M/s. Nahar Industrial Enterprises Limited ("the Petitioner") operates in the textile manufacturing sector, involved in activities spanning from spinning, weaving, and spinning. Throughout its manufacturing process, the Petitioner utilizes various raw materials, including cotton, manmade fiber, and other inputs, subject to GST rates ranging from 5 percent to 28 percent. The manufactured products consist of cotton yarn, cotton blended yarn, polyester viscose yarn, and polyester/viscose blended yarn, with GST rates on output ranging from 0.1 percent to 12 percent. Recognizing an inverted duty structure where the GST rate on input exceeds that on output, the Petitioner sought a refund of unutilized credit under Section 54(3) of the Central Goods and Services Tax Act, 2017 ("the CGST Act") for the tax period of January to March 2020.
However, the Revenue Department ("the Respondent") issued a Show Cause Notice challenging the refund claim, and subsequently, the Petitioner's claim was rejected by the Respondent in an order dated August 24, 2020, on the grounds that it did not fall under the inverted duty structure category.
Displeased with this decision, the Petitioner appealed to the Respondent Commissioner, who, through orders dated October 06, 2020, and May 11, 2021 ("the Impugned Orders"), upheld the rejection, asserting that the Petitioner's case did not fit the Inverted Duty Structure criteria, hence denying the refund under Section 54(3) of the CGST Act.
Challenging these decisions, the Petitioner filed a writ petition before the Hon’ble Rajasthan High Court (Jaipur Bench), alleging that the rejection of the refund claim was illegal, grounded in misrepresentation and misconstruction of the statutory scheme under Section 54(3) of the CGST Act.
The key issue before the court was whether a refund of Input Tax Credit (ITC) could be claimed when the GST rates on multiple inputs were higher than the rates on output supplies?
Held that-
It observed that Section 54(3) of the CGST Act mandates granting a refund when, on a comparative basis, the GST rate on inputs exceeds that on output supplies. The denial of refund based on minor variations in the comparative analysis is not justified.Noting clause (ii) of the proviso to Section 54(3) of the CGST Act, the court emphasized that the statutory scheme of refund applies when the accumulation of unutilized ITC is a result of the GST rate on inputs exceeding that on output supplies, even with multiple inputs and outputs.The court relied on Circular No. 79/53/2018-GST dated December 31, 2018, and Circular No. 125/44/2019-GST dated November 18, 2019, to establish that the inverted duty structure and refund are applicable even in cases with multiple inputs having higher GST rates than the GST rate on output supplies.Consequently, the Impugned Orders were set aside, and the Respondent was directed to reevaluate the Petitioner’s claim for refund in accordance with the court's observations. The Writ Petition was allowed.
Nahar Industrial Enterprises Limited Versus Union of India
RAJASTHAN HIGH COURT
Team Taxonation
Comment: