Case Title | Shree Udyog vs Commissioner of State Tax Odisha, Cuttack and others |
Court | Orissa High Court |
Honorable Judges | Justice K.R. Mohapatra |
Citation | 2021 (6) GSTPanacea 19 HC Orissa W.P.(C) No.14887 of 2021 |
Judgement Date | 10- June- 2021 |
Council for Petitioner | Mr. V. Narasingh |
Council for Respondent | Mr. Mr.S.S. Padhy |
The High Court of Orissa, Cuttack bench of Justice K.R. Mohapatra, has held that the rejection of the claim for refund by the petitioner assessee in the order dated 22.05.2020 of the Assistant Commissioner by referring to the provisions of paragraph 3.2 of the circular No.135/05/2020-GST dated 31.03.2020 would be unsustainable in law and also the the order of the Joint Commissioner (Appeals) would also be unsustainable in law.
FACTS OF THE CASE
The assessee BMG Informatics Pvt. Ltd is a company dealing with IT system integrator and is a service provider primarily engaged in sales and service of information and technology products to Government Departments, PSU and to other Research and Educational Institutes located in the North Eastern region.
The assessee submitted a claim for a refund of ITC. The Assistant Commissioner while rejecting the claim of the assessee for the refund made under Section 54(3) (ii) of the CGST Act of 2017 had arrived at the reasons for such rejection on the grounds that Section 54(3)(ii) of CGST Act, 2017 allows refund of accumulated ITC where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies. However, the input and output being the same in the instant case though attracting different tax rates depending upon the class of buyer, does not get covered under the provisions of clause (ii) of sub-section (3) of section 54 of the act. This view is also supported by the clarificatory Circular No.135/05/2020-GST dated 31 st March 2020. Thus, the instant claim is liable for rejection on this score alone, as the amount of ITC claimed for refund was accumulated out of the trading activity where the input and output were the same.
On an appeal being preferred by the assessee, the Joint Commissioner (appeals) passed the following stating that on going through the above observation of the lower authority, I find that no such allegation or ground was proposed in the impinged SCN to reject the refund claim of the appellant. The lower authority rejected the refund claim on the basis of a ground which was not proposed in the impugned SCN in violation of principle of natural justice. Nowhere, it was mentioned in the impugned show cause notice dated
10.04.2020 issued to the appellant that sub-section (3) of section 54 of CGST Act, 2017 is not applicable in their case and the refund claim is liable to be rejected as the input and output supplies are the same. Despite this fact, the lower authority has travelled beyond the scope of the SCN and has given a reasoning of the impugned order that the input and output being the same in the instant case, though attracting different tax rates depending upon the class of buyer, does not get covered under the provisions of clause (ii) of sub section (3) of the section 54 of CGST Act, 2017. Therefore, I am of the view that the Assistant Commissioner arbitrarily disallow the refund claim of the appellant by travelling beyond the scope of SCN which is not maintainable and liable to be rejected.
The provisions of paragraph 3.2 of the circular No.135/05/2020-GST dated 31.03.2020, provides that although the input supplies and the output supplies may attract different tax rates at different point of time, such differences in the tax rates are not covered under Section 54(3)(ii) of the CGST Act of 2017. the Central Board of Indirect Tax and Customs in paragraph 3.2 of the said circular clarifies that the refund of accumulated input tax credit (ITC for short) on account of reduction in GST rate under Section 54(3)(ii) of the CGST Act 2017 would not be applicable in cases where the input and output supplies are same.
The main question was whether Such declaration/provision/clarification by the Central Board of Indirect Tax and Customs in paragraph 3.2 of their circular No.135/05/2020-GST dated 31.03.2020 appears to be in conflict and provides for the contrary to the provisions of Section 54(3)(ii) of the CGST Act of 2017. Section 54(3)(ii) of the CGST Act of 2017?
COURT HELD
The Court held that A plain reading of the provisions of Section 54(3)(ii) would go to show that refund of unutilized input tax credit shall not be allowed other than in a case where the credit has accumulated on account of rate of tax in inputs being higher than the output supplies. The provisions of Section 54(3)(ii) of the CGST Act of 2017 makes it explicitly clear that if the input tax credit has accumulated as because the rate of tax on input supply is higher than the rate of tax on output supply, in such event, the assessee would be entitled to a refund of the unutilized input tax credit. Ofcourse, there is a further exception that in the event the output supplies are subjected to a nil rate or are fully exempted supplies, in such event, the refund of the unutilized input tax credit will not be available under Section 54(3)(ii) of the CGST Act 2017.
Accordingly, we are required to look into the aspect as to whether the tax rate applicable to the present assessee in respect of the output supplies were subjected to a tax of nil rate or were fully exempted. 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. It is stated that 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 theMinistry of Finance, Department of Revenue.
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.
On a claim for refund being made by the petitioner assessee, it is incumbent upon the Assessing Authority i.e. the Assistant commissioner in the instant case to arrive at a factual satisfaction as to what was the rate of tax on the input supplies of the petitioner assessee and what was the rate of tax after applying the partial exemption under the Notification 45/2017-GST (Rate) dated 14.11.2017 in respect of the output supplies. In the event, a factual satisfaction is arrived that the rate of tax on the input supplies is higher than the rate of tax on the output supplies, the provisions of Section 54(3)(ii) would be applicable and the assessee would be entitled to the refund as provided therein.
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.
Consequent upon the conclusion arrived at, we are of the view that the rejection of the claim for refund by the petitioner assessee in the order dated 22.05.2020 of the Assistant Commissioner by referring to the provisions of paragraph 3.2 of the circular No.135/05/2020-GST dated 31.03.2020 would be unsustainable in law. Consequently, both the orders i.e., dated 22.05.2020 of the Assistant Commissioner as well as the appellate order dated 29.10.2020 of the Joint Commissioner (Appeals) are set aside.
But at the sametime, we also observe that the reasoning given by the Joint Commissioner (Appeals) in the appellate order dated 29.10.2020 for reversing the order of rejection by the Assistant Commissioner would also be not sustainable. The only reasoning given by the Joint Commissioner (Appeals) is that the issue decided by the Assistant Commissioner was not included in the show cause notice dated 10.04.2020 and, therefore, there was a violation of the principles of natural justice. We are also unable to agree with the other aspect of the order of the Joint Commissioner (Appeals) that merely because the order of the Assistant Commissioner dated 22.05.2020 was set aside on the ground of there being a violation of the principles of natural justice in the show cause notice dated 10.04.2020, therefore, without making any further enquiry as to whether the tax rate on the input supplies was higher than the tax rate on the output supplies, the Joint Commissioner (Appeals) would direct a refund of the unutilized input tax credit under Section 54(3)(ii) of the CGST Act of 2017. From such point of view, even the order of the Joint Commissioner (Appeals) dated 29.10.2020 would be unsustainable in law.
The matter stands remanded back to the Assistant Commissioner, GST, Guwahati to consider the matter afresh and arrive at his own factual satisfaction as to whether the actual rate of tax on the input supplies made by the petitioner assessee is higher than the actual rate of tax on the output supplies made by them and depending upon the satisfaction that may be arrived to pass a reasoned order on the claim of the petitioner assessee for refund under Section 54(3)(ii) of the CGST Act of 2017. If the Assistant Commissioner arrives at his satisfaction that the actual rate of tax on the input supplies made by the petitioner assessee is higher than the actual rate of tax on the output supplies appropriate order for refund may be passed and on the other hand, if the Assistant Commissioner upon factual deliberation arrives at his satisfaction that the actual rate of tax on the input supplies was not higher than the actual rate of tax on the output supplies, again an appropriate order may be passed by giving reasons.
ANALYSIS OF THE JUDGEMENT
From the above case we analyse that the main question was on the validity of a Circular issued by the GST Officials. 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.
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