The Karnataka High Court has directed the goods and service tax (GST) department to refund under Section 54(3) of the CGST Act of unutilized Input Tax Credit (ITC) with interest.
The bench of Justice S.R.Krishna Kumar has observed that as per Notification No.15/2023 refund of unutilized ITC is disallowed / excluded only in relation to construction activity intended for the purpose of sale in the real estate sector; in fact, the Notification clearly reinforces and reiterates that works contract are neither disallowed nor excluded from refund claims.
The petitioner/assessee is a joint venture. The petitioner was awarded a contract by Bangalore Metro Rail Corporation (BMRCL) for construction of elevated structures (including viaduct and stations) measuring approximately 28.11 kms in length.
The petitioner applied for refund under Section 54(3) of the CGST Act on account of Income Tax Credit (ITC) accumulated due to inverted tax structure for the period from March, 2018 to July, 2019.
The department issued Notices in Form RFD-08, to which, the petitioner submitted replies and the same culminated in the refund rejection orders during the period 23.05.2020 to 13.11.2020 were passed.
The refund claim of the petitioner has been rejected on two grounds.
Firstly, that the business / activity being carried on by the petitioner was supply of services being construction within the meaning of Clause/Entry 5(b) of Schedule II to the CGST Act and not a composite supply in relation to a works contract as contemplated under Clause/Entry 6(a) of Schedule II to the Act and stood excluded from the refund mechanism in terms of Notification 15/2017- 28.6.2017.
Secondly, by virtue of Notification No.20/2017-Central Tax(Rate) dated 22.08.2017, works contract relating to Metro which is the subject matter of the petition was excluded by the department.
The court held that it is amply evident from the GST council recommendations in its 52nd meeting which led to the issuance of the notification which states in agenda item 3(ix) that refund on account of inverted duty structure is denied only for construction services rendered for sale of building in real estate sector and not to other construction or works contract services. In the light of this subsequent event also that has transpired / occurred during the pendency of the present petition, the impugned orders deserve to be quashed and the refund claim of the petitioner deserves to be allowed.
The court directed the department to consider the subject refund claims / applications of the petitioner and make payment together with applicable interest to the petitioner within a period of six weeks.
Case Details
Case Title: M/S. Itd Cemindia Jv Versus The Joint Commissioner Of Commercial Taxes (Appeals)-5, Bangalore
Case No.: Writ Petition No.2817 Of 2025 (T-RES)
Date: 12/03/2025
Counsel For Petitioner: Shankar A. Sr. Adv.
Counsel For Respondent: Hema Kumar K, AGA
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