Pranav Overseas LLP Vs Union of India & Ors. (Gujarat High Court)
Summary: Gujarat High Court allowed the writ petition filed by Pranav Overseas LLP and quashed the deficiency memo in Form GST RFD-03 relating to refund claims for FYs 2017-18 and 2018-19. The petitioner had challenged the restriction of refund of accumulated input tax credit under Rule 89(5) of the CGST Rules and sought refund attributable to input services. During the proceedings, the petitioner relied upon subsequent developments concerning Rule 89(5).
The Court noted that in Union of India & Ors. Vs VKC Footsteps India Pvt Ltd., the Supreme Court affirmed the Madras High Court’s view and disapproved the earlier Gujarat High Court view concerning the validity of Rule 89(5). It further noted that pursuant to the Supreme Court’s observations, Rule 89(5) was amended through Notification No. 14/2022-Central Tax dated 05.07.2022.
The High Court then referred to Ascent Meditech Ltd. & Ors. Vs Union of India & Ors., wherein the amended Rule 89(5) was held to be curative and clarificatory and therefore retrospectively applicable, subject to the prescribed limitation. The Court recorded that the SLP and subsequent review petition against that decision had been dismissed by the Supreme Court and that the proposition was not controverted by the Revenue. Consequently, the deficiency memo was set aside and the respondents were directed to process the refund claim in light of V.K.C. Footsteps, Ascent Meditech and Notification dated 05.07.2022 within 12 weeks from receipt of the order.
Cases Discussed
1. Union of India & Ors. Vs VKC Footsteps India Pvt Ltd. (Supreme Court), (2022) 2 SCC 603 — Supreme Court affirmed the Madras High Court view on Rule 89(5), disapproved the Gujarat High Court view and urged the GST Council to reconsider anomalies in the refund formula.
2. Tvl. Transtonnelstroy Afcons Joint Venture Vs Union of India (Madras High Court) — View of the Madras High Court concerning Rule 89(5) was affirmed by the Supreme Court in V.K.C. Footsteps.
3. Ascent Meditech Ltd. & Ors. Vs Union of India & Ors. (Gujarat High Court), (2025) 145 GSTR 246 — Coordinate Bench held the amendment to Rule 89(5) curative and clarificatory and applicable retrospectively, subject to the limitation prescribed under Section 54(1). The Supreme Court dismissed the SLP and subsequent review petition.
FULL TEXT OF THE JUDGMENT/ORDER OF GUJARAT HIGH COURT
The present writ petition has been filed for the following reliefs:
“28(A) This Hon’ble Court may be pleased to declare that the definition of ‘Net ITC’ retrospectively introduced in Rule89(5) of the GST Rules thereby restricting refund only to “inputs” and not “input services is ultra-vires Section 54(3) of the GST Acts as well as the legislative scheme and policy of the GST Acts;
(B) This Hon’ble Court may be pleased to issue a writ of mandamus or writ in the nature of mandamus or any other appropriate writ or order quashing and setting aside the deficiency memo in Form GST RFD-03 for the years 2017-18 and 2018-19 (annexed at Annexure-B) issued by the 3rd Respondent authority.
(C) This Hon’ble Court may be pleased to issue a writ of mandamus or writ in nature of mandamus or any other appropriate writ or order directing the respondents to forthwith grant refund of unutilized input tax credit attributable to input services to the petitioner for the years 2017-18 and 2018-19.
(D) Pending, notice, admission and final hearing of this petition, this Court may be pleased to direct the respondents to forthwith grant refund of unutilized input tax credit attributable to input services to the petitioner for the years 2017-18 and 2018-19. ** ”
2. When the matter is called out, learned advocate Mr. Uchit N. Sheth has pointed out the subsequent development in law, relating to the Rule 89(5) of the Central Goods & Service Tax, Rules, 2017 (for short ‘ CGST Rules’). It is submitted that the Supreme Court in the case of Union of India & Ors. Vs. VK.C Footsteps India Pvt. Ld., (2022) 2 SCC 603, while setting aside the judgment and order passed by this court rendered in Special Civil Application No. 2972 of 2019 dated 24.07.2020 has finally held thus:
“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.
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 judgment1 of the Gujarat High Court by the Union of India should be allowed.
144. 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.1, 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 unutilised 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(3) of the CGST Act which provides for a claim of refund of any unutilised 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. Transtonnelstroy Afcons JV2 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.1 except for a brief reference. Having considered this batch of appeals, and for the reasons which have been adduced in this judgment, we affirm the view2 of the Madras High Court and disapprove of the view of the Gujarat High Court.”
3. Pursuant to the directions issued by the Supreme Court, the GST Counsel has accordingly vide Notification No.14/2022-Central Tax dated 05.07.2022, has subsequently amended the provision of Rule 89 of the CGST Rules had introduced Clause(d) in sub-rule(5) which reads thus :
“(d) in sub-rule (5), for 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)}.” shall be substituted;”
4. Thereafter, it appears that the issue with regard to the applicability of the provision of amended sub-rule 5 of Clause (d) of Rule 89 of the CGST Rules, arose and the same was the subject matter of challenge before this Court in Special Civil Application no. 18317 of 2013 by the judgment and order dated 17.10.2024 passed in Ascent Meditech Ltd. & Ors Vs. Union of India and Ors., (2025) 145 GSTR 246. The Coordinate Bench has held the applicability of the amended Rules prior to the Notification dated 05.07.2022, and it was held that the Notification No. 14/2022 is applicable retrospectively as the amendment brought in Rule 89(5) of the CGST Rules is curative and classificatory in nature. Accordingly, the same would be applied for rectification application filed within two years as per the time period prescribed under Section 54(1) of the Central Goods & Service Tax Act, 2017. The said decision of the Coordinate Bench was challenged by the Union of India before the Supreme Court, by filing Special Leave Petition No. 8134 of 2025 which was dismissed by the order dated 28.03.2025, against which a Review petition (Diary) No. 38626 of 2025 was filed which has also been dismissed by the Supreme Court by the order dated 02.12.2025.
5. The aforesaid proposition of law is not controverted by learned Senior Standing Counsel Mr. Utkarsh Sharma.
6. Under the circumstances, we are inclined to quash and set aside the deficiency memo in Form GST RFD-03 for the years 2017-18 and 2018-19, issued by the Respondent no.3. We further direct the respondent to process the claim of refund in light of the decision of the Supreme Court in the case of K.C Footsteps(supra) and Ascent Meditech Ltd. (supra) and as per the Notification dated 05.07.2022, within a period of 12 weeks from the date of receipt of this order.
7. With the aforesaid directions, the present writ petition stands allowed.
