Petitioner | Filatex India Ltd. |
Respondent | Union of India & Others |
Decision by | Gujarat High Court |
Date of order or Judgement | 18-February-2022 |
Citation no. | 2022 (2) GSTPanacea 48 HC Gujarat R/Special Civil Application No. 13491 of 2021 |
Hon’ble Judge | Justice J.B.Pardiwala |
Decision | In Favour of Assessee |
ITC Allowed As Per Rule 89(4B)- Order for recovery proceedings for the earlier refund claims already received by the assessee set aside.
ITC Allowed As Per Rule 89(4B)-Facts of the Case
ITC Allowed As Per Rule 89(4B)-The company is engaged into the business of manufacturing of textile yarns.
From 1st July 2017, the new regime came into force, i.e., the provisions of the CGST and IGST and CGST Rules for levy and recovery of the Goods and Services Tax came into force.
According to the writ applicant-company, for the purpose of claiming refund, a procedure has been laid down under Rule 89(4) of the CGST Rules. The formula provided under Rule 89(4) has been made applicable by the Government from 1st July 2017, i.e., the date from which the GST laws were brought into force.
Later, the sub-rules (4A) and (4B) respectively came to be inserted in the Rule 89 of the CGST Rules and these two sub-rules have been substituted from time to time.
According to the writ applicant-company, the two sub-rules referred to above do not provide for any formula for calculating the refund of the unutilized credit.
Applicant’s claim for refund of unutilized ITC pertaining to export is rejected by Asst. Commissioner on the ground that the applicant was supposed to file the said claim under Rule 89(4B)of GST Rules, and not on the basis of formula given in Rule 89(4).
Dissatisfied with the said order, an appeal was filed before Jt. Commissioner, who remitted the matter to Asst. Commissioner with a finding that the applicant is eligible for refund under Rule 89(4B).
On the basis of Jt. Commissioner’s findings that the applicant is eligible for refund under Rule 89(4B),recovery proceeding is started for refund earlier sanctioned to applicant under Rule 89(4).
Hence, these writ-applications are filed to challenge constitutional validity of Rule 89(4B), and the recovery proceedings commenced in respect of earlier refund claims sanctioned to applicant.
Argument Before Court
ITC Allowed As Per Rule 89(4B)-Petitioner’s Contention
ITC Allowed As Per Rule 89(4B)-It is the case of the writ applicants it was legally entitled to seek refund of the accumulated ITC because substantial quantities of inputs, capital goods and input services were received and utilized for the manufacture and export of the goods and such credit was lying unutilized with the writ applicants.
The writ applicants calculated the amount of refund in accordance with the formula provided by the Government under Rule 89(4) of the Rules for each of the months and accordingly, 22 refund claims were filed with all the necessary calculations supported with necessary documents. The writ applicants claimed refund of the unutilized credit aggregating to Rs. 85,85,13,169/- was cleared and paid.
Similar claim, as above, for the month of November, 2019 was put forward by the writ applicants, but the same came to be rejected.
The same came to be rejected essentially on the ground that the writ applicant was supposed to file its claim for refund of the unutilized credit under Rule 89(4B) of the CGST Rules and not on the basis of the formula of Rule 89(4) of the Rules.
ITC Allowed As Per Rule 89(4B)-Respondent’s Argument
ITC Allowed As Per Rule 89(4B)-The petitioner’s contentions that, they are unable to establish the quantum of ITC availed in respect of inputs or input services to the extent used in making export of goods (being an impossible exercise), is absolutely non-tenable, illogical and far from factual position.
Every manufacturing process have clearly specified ratios of inputs/raw materials to be used which are to be strictly adhered to for production of finished goods.
Therefore each and every manufacturer / exporter must be aware of input-output ratio of the inputs/raw materials used in such manufacturing of the exported goods and the ITC availed against such input supplies received, otherwise they can not arrive at the costing of the finished goods. Accordingly, contrary to petitioner’s contention the required information can be easily bifurcated along with quantity.
Further, the claimant must be aware of the turnover of the exported goods, the input output ratio, i.e., exact quantities of raw materials / input supplies used in such export of goods and ought have the capacity to bifurcate the ITC availed on such input supplies used in such export of goods and hence the claimant’s contention that they can’t identify the input supplies used in exports exclusively as input supplies are common in both exports and DTA supply is not tenable and also not sustainable.
Thus, emphasizing that they are unable to follow the procedure as prescribed under Rule 89(4B) is not possible to them, is totally baseless and not acceptable.
Gujarat High Court Held
ITC Allowed As Per Rule 89(4B)-The Gujarat High Court held that at this point of time, the Court should not touch the issue of constitutional validity of Rule 89(4B), which may be agitated in any other appropriate litigation.
It is further held that it is not necessary for the Court to quash and set aside the order passed by Jt. Commissioner (Appeals), but, the matter should be remitted to Asst. Commissioner for determination of refund claim in accordance with the principle/formula as provided and explained in the affidavit-in-reply filed on behalf of respondents.
However, the order passed by Jt. Commissioner regarding recovery proceeding in respect of earlier refund claims of applicant is set aside by High Court.
This writ application succeeds in part. The impugned order dated 19th July 2019 passed by the Jt. Commissioner , CGST and Central Excise, Vadodara-II referred to above is hereby quashed and set aside. The Assistant Commissioner shall now proceed further in accordance with the directions issued by the Jt. Commissioner (Appeals) vide the order dated 13th July 2020 and adjudicate the claim of the writ applicants in accordance with sub-rule (4B) of Rule 89 of the CGST Rules, but keeping in mind the formula of input / output ratio of the inputs / raw materials used in the manufacturing of the exported goods.
The connected writ application being the Special Civil Application No. 17703 of 2021 succeeds on the same line of reasoning. We need to clarify one thing so far as this connected writ application is concerned. In the connected writ application, the writ applicant has already furnished the necessary refund claim, but in view of the fact that the refund adjudication is to be undertaken a fresh, it should not be said that the earlier claims are now time barred. It is needless to clarify that the fresh adjudication shall be subject to the clearance of the deficiency memo.
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