Introduction: In a recent legal development, a petitioner has approached the court challenging an Order-in-Appeal dated 18 September 2020 issued by the Commissioner of CGST & Central Excise Appeals, Thane, Mumbai Zone. The appeal pertains to the rejection of a refund application for Input Tax Credit (ITC) under the Central Goods and Services Tax (CGST) Act, 2017.
Background: The petitioner had initially filed a refund application on 29 August 2018, seeking the refund of unutilized ITC amounting to Rs. 1,30,30,548/- for the export of goods under a Letter of Undertaking (LOU). The Deputy Commissioner, CGST and Central Excise, Division-I, Bhiwandi Commissionerate, granted a provisional refund of Rs. 1,17,27,495/- on 11 October 2018. A show cause notice was issued later for the rejection of a portion of the refund. Eventually, on 6 December 2018, a refund of Rs. 1,30,08,858/- was sanctioned after scrutiny.
However, the department appealed the order of 11 October 2018, leading to the impugned Order-in-Appeal. The Appellate Authority directed the petitioner to repay a refund amount of Rs. 1,07,08,504/-, along with interest, which had already been sanctioned.
Petitioner's Grounds for Challenge: The primary ground of challenge by the petitioner is based on the contention that the Appellate Authority incorrectly applied Circular dated 18 November 2019 (Circular 125/44/2019-GST). The circular stated that a refund claim could not be spread across different financial years. The petitioner argues that the refund application was in line with Rule 89(4) of the CGST Rules, 2017.
The relevant portion of Rule 89(4) provides a formula for refund calculation in the case of zero-rated supply of goods or services. The petitioner asserts that their refund claim, covering the period from 1 April 2018 to July 2019, was entirely in accordance with this rule.
Court's Observations: The court noted that the Appellate Authority overlooked the subsequent Circular dated 31 March 2020 (Circular 135/05/2020-GST), which clarified and diluted the Circular dated 18 November 2019 (Circular 125/44/2019-GST). The court questioned how the Appellate Authority could disregard Rule 89(4) and the subsequent clarification in the face of the petitioner's claim that it was permissible to club both periods.
Court's Decision: Considering the substance of the petitioner's arguments, the court set aside the impugned order dated 18 September 2020.The Petitioner was permitted to club the ITC credit available for the period prior to April 1, 2018, as the ITC with respect to the FY 2017-2018 was available to the Petitioner in the Electronic Credit Ledger. The appeal filed by the department is restored to the file of the Appellate Authority for a fresh decision. The Appellate Authority is directed to consider the effect of the Circular dated 31 March 2020 (Circular 135/05/2020-GST) and make a decision within four months.
Until the Appellate Authority decides the appeal afresh, the department is instructed not to take any coercive action based on subsequent orders. All contentions of the parties in the appeal proceedings are expressly kept open.
Topic-Sine Automation and Integration Pvt. Ltd. Versus Union of India
Court-BOMBAY HIGH COURT
Team Taxonation
Comment: