Tonbo Imaging India Pvt Ltd Vs Union Of India (Karnataka High Court)
Rule 89(4)(c) is ‘ultra-vires’ to the provisions of GST law and held ‘unconstitutional’
The Hon’ble Karnataka High Court in M/s. Tonbo Imaging India Pvt Ltd v. Union of India [W.P.C No. 13185 of 2020] dated February 16, 2023] has held that, Rule 89 (4)(c) of the Central Goods and Service Tax Rules, 2017 (CGST Rules) which restricts the exports made without payment of tax (i.e., under Letter of Undertaking model (LUT Model) to 1.5 times value of like goods supplied domestically is unconstitutional and ultra vires of the provisions of the GST law.
Facts:
M/s. Tonbo Imaging India Pvt. Ltd (“the Petitioner”) develops innovative micro-optic designs for real-world applications. The Petitioner exported various customized products during the period from May 2018 to March 2019.
Since, exports made by the Petitioner were “zero-rated supply” under Section 16 of the Integrated Goods and Services Tax Act, 2017 (“the IGST Act”), the Petitioner filed refund applications for the months of May 2018, July 2018, August 2018, November 2018, December 2018 and March 2019 on May 25, 2020, May 27, 2020, and May 28, 2020.
The Central Board of Indirect Taxes and Customs (“CBIC”) vide Notification No. 16/2020 Central Tax dated March 23, 2020 amended Rule 89(4)(c) of the CGST Rules, which restricted the refund of exports made through LUT to a maximum of 1.5 times the value of like goods domestically supplied by the same or, similarly placed supplier.
Revenue Department (“the Respondent”) issued deficiency memos in regard to refund claims filed by the Petitioner on the ground that the Petitioner had not provided the value of like goods domestically supplied as required in terms of Rule 89(4)(c) of the CGST Rules. Thus, refund claims could not be considered.
In replies to such deficiency memos interalia, the Petitioner stated that the amended rule would not be applicable for the period for which the refund claim was sought and the Petitioner would be governed by the unamended Rule 89(4)(c) CGST Rules and not by the amended Rule 89(4)(c) of the CGST Rules.
The Respondent rejected the claims filed by the Petitioner vide an order dated 30.06.2020 (“the Impugned Order”), rejecting the claim of refund filed by the Petitioner.
Aggrieved by the Impugned Order, the Petitioner filed a writ petition before the Karnataka High Court.
Issue:
Whether Rule 89(4)(c) of the CGST Rules is liable to be held unconstitutional, being violative of Articles 19(1)(g) and 14 of the Constitution and ultravires to provision of GST law?
Held:
The Hon’ble Karnataka High Court in Writ Petition No. 13185 of 2020 (T-RES) dated February 16, 2023 held as under:
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