ITC Clubbing for two financial period for a refund is permissible as per Rule 89(4): Bombay HC

Sine Automation and Integration Pvt. Ltd. Vs Union of India & Ors. (Bombay High Court)

Introduction: In a recent case before the High Court of Bombay, Sine Automation and Integration (P.) Ltd. challenged an Order-in-Appeal issued by the Commissioner of CGST & Central Excise Appeals, Thane, Mumbai Zone. The appeal stemmed from the rejection of a refund claim by the Deputy Commissioner, CGST and Central Excise, Division-I, Bhiwandi Commissionerate. The petitioner, having been initially granted a provisional refund, faced an adverse decision on appeal, prompting the legal challenge under Article 226 of the Constitution of India.

Factual Background: The petitioner had applied for a refund of unutilized Input Tax Credit (ITC) amounting to Rs. 1,30,30,548/- under section 54(3) of the CGST Act, 2017, for the period from 1 April 2018 to July 2019, related to the export of goods under a Letter of Undertaking (LOU). While a provisional refund of Rs. 1,17,27,495/- was granted on October 11, 2018, a subsequent show cause notice was issued, challenging a portion of the refund. Ultimately, a refund of Rs. 1,30,08,858/- was sanctioned on December 6, 2018.

Grounds of Challenge: The crux of the petitioner’s challenge lay in the application of Circular dated November 18, 2019, by the Appellate Authority. The circular, which prohibited the spreading of refund claims across different financial years, was invoked to demand the return of Rs. 1,07,08,504/- from the petitioner, along with interest under section 50 of the CGST Act, 2017. The petitioner argued that its refund application was in accordance with Rule 89(4) of the CGST Rules, 2017, and that the Circular dated March 31, 2020, clarified the restrictive interpretation of the November 2019 Circular.

Legal Analysis: The court delved into Rule 89(4) of the CGST Rules, which outlines the formula for granting refund in the case of zero-rated supply of goods or services. The court emphasized that the electronic ledger allowed the petitioner to club ITC credits available for the period prior to April 1, 2018. It noted that the Appellate Authority had failed to consider the subsequent Circular dated March 31, 2020, which clarified the earlier circular and diluted its restrictive stance.

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