The Rajasthan High Court (Jodhpur Bench) recently ruled that no taxpayer can be expected to file the claim of a refund of the tax for the period paid up to July 18, 2022, on the said date itself, more particularly when he can apply for a refund of tax within the permissible time limit of two years. Hence, the Court held that curtailment of a taxpayer’s right to claim a refund up to the date of enforceability of the notification is illegal and contrary to section 54 of the CGST Act, 2017.
The Court clarified that when the limitation for claiming a refund under Section 54 of the CGST Act, 2017 is 2 years, then denial of such right to claim refund of the Input Tax Credit (ITC) on inverted duty structure from the date of enforceability of the notification only, falls foul of Article 14 of the Constitution of India.
The Court emphasized that the ITC is an indefeasible right of a taxpayer, which accrues to it on the date when the goods were bought, and the respondents’ stand impinges upon the petitioner’s fundamental rights guaranteed under Article 19(1)(g) and 300A of the Constitution of India. Accordingly, the Court declared the part of the CBIC Circular No. 181/13/2022-GST as illegal, and quashed the same, to the extent of confining the refund of Input Tax to the application(s) filed up to July 18, 2022.
Since, by way of the Notification No. 09/2022-Central Tax (Rate) dated 13th July, 2022, which came into force prospectively from July 18, 2022, the goods purchased by the petitioner were placed in the negative list for claiming ITC on account of inverted duty structure, the Division Bench comprising Justice Dinesh Mehta and Justice Sangeeta Sharma observed that the manufacturers including the petitioner cannot be treated disentitled from claiming refund of the ITC, which they have paid up to July 18, 2022.
Speaking for the Bench, Justice Mehta added that the restriction of the refund claim, qua the date of filing the application, creates two classes, and denial of a substantial statutory right in relation to the filing of the application, amounts to apparent discrimination without any intelligible criteria.
The Bench also discarded the stance taken by the Respondent-Departmental Authorities that the petitioner can claim a refund only if the application was filed before July 18, 2022, based on the Circular No. 181/13/2022-GST dated Nov 10, 2022, observing that the Circular restrict the right of claiming refund for the applications filed up to the date of enforceability of the notification, even though the Notification does not contain such stipulation.
The Bench explained the system of “inverted duty structure”, by referring to Section 5(3) of the CGST Act, 2017, which provides for a situation where the ITC available in the electronic cash ledger of a registered person can be refunded, if the rate of tax on the final product is lower than the rate of tax payable on the inputs used for manufacture of such final product.
Briefly, in this case, the petitioner-firm, engaged in the manufacture of edible oil, had purchased mustard oil falling under HSN Code 1514 on payment of applicable GST. In the meantime, a Notification No. 09/2022-Central Tax (Rate) was issued providing that the accumulated ITC shall not be allowed in relation to various items, including HSN Entry No.1514, which was made enforceable from the prospective date, i.e., July 18, 2022. Claiming that its products fall into the category of inverted duty structure, the petitioner applied for the refund of ITC as per section 54 of the CGST Act for the period(s) before July 18, 2022, which has not been decided yet. Therefore, seeking direction to the Respondent Department, the petitioner approached the High Court.
Appearances:
Senior Advocate Sanjeev Johari, along with Advocate Shubhankar Johari, for the Petitioner/ Taxpayer
AAG Mahaveer Bishnoi, for the Respondent/ Revenue
