High Court set aside GST circular and directed to allow the Refund under inverted duty structure

In the recent judgement, the Hon'ble Guahati High Court set aside the Circular and directed the GST department to allow the Refund under inverted duty structure. 

In the instant case, the assessee obtains its input supplies either from the manufacturer, or from some other authorized dealer and makes the output supplies to a Government Department or PSU or a Research and Educational Institute within the NE Region. The tax rate applicable in respect of a supply made to a Government Department, PSU or a Research and Educational Institutes within the NE Region is subjected to a partial exemption of the GST under Notification 45/2017-GST (Rate) dated 14.11.2017 of the Government of India in the Ministry of Finance, Department of Revenue. The Notification 45/2017-Central Tax (Rate) dated 14.11.2017 is issued under Section 11(1) of the CGST Act of 2017 and provides that on the recommendation of the GST Council, the goods specified in column(3) of the table therein are exempted from the so much of the central tax leviable thereon under Section 9 of the Act as in excess of the amount calculated at the rate of 2.5% in respect of supplies to the institutions specified in the corresponding entry in column(2) of the said table.

Section 54(3)(ii) provides as under:

54(3) Subject to the provisions of sub-section (10), a registered person may claim refund of any unutilised input tax credit at the end of any tax period:

Provided that no refund of unutilised input tax credit shall be allowed in cases other than—

(i) zero-rated supplies made without payment of tax;

(ii) where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies (other than nil rated or fully exempt supplies), except supplies of goods or services or both as may be notified50 by the Government on the recommendations of the Council:

Then, the CBEC issued a circular vide Circular No.135/05/2020 - GST Dated the 31st March, 2020 which clarifies certain issues related to refunds and the relevant para, which is under the dispute is as under:

3.2 It may be noted that refund of accumulated ITC in terms clause (ii) of sub-section (3) of section 54 of the CGST Act is available where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies. It is noteworthy that, the input and output being the same in such cases, though attracting different tax rates at different points in time, do not get covered under the provisions of clause (ii) of sub-section (3) of section 54 of the CGST Act. It is hereby clarified that refund of accumulated ITC under clause (ii) of sub-section (3) of section 54 of the CGST Act would not be applicable in cases where the input and the output supplies are the same.

The hon’ble High Court carefully examined the provisions of the Section 11, Section 54, Section 168 and provisions of the applicable Notification No. 45/2017-GST (Rate) dated 14.11.2017 and concluded as under:

24. Accordingly, we are to conclude that in the instant case the input supplies and the output supplies made by the petitioner assessee are not governed either by a nil rate of tax nor it is governed by fully exempted rate of tax and, therefore, the refund provided under Section 54(3)(ii) would be applicable in respect of the difference between the rate of tax of input supplies and the rate of tax on output supplies. In other words, the provisions for refund of the unutilized input tax credit under Section 54(3)(ii) of the CGST Act of 2017 would be applicable in case of the petitioner assessee.

26. When we read the provisions of paragraph 3.2 of the circular No.135/05/2020-GST dated 31.03.2020 vis a vis, the provisions of Section 54(3)

27. The law in this respect is settled to the extent that whenever there is a conflict between the provisions of a statutory Act and that of a notification or circular issued by an administrative authority, the provisions of the statutory Act would prevail over such conflicting provisions of a notification or a circular of an administrative authority. The said principle of law is so well entrenched that we are not required to refer to any specific judgment on the said point of law and it is a well accepted principle of law. The further implication of such conflict between the provisions of a statutory Act and that of a notification or circular by an administrative authority has been interpreted by the Supreme Court in a plethora of decisions that the provisions of such notification or circular, which would be in conflict with the provisions of a statutory Act, would have to be ignored and not taken into consideration for the purpose of arriving at any such decision

33. Consequently, in view of the clear unambiguous provisions of Section 54(3) (ii) providing that a refund of the unutilized input tax credit would be available in the event the rate of tax on the input supplies is higher than the rate of tax on output supplies, we are of the view that the provisions of paragraph 3.2 of the circular No.135/05/2020-GST dated 31.03.2020 providing that even though different tax rate may be attracted at different point of time, but the refund of the accumulated unutilized tax credit will not be available under Section 54(3)(ii) of the CGST Act of 2017 in cases where the input and output supplies are same, would have to be ignored.

Citation:

Case No. : WP(C)/3878/2021