TaxTMI 
TaxTMI 
2026 (9) TMI 1738
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....8.11.2019. 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 07.01.2025 vide Reference No. AA2001250027711, in respect of exports made during the period from October 2023 to March 2024. The adjudicating authority, after issuing a Show Cause Notice in Form GST RFD-08 vide Reference No. ZD2002250068106 date....
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....e previous tax period, as the same could neither be adjusted against output tax liability nor claimed as a refund. Therefore, the respondent reversed the said unutilized credit remaining in the electronic credit ledger after sanction of the refund claim for the previous tax period. The reversal of the remaining Cess credit, which had no nexus whatsoever with the proportionate ITC forming the basis of the present refund claim, was a post refund accounting treatment undertaken solely to give effect to the clarification issued by the CBIC dated 18.11.2019. Hence, the said reversal was made only after the refund of the proportionate eligible ITC had been sanctioned and not before. Therefore, the said accounting adjustment pertains to the residual unutilized ITC and not to 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 from October 2023 to February 2024 was only Rs. 1,94,07,164/-, which itself demonstrates that the reversal of Rs. 2,24,87,235/- could not possibly relate to the ITC availed during the relevant period or to the zero-rated supplies forming the b....
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....tch of interpretation, be imported into the computation of NET ITC for the refund period. Further the authorized representative of the appellant submitted that the appellant authority observed in its order that the reversal of ITC Rs. 2,24,87,235 made in February 2024 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 February 2024 pertained 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 p....
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....ular dated 18.11.2019, particularly Para 43(c). Such reliance is fundamentally misconceived because the interpretation advanced in the said Circular travels far beyond the scope of Rule 89(4) of the CGST Rules, 2017, and 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) o....
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....under the CGST Act or the Rules. The Appellant's attempt to create an artificial nexus between GST refunds and income-tax computations is therefore legally impermissible and contrary to the settled principle that tax 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/registered person has availed total ITC of Cess amounting to Rs. 2,34,86,352/- through GSTR-3B during the period October 2023 to March 2024, out of which the Respondent has reversed Rs. 10,95,800/- (February 2024). Accordingly, the Net ITC of Cess availed during the relevant period stood at Rs. 2,23,90,552/-. In contrast, the larger reversal of Cess amountin....
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....TC (Cess) in cases of zero-rated supplies under section 54(3) of the CGST Act read with Rule 89(4) of the CGST Rules, 2017, having regard to the clarification contained in paragraph 43(c) of Circular No. 125/44/2019-GST dated 8.11.2019, particularly when the ITC in question has been reversed during the relevant period credit or earlier periods? 18. Heard both the parties. 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: Re....
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....ed that the Respondent is eligible for refund of Rs. 43,72,608/-. Therefore, the ground of the Appellant that Rs. 2,24,87,235/- has been considered during the refund period while determining the NET ITC" is only on presumption without any material evidence. Further it is submitted by the Appellant that no evidence has been adduced/produced by the Respondent to establish the NET ITC under Rule 89(4) of the CGST Rules, this contention of the Appellant is unreasonable because in the GST regime, all the documents are available in the GST portal as such there is no need to produce any evidence to claim Refund. 22. The above findings of 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 Rs.2,24,87,235/- 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 m....
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.... a critical role in reducing ambiguity and ensuring consistency across tax administration. Nevertheless, they cannot become instruments for enlarging taxation powers or curtailing substantive legal rights. The settled doctrine today is unequivocal departmental circulars bind the department but cannot bind courts or override statutes. Tax administration must therefore operate within constitutional discipline, ensuring that executive convenience never supersedes legislative mandate. Hence, the settled constitutional right remain that in taxation matter, statutory provisions prevail over all the executive instructions and any administrative action 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 f....
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.... power to issue circulars is for just, proper and efficient management of the work and in public interest. It is a beneficial power for proper administration of fiscal law, so that undue hardship may not be caused. Circulars are binding on the authorities administering the enactment but cannot alter the provision of the enactment, etc. to the detriment of the assessee. Needless to emphasise that a circular should not be adverse and cause prejudice to the assessee. (See : UCO Bank, Calcutta v. Commissioner of Income Tax, West Bengal - (1999)4 SCC 599. Therefore the, paragraph 43(c) of the circular cannot be read as laying down a proposition 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....