Dismissed

Ms Dhirajlal Velji Atha HUF through Its Authorized Signatory Nalini Kumar v. the Union of India through Its Pr Secretary Ministry of Finance Deptt of Revenue

Jharkhand HC12 Jan 2023WPC/1600/2021

Case brief

AI extract

What is this about?

The High Court dismissed a writ petition challenging Rule 89(5) of the CGST Rules and a refund order, holding the petition infructuous following the Supreme Court's decision in VKC Footsteps (2022) 2 SCC 603 which upheld the formula.

What did the court decide?

The writ petition is disposed of as infructuous.

What the court decided

Ms Dhirajlal Velji Atha HUF through Its Authorized… — GST and Indirect Tax | Jharkhand HC (2023)

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IN THE HIGH COURT OF JHARKHAND AT RANCHI

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W.P.(T) No. 1600 of 2021

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M/s. Dhirajlal Velji Atha (HUF) having its office at Barajamda, West Singhbhum through its Authorized

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Signatory namely Nalini Kumar R/o Sector-2, Dhurwa, Ranchi

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--- --- Petitioner

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Versus

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1.The Union of India through its Principal Secretary,

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Ministry of Finance, Dept. of Revenue, New Delhi

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2.The Central Board of Indirect Taxes and Customs through

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Its Chairman, Ministry of Finance, Dept. of Revenue, New Delhi

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3.Commissioner, Central Goods and Services Tax & Central

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Excise, Division-1, Jamshedpur, East Singhbhum

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4.Joint Commissioner (Appeals), Central Goods and Service

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Tax & Central Excise, Ranchi

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5.Assistant Commissioner, Central Goods & Service

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Tax and Central Excise, Division-I, Jamshedpur, East Singhbhum

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--- --- Respondents

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CORAM: HON’BLE THE ACTING CHIEF JUSTICE HON’BLE MR. JUSTICE DEEPAK ROSHAN

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For the Petitioner : Mr. Ranjeet Kushwaha, Advocate For the Respondent : Mr. P.A.S. Pati, Sr. S.C. (for CGST)

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02/12.01.2023 Heard learned counsel for the parties.

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2. Writ petition was preferred with the following prayer:

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i. For issuance of an appropriate writ/order/direction, including Writ of Declaration, declaring Rule 89(5) (Annexure-2) of the Central Goods and Services Tax Rules, 2017 (hereinafter referred to as ‘ CGST Rules’ for short), as it originally stood including its amendment vide Notification No. 26/2018-Central Tax, dated 13^th June, 2018 (Annexure-4), to the extent in the formula prescribed for calculation of the refund amount on account of inverted duty structure, restriction has been imposed on refund of unutilized Input Tax Credit by disallowing refund on ‘ Capital Goods’ and ‘Input Services’, as being unconstitutional and wholly contrary to Section 54(3) (ii) and the scheme of the Central Goods and services Tax Act, 2017 (hereinafter referred to as ‘ CGST Act’ for short).

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ii. For issuance of further appropriate writ/order/direction for quashing /setting aside Notification No. 26/2018-Central Tax, dated 13^th June, 2018 (Annexure-4), wherein Rule 89(5) of the CGST Rules has been substituted with retrospective effect i.e. from 1^st July, 2017, as being wholly arbitrary, unreasonable, confiscatory in nature and violative of Articles 14 and 19(1)(g) of the Constitution of India, including contrary to the provisions of Section 54(3)(ii) of the CGST Act.

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iii. For issuance of further appropriate writ/order/direction for quashing/setting aside the Order-in-Appeal No. 3031/CGST/JSR/2020 dated 29.10.2020 (Annexure-13), wherein the Appeal filed by the Petitioner against the order of rejection of refund application of the Petitioner for refund of the amount of unutilized Input Tax Credit (hereinafter referred to as ‘ITC’ for short), amounting to Rs.2,85,46,025/- pertaining to the period January, 2018 to March, 2018 has been dismissed.

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iv. For issuance of further appropriate writ/order/direction,

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-2-

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including Writ of Mandamus, directing the Respondent – authorities, particularly Respondent No. 5, to grant refund of the amount of unutilized ITC of Rs.2,85,46,025/- to the Petitioner for the period January, 2018 to March, 2018, as the Petitioner is entitled for refund of the said amount in terms of substantive provisions contained under Section 54(3)(ii) of the CGST Act.

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However, learned counsel for the petitioner at the outset submits that vires of Rule 89(5) of the CGST Rules, 2017 substituted w.e.f. 01.07.2017 vide notification dated 13.06.2018 has been upheld by the Apex Court in the case of Union of India & others Vrs. VKC Footsteps India Private Limited reported in (2022) 2 SCC 603 . The operative portion of the judgment is quoted hereunder:

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142. The above judicial precedents indicate that in the field of taxation, this Court has only intervened to read down or interpret a formula if the formula leads to absurd results or is unworkable. In the present case however, the formula is not ambiguous in nature or unworkable, nor is it opposed to the intent of the legislature in granting limited refund on accumulation of unutilised ITC. It is merely the case that the practical effect of the formula might result in certain inequities. The reading down of the formula as proposed by Mr Natarjan and Mr Sridharan by prescribing an order of utilisation would take this Court down the path of recrafting the formula and walk into the shoes of the executive or the legislature, which is impermissible. Accordingly, we shall refrain from replacing the wisdom of the legislature or its delegate with our own in such a case. However, given the anomalies pointed out by the assessees, we strongly urge the GST Council to reconsider the formula and take a policy decision regarding the same.

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H Conclusion

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143. Having devoted our attention to the submissions at the Bar, we have come to the conclusion that the judgment of the Madras High Court needs to be affirmed by dismissing the appeals challenging that verdict while the appeals against the judgment of the Gujarat High Court by the Union of India should be allowed. 144. The Division Bench of the Gujarat High Court having examined the provisions of Section 54(3) and Rule 89(5) held that the latter was ultra vires. In its decision in VKC Footsteps (India) (P). Ltd., the Gujarat High Court held that by prescribing a formula in sub-Rule (5) of Rule 89 of the CGST Rules to execute refund of unutilized ITC accumulated on account of input services, the delegate of the legislature had acted contrary to the provisions of sub-Section (3) of Section 54 of the CGST Act which provides for a claim of refund of any unutilized ITC. The Gujarat High Court noted the definition of ITC in Section 2(62) and held that Rule 89(5) by restricting the refund only to input goods had acted ultra vires Section 54(3). The Division Bench of the Madras High Court on the other hand while delivering its judgment in Tvl. Transtonnelstory Afcons JV declined to follow the view of the Gujarat High Court noting that the proviso to Section 54(3) and, more significantly, its implications do not appear to have been taken into consideration in VKC Footsteps (India) (P) Ltd. except

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for a brief reference. Having considered this batch of appeals, and for the reasons which have been adduced in this judgment, we affirm the view of the Madras High Court and disapprove of the view of the Gujarat High Court.

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145. We accordingly order and direct that:

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145.1. The appeals filed by the Union of India against the judgment of the Gujarat High Court dated 4-7-2020 in VKC Footsteps (India) (P) Ltd. and connected cases are allowed and the judgment shall be set aside.

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145.2. The appeals filed by the assessees against the judgment of the Madras High Court in Tvl. Transtonnelstroy Afcons JV and connected cases dated 21-9-2020 shall stand dismissed. As a consequence, the writ petition filed by the assessees shall also stand dismissed. There shall no order as to costs.

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145.3. The observations in paragraphs 133 to 142 shall be considered by the GST Council to enable it to take a considered view in accordance with law.

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146. Pending application(s), if any, stand disposed of

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Learned counsel for the petitioner therefore submits that the instant writ petition may be disposed of in that light.

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Learned counsel for the respondent CGST Mr. P.A.S. Pati submits that challenge to the vires of Rule 89(5) of the CGST Rules does not survive in the light of the decision rendered by the Apex Court in the case of Union of India & others Vrs. VKC Footsteps India Private Limited (supra).

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Having regard to the fact that the issue has been settled in view of the judgment rendered by the Apex Court in the case of Union of India & others Vrs. VKC Footsteps India Private Limited (Supra), the writ petition has become infructuous. Accordingly, the writ petition is disposed of as such.

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(Aparesh Kumar Singh, A.C.J.)

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(Deepak Roshan, J.)

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A.Mohanty

Ms Dhirajlal Velji Atha HUF through Its Authorized Signatory Nalini Kumar v. the Union of India through Its Pr Secretary Ministry of Finance Deptt of Revenue

Case brief

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Ms Dhirajlal Velji Atha HUF through Its Authorized Signatory Nalini Kumar v. the Union of India through Its Pr Secretary Ministry of Finance Deptt of Revenue

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