The Bombay High Court has held that Notification No. 14/2022 dated July 5, 2022, which amended Rule 89(5) of the CGST Rules to remove anomaly in the refund formula for inverted duty structure, is required to be applied retrospectively to refund or rectification applications filed within the period prescribed under Section 54(1) of the CGST Act, and refund cannot be denied merely because the original applications were filed prior to July 5, 2022.
Applying this position, the Court quashed the Orders-in-Original dated March 16, 2023 and the Appellate Order dated October 31, 2023, and held that the petitioner (joint venture between China Harbour Engineering Company and Tata Projects Limited) was entitled to refund under Section 54(3) of the CGST Act on account of difference in GST rates due to inverted rate structure.
The Division Bench comprising Justice G. S. Kulkarni and Justice Aarti Sathe noted that the Supreme Court in Union of India v. VKC Footsteps India Pvt Ltd. [2021(52)-GSTL-512 (SC)], had upheld the validity of Rule 89(5), but had also expressly observed that the formula produced anomalies and had urged the GST Council to reconsider it. Pursuant to this, the GST Council deliberated on the anomaly and recommended amendment of the refund formula, which led to Notification No. 14/2022 amending Rule 89(5).
The Bench recorded that Circular No. 181/13/2022-GST clarified that the amended formula would apply prospectively only to refund applications filed on or after July 5, 2022. However, it also noted that the Gujarat High Court in Ascent Meditech Limited vs. Union of India [2024(24)-Centax-405 (Guj)] had held that Notification No. 14/2022 was clarificatory, curative in nature, and therefore retrospective, and that the circular to the contrary was unsustainable.
The Bench observed that Ascent Meditech Limited case had attained finality because the Supreme Court had dismissed the Special Leave Petition and the review petition filed by the Union of India. It further noted that the same view was followed in Tirth Agro Technology Pvt Ltd. vs. Union of India [2025(27)-Centax-295 (Guj)] and Filatex India Ltd. vs. Union of India [2025(5)-TMI-256 (Guj)], and therefore the legal position stood settled.
Therefore, the Bench held that the Appellate Authority had failed to apply its mind to the legal position prevailing at the time of the appellate order dated October 31, 2023. It found that the rejection of the refund claims on the ground that the amended notification could not be applied retrospectively was contrary to the law laid down in Ascent Meditech Limited and the subsequent acceptance of that position by the Supreme Court.
Briefly, the petitioner, an unincorporated joint venture between China Harbour Engineering Company and Tata Projects Limited, was engaged in providing works contract services to Mumbai Metropolitan Region Development Authority (MMRDA) for metro rail construction and was registered under GST in Maharashtra. It discharged GST at 12% on outward works contract services, while procuring inputs and input services taxed largely at 18% and 28%, resulting in accumulation of input tax credit, for which it claimed refund under Section 54(3)(ii) of the CGST Act.
The petitioner filed seven refund claims aggregating to Rs. 12.16 crores for different periods between August 2018 and March 2021. Earlier refund claims had been rejected, and after the Supreme Court’s decision in Union of India v. VKC Footsteps India Pvt Ltd. [2021(52)-GSTL-512 (SC)], the petitioner resubmitted seven refund claims under the revised formula. These were again rejected by the Original Authority on March 16, 2023, and the appeals filed on June 2, 2023 were also rejected by the Appellate Authority on October 31, 2023.
Before the Appellate Authority, the petitioner relied on Notification No. 14/2022 dated July 5, 2022 and Circular No. 181/13/2022-GST dated November 10, 2022, contending that the amended formula under Rule 89(5) was relevant to its refund claim, but, in vain.
Appearances:
Advocates Prasad Paranjape, Kevin Gogri, and Dhruvi Shah, for the Petitioner/ Taxpayer
Advocates Shehnaz V. Bharucha, Niyati Mankad, and Priyanka Singh for the Respondent/ Revenue
