The Rajasthan High Court has held that the GST circular dated 31.03.2020, repugnant to the parent legislation, cannot be applied to oust the legitimate claim for an accumulated ITC refund.
The division bench of Justice Sandeep Mehta and Justice Vinod Kumar Bharwani has observed that the supplying dealer would be entitled to claim a refund of accumulated unutilised tax credit under Section 54 (3) (ii) of the CGST Act irrespective of the fact that the input and output supplies are the same by ignoring the circular dated 31.03.2020.
The petitioner/assessee entered into a development contract with the company Vedanta Limited, which has been granted exclusive rights to carry out petroleum operations in Rajasthan Block RJ-ON-90/1 by the Government of India. For this purpose, a Production Sharing Contract was executed between Vedanta and the Central Government. In order to procure essential goods, materials, and equipment required for carrying out the petroleum exploration and production operations, Vedanta entered into a subcontract with the petitioner for the supply of the articles.
As per terms of the contract, the petitioner was required to procure the goods, materials, and equipment from India and abroad for onward dispatch to Vedanta. The petitioner obtained registration under the CGST and RGST Acts and claims to have been regularly filing returns and paying tax to the Central or State Government. For the execution of the contract, the petitioner procured goods from authorised vendors at GST rates varying between 5% and 28%.
The petitioner asserted that the government issued a notification dated June 28, 2017 providing for an effective GST rate of 5% on all supplies made for specific operations subject to certain conditions. The notification was issued to reduce the burden of tax, the cascading effect and to give a boost to the oil and gas industry. A pre-requisite condition was stipulated to avail the 5% concessional rate of GST under the notification. As per the condition, a certificate from the Directorate General of Hydrocarbons, Ministry of Petroleum and Natural Gas, needs to be provided by the person who clears the transfer of goods.
The essentiality certificate was issued bearing the name of the petitioner as the supplier and Vedanta as the recipient. The petitioner procured the goods by paying GST from 5% to 28% (Input Tax) and supplied them to Vedanta at the fixed GST rate of 5% (Output Tax) under the notification dated 28.06.2017.
It was claimed that the ITC available to the petitioner was much higher than its output tax liability. As a consequence, after complete utilisation of the credit towards the Output Tax Liability. A significant percentage of the input tax credit accumulated in favour of the petitioner on account of the difference in the rate of GST, which was much higher than the rate of output tax. The petitioner claimed that it was entitled to a refund under the inverted duty structure as provided by the CGST and RGST Acts.
The petitioner alleges that a notice under FORM-GST-RFD-08 dated 19.12.2020 was received requiring the petitioner to show cause as to why the refund claim should not be rejected in light of the Circular dated 31.03.2020 issued by the CBIC. The circular states that where the input and output supplies are the same, a refund under the inverted duty structure under Section 54(3)(ii) of the CGST Act is not available.
Clause 3.2 of the Circular dated 31.03.2020, is the bone of contention between the parties. The clause states, "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 the 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 output supplies are the same."
The petitioner relied upon the Circular No. 125/44/2019-GST – CBEC-20/16/04/18-GST. As per the circular, a refund under the inverted duty structure, is to be allowed when the inputs are procured at the normal GST rate and the output supplies are made at a lower GST rate because of the lower rate notification in place.
The petitioner contended that subordinate legislation in the form of a statutory circular can not supersede or override the parent statute. The circular, to the extent it disallowed Input Tax Credit under the Inverted Duty Structure where input and output supplies are the same, is per se illegal and hence deserves to be struck down while accepting the writ petition.
The department urged that the petitioner was not entitled to the refund claim for ITC in the face of the circular dated 31.03.2020 and sought dismissal of the writ petition.
The court observed that Section 54(3)(ii) of the CGST Act is completely clear and does not make any exceptions that the Input Tax Credit under the Inverted Tax Structure would not be applicable where the input and output goods are identical.
"The claim for refund of ITC filed by the petitioner was for a period prior to the issuance of the circular dated 31.03.2020. Consequently, rejection of the petitioner's claim for accumulated input tax credit by the respondent, Deputy Commissioner, State Tax, Circle Barmer, with reference to para 3 of the Circular dated 31.03.2020, is invalid on the face of the record and cannot be sustained," the court said.
Case Title: Baker Hughes Asia Pacific Limited Vs Union of India
Citation: D.B. Civil Writ Petition No. 5714/2021
Counsel For Petitioner: Sr. Advocate Tushar Jarwal
Counsel For Respondent: ASG Mukesh Rajpurohit