to curtail the Respondent's statutory entitlement. Thus, the clarification contained in Para 43(c) of the Circular dated 18.11.2019 is not only non-binding on the Respondent but is also legally unsustainable to the extent it seeks to impose conditions not found in the parent statute. The Appellant's reliance on suc....
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.... statutes must be applied strictly within their own domain. Any effort to deny GST refund on the basis of alleged income-tax implications is wholly unfounded, ultra vires the statutory scheme, and bad in law. 14. The respondent without prejudice to the above submissions, reiterates that the Appellant has neither distinguished nor denied-nor even attempted to dispute the categorical findings recorded by the Appellate Authority. These findings go to the root of the matter and conclusively established the correctness of the refund sanctioned order. The Appellate Authority has clearly recorded that the Respondent/register person has availed total ITC of Cess amounting to Rs. 1,89,54,688/- through GSTR-3B during the period April 2023 to September 2023. In contrast, the larger reversal of Cess amounting to Rs. 2,66,75,139/- also made during the refund period, was found to pertain entirely to earlier tax periods and to have no nexus whatsoever with the refund period. This conclusion is supported by the undisputed fact that the total ITC / Cess availed during the refund period (April2023 to September2023) is only Rs. 97,05,500/-. It is therefore mathematically impossible for a reversal ....
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....19. Considering the submissions made by both the parties and upon perusal of the appeal memorandum, cross-objection, and reply/rejoinder, it is appropriate to examine the relevant provisions of Section 54(3) of the CGST Act, which permits refund of unutilized ITC in cases of zero-rated supplies, and the corresponding Rule 89(4) of the CGST Rules, 2017, which prescribe the formula and mechanism for determining such refund. Rule 89(4) provides as follows: "(4) In the case of zero-rated supply of goods or services or both without payment of tax under bond or Letter of Undertaking in accordance with the provisions of sub-section (3) of Section 16 of the Integrated Goods and Services Tax Act, 2017 (13 of 2017), refund of input tax credit shall be granted as per the following formula: Refund Amount = (Turnover of zero-rated supply of goods + Turnover of zero-rated supply of services) x Net ITC / Adjusted Total Turnover Where- (A) "Refund amount" means the maximum refund that is admissible; (B) "Net ITC" means input tax credit availed on inputs and input services during the relevant period; ******** (F) "Relevant peri....
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.... the adjudicating authority and the first appellate authority have demonstrated that the refund is sanctioned strictly within the framework of Rule 89(4) of the CGST Rules. Both authorities, after examining the records available with them, have considered the Input Tax Credit (ITC) availed during the relevant refund period. Therefore, the appellant's allegation that an amount of 2,66,75,139/- was considered as ITC pertaining to the refund period without any basis or nexus and is without substance. Accordingly, the said ground of appeal is devoid of merit. Moreover, the appellant (Revenue) contended that the respondent had reversed Rs. 2,66,75,139/- during the period, this contention could not be accepted because, for the tax period from June2023 to September2024, the total ITC of Cess availed was only Rs. 97,05,500/-. Therefore, the reversal of Rs. 2,66,75,139/- could not logically be attributed to the ITC availed during the relevant period. Hence, the averment asserted by Appellant is baseless because the provision of refund is clear and admits no ambiguity. 23. The record discloses that reversal in the present case represented the unutilized credit remaining in the electronic ....
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....tion must confirm the supremacy of law. Therefore to eliminate the issue we take note of the following judgements on the same subject discussed herein above:-. (1) Commissioner of Central Excise, Bolpur v. Ratan Melting and Wire Industries, reported in 2008 (12) S.T.R.416 (S.C.), the Supreme Court observed as under :- 6. Circulars and instructions issued by the Board are no doubt binding in law on the authorities under the respective statutes, but when the Supreme Court or the High Court declares the law on the question arising for consideration, it would not be appropriate for the Court to direct that the circular should be given effect to and not the view expressed in a decision of this Court or the High Court. So far as the Clarifications / circulars issued by the Central Government and of the State Government are concerned they represent merely their understanding of the statutory provisions. The Circulars and instructions issued by the Board are no doubt binding in law on the authorities under the respective statutes, but when the Supreme Court or the High Court declares the law on the question arising for consideration, it would not be appropriate for the Co....
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....ion that every reversal made during the relevant refund period must necessarily be treated as a reduction of the ITC availed during that very period, irrespective of the period to which the underlying credit relates. Such an interpretation would effectively add words to Rule 89(4). The Rule does not say that "NET ITC" shall mean the ITC availed during the relevant period minus every ITC reversal made during that period. It specifically refers to ITC availed during the relevant period. Further the circular expressly clarifies that: "ITC which is reversed cannot be held to have been 'availed' in the relevant period." The Circular further provides that where the reversed amount is subsequently availed in a later tax period, subject to Section 16(4), it may be considered for refund in that later tax period. The above clarification is significant. The expression "availed" and the expression "reversed" cannot be treated as interchangeable. Availment creates the credit for purposes of the statutory scheme; reversal neutralises or reduces the credit to the extent reversed. However, paragraph 43(c) cannot be read as laying down a scheme that every reversal made during the rel....