Indian Herbal Store Pvt. Ltd. Vs Union Of India & Ors. (Delhi High Court)
The Hon’ble Delhi High Court in the case of M/s. Indian Herbal Store Pvt. Ltd. vs. Union of India [W.P.(C) 9908/2021 and W.P.(C) 9912/2021 dated September 15, 2023] allowed the writ petition and held that the Rule 89(4)(C) of the Central Goods and Services Rules, 2017 (“the CGST Rules”) would not have any retrospective application. The Hon’ble High Court while relying upon the judgment of the Hon’ble Karnataka High Court in M/s. Tonbo Imaging India Pvt. Ltd. vs. Union of India and Others [W.P.(C) No. 13185/2020 dated February 16, 2023], noted that Hon’ble Karnataka High Court has already struck down the substitution made in Rule 89(4)(C), being arbitrary and ultra vires in nature and contrary to provisions of Section 54 of the Central Goods and Services Tax Act (“the CGST Act“). Therefore, the Hon’ble High Court set aside the Refund Rejection Order and Order-In-Appeal and directed the Revenue Department to process the claim for Refund of unutilized Input Tax Credit (“ITC”).
Facts:
M/s. Indian Herbal Store Pvt. Ltd. (“the Petitioner”) is an exporter of herbal goods through an e-commerce platform supplying goods through courier service.
The Petitioner filed three refund applications (“the Application”) for claiming refund of unutilized ITC for the quarter of October, 2018 to December, 2018 of the Financial Year (“the FY”) 2018-2019 (“the Impugned Period 1”). Thereafter, a Show Cause Notice (“the SCN”) was issued for the Impugned Period 1. However, the aforesaid Application was rejected by the Revenue Department (“the Respondent”) vide Refund Rejection Order (“the Order”) dated September 15, 2020, for the Impugned Period 1 on the ground of non-fulfilment of conditions as laid out in Rule 89(4)(C) and Rule 96B of the CGST Rules.
The Petitioner had also filed three Applications for claiming refund of unutilized ITC for the quarter of January, 2019 to March, 2019, April, 2019 to June, 2019 and July, 2019 to September, 2019 of the FY 2018-2019 and FY 2019-2020 (“Impugned Period 2”). Thereafter, a Show Cause Notice (“the SCN”) was issued for the Impugned Period 2. However, the Application was rejected vide the Order dated September 24, 2020, October 22, 2020, and November 5, 2020, for not producing the relevant Foreign Inward Remittance Certificates (“FIRC’s”) and for non-fulfilment of terms and conditions required for computation of the eligible export turnover as laid out under Rule 89(4)(C) of the CGST Rules.
Aggrieved by the Orders, the Petitioner filed an appeal before the Respondent. However, the appeal filed by the Petitioner was rejected vide Order in Appeal both dated June 18, 2021 (“the Appeal Orders”) on the ground that the conditions related to the export turnovers for the relevant tax period laid out under Rule 89(4)(C) of the CGST Rules have not been fulfilled.
Aggrieved by the Order and the Appeal Orders, (“the Impugned Orders”), the Petitioner filed a writ petition W.P. (C) 9908/2021 for the Impugned Period 1 and W.P.(C) 9912/2021 for the Impugned Period 2 praying for setting aside of the Impugned Orders and release of accumulated unutilized ITC on the export of goods before the Hon’ble High Court.
The Respondent contended that there is a possibility that the exporter might take undue benefit by inflating the value of zero-rated supply of goods. Therefore, a ceiling limit was introduced on the valuation of export of zero-rated supply of goods through the amendment in the CGST Rules vide Notification No. 16/2020 dated March 23, 2020 substituting Rule 89(4)(C) of the CGST Rules. The Respondent further contended that the Rules being procedural in nature would have retrospective application.
Adv. Bimal Jain (Advocate for the Petitioner) argued that Rule 89(4)(C) can only have prospective application as the Notification itself clearly states that it would be applicable from the date of publication in the official gazette.
The Advocate for the Petitioner also argued that, the amendment in Rule 89(4)(C) of the CGST Rules, restricting the value of zero-rated supply of goods to 1.5 times the value of like goods supplied domestically, however, as per Section 54(1) of the CGST Act imposes a restriction on introducing any new condition and only mandates for prescription of form and manner. The Advocate for the Petitioner further contended that the Rules have to be in consonance with the statutory provision and the purpose of the rule is to enforce the statutory provision, not to be in contravention with each other. Therefore, the amendment in Rule 89(4)(C) of the CGST Rules is ultra vires to Section 54(1) of the CGST Act and violates Article 14 of the Constitution of India.
Issue:
Whether the Rule 89(4)(C) of the CGST Rules violates the rights of the supplier for the denial of refund of unutilized ITC accrued on account of export of zero-rated supply of goods?
Held:
The Hon’ble Delhi High Court in W.P.(C) 9908/2021 and W.P. (C) 9912/2021 held as under:
