The Gujarat High Court has held that Notification No. 14/2022 correcting the error in the formula for determination of the eligible refund amount under Rule 89(5) (inverted rate refunds) will be applicable retrospectively as the amendment is curative and clarificatory in nature.
The bench of Justice Bhargav D. Karia and Justice D. N. Ray has quashed the Circular No. 181/22 dated 10.11.2022 so far as it clarifies that the amendment is not clarificatory in nature. Also directs the authorities to release the incremental refunds within a period of three months.
The petitioners/assessee were granted partial refund computed as per the formula under the inverted duty structure for all the applications made prior to 05.07.2022 on the ground that prior to 05.07.2022, by unamended formula, the petitioners were not entitled to include the input services as part of the formula and as the petitioners have made the refund application prior to 05.07.2022, as per the Notification No. 14/2022 dated 05.07.2022 read with Circular dated 10.11.2022, the petitioners were not entitled to the refund as per the amended formula.
In the cases on hand, the refund applications filed by the petitioners have been rejected by the Department. A comprehensive chart showing the particulars of the respective applications, the quantum of refund and the particulars of rejection etc. As the controversy pertaining to this group of petitions is similar, the common order will dispose of the same.
Rule 8(d) of the Amended Rules, 2022 provides that in sub-rule (5) for the words “tax payable on such inverted rated supply of goods and services”, the brackets, words and letters “{tax payable on such inverted rated supply of goods and services, x (Net ITC ÷ ITC availed on inputs and input services)} has been substituted”.
Read More: GIDC Lease Land Sale Not Subject To GST : Gujarat High Court [Read Full Order]
After the amendment to the formula in Rule 89(5) was notified, the petitioners filed a rectification application for differential refund as per the new amended formula. Show- cause notices were issued proposing to reject the refund on the ground that the refund was not admissible since the refund as per the old formula was already granted to the petitioners.
The court held that the formula for calculating the refund under Rule 89(5) of the GST Rules was challenged before different High Courts on the ground that it was ultra vires to section 54(3) of the GST Act and as the refund in respect of unutilized input tax credit attributable to input services was not being granted and, in the alternative, it was urged that the formula was defective as the entire input tax credit pertaining to inputs was first adjusted towards output tax liability for computing refund under Rule 89(5) of the GST Rules. Accordingly in many of these petitions, suitable amendments were moved to challenge the Notification No. 14/2022 dated 05.07.2022 read with Circular dated 10.11.2022.
The court held that the Notification No. 14/2022 is applicable retrospectively as the amendment brought in Rule 89(5) of the Rules is curative and clarificatory in nature and the same would be applicable retrospectively to the refund or rectification applications filed within two years as per the time period prescribed under section 54(1) of the Act. Rule is made absolute to the extent.
Case Details
Case Title: M/S Tirth Agro Technology Pvt. Ltd. & Anr. Versus Union Of India & Ors.
Case No.: R/Special Civil Application No. 11630 Of 2023
Date: 20/12/2024
Counsel For Petitioner: Abhay Y Desai, D K Trivedi
Counsel For Respondent: Siddharth H Dave
