Case Law Details
MO Industries Vs Union of India (Rajasthan High Court)
Summary: The Rajasthan High Court, in M/s MO Industries v. Union of India, ruled that an Appellate Authority cannot quash a refund order based solely on a circular that conflicts with the Central Goods and Services Tax (CGST) Act. The petitioner, M/s MO Industries, sought a refund of ₹19,62,616 on accumulated Input Tax Credit (ITC) due to an inverted tax structure. While the refund was initially granted, it was later quashed on appeal, relying on Circular No. 135/05/2020-GST, which had previously been declared repugnant to Section 54(3)(ii) of the CGST Act. The Court observed that the circular could not override the parent legislation, as held in previous cases like Baker Hughes Asia Pacific Ltd. v. Union of India. Consequently, the Court set aside the Appellate Authority’s order and remitted the case for reconsideration based on legal principles rather than the circular. The judgment reaffirms that subordinate legislation, like circulars, cannot invalidate statutory provisions or legitimate claims for tax refunds. Similar rulings in B.M.G. Informatics (P.) Ltd. v. Union of India and Shivaco Associates v. Jt. Commissioner of State Tax have supported this position.
Introduction: The Hon’ble Rajasthan High Court Bench at Jaipur in M/s MO Industries v. Union of India [D.B. Civil Writ Petition No. 9660 of 2024 dated July 08, 2024] set aside the order of the Appellate Authority denying refund solely relying upon Circular No.135/05/2020-GST dated March 31, 2020 (“the Circular”) because the said circular had already been held to be in conflict with section 54(3)(ii) of the CGST Act, 2017 (“the CGST Act”).
Facts:
M/s MO Industries (“The Petitioner”) was engaged in the business of manufacturing of the Mustard Oil, Palm Oil and Mustard Oiled Cake. The Petitioner filed an application dated on July 29, 2021 for the refund amounting to Rs. 19,62,616/- of the Input Tax Credit (“ITC”) accumulated due to the Inverted Tax Structure. The refund was for the period starting from March 2021 and the refund was allowed on August 05, 2021. The Department filed an appeal against the refund allowed. Consequently, the refund order was quashed relying upon Circular vide order dated April 02, 2023 (“the Impugned Order”).
The Petitioner contented that the Circular relied upon the by the Appellate Authority is abhorrent and in conflict with the Section 54(3) (ii) of the CGST Act as per the Hon’ble Rajasthan High Court in the case of Baker Hughes Asia Pacific Ltd. v. Union of India [[2022] Civil Writ Petition No. 5714/2021 dated June 30, 2021], which stated that the Circular being a subordinate legislation, is repugnant and conflicting to the parent legislation i.e. Section 54(3)(ii) of the CGST Act and hence, the same cannot be applied to oust the legitimate claim for accumulated ITC refund application.
Hence, aggrieved by the Impugned Order, the present writ petition was filed by the Petitioner.
Issue:
Whether the Appellate Authority can quash the order of refund which was based on a repugnant Circular?
Held:
The Hon’ble Rajasthan High Court in D.B. Civil Writ Petition No. 9660 of 2024 held as under:
- Observed that, the Circular was in conflict with the Section 54(3)(ii) of the CGST Act. It was also considered that the application to claim refund of ITC was initiated prior to date of issuance of the Circular.
- Held that, the Appellate Authority had allowed the appeal solely relying upon the Circular, which did not stand the judicial scrutiny. Consequently, the Impugned Order was set aside and the matter was remitted back to the Appellate Authority to decide the appeal again in accordance with the law.
Our Comments:
The Hon’ble Guwahati High Court in the case of B.M.G. Informatics (P.) Ltd. v. Union of India [W.P. (C) No. 3878 of 2021 dated September 02, 2021] observed that categorically disapproved the stipulation made in the circular providing that even though different tax rates may be attracted at different points of time but the refund of accumulated unutilised tax credit will not be available under section 54(3)(ii) of the CGST Act where the input and output supplies are same. It has been directed by the Guwahati High Court that this Circular would have to be ignored in situations akin to the case at hand.
Similar view was taken by Hon’ble Calcutta High Court in the case of Shivaco Associates v. Jt. Commissioner of State Tax, Directorate of Commercial Taxes [Writ Petition Application No. 54 of 2022 dated March 11, 2022].
FULL TEXT OF THE JUDGMENT/ORDER OF RAJASTHAN HIGH COURT
1. This petition is filed aggrieved of order dated 02.04.2024 whereby, the appeal filed by the respondent was accepted.
2. Brief facts are that the petitioner is engaged in manufacturing of Mustard Oil, Palm Oil and Mustard de-oiled cake. The petitioner filed an application dated 29.07.2021 seeking refund of Rs.19,62,616/- of the Input Tax Credit (ITC) accumulated due to Inverted Tax Structure. The refund was for the period starting from March, 2021. The refund was allowed on 05.08.2021. In the appeal filed by the Department, refund order was quashed relying upon Circular No.135/05/2020-GST dated March 31, 2020.
3. Learned counsel for the petitioner submits that the Circular relied upon by the Appellate Authority was held to be repugnant and in conflict with Section 54(3)(ii) of the Central Goods and Services Tax Act, 2017 (for short, ‘the Act’) by this Court in D.B. Civil Writ Petition No.5714/2021 (Baker Hughes Asia Pacific Limited vs. Union of India & Ors.) decided on 30.06.2022. The contention is that the Appellate Authority has only reproduced part of concluding para of the judgment and accepted the appeal of the Department.
4. Learned counsel for the respondents defends the impugned order, submits that the petitioner is not entitled to refund even the Circular is not applied.
5. Before proceedings further, it would be necessary to reproduce the concluding part of Baker Hughes Asia Pacific Limited (supra):-
“14. In wake of the discussion made herein above, we are of the firm opinion that the circular dated 31.03.2020, being a subordinate legislation, is repugnant and conflicting to the parent legislation i.e. Section 54(3)(ii) of the CGST Act and hence, the same cannot be applied to oust the legitimate claim for accumulated ITC refund filed by the petitioner. therwise also, the claim for refund of ITC filed by the petitioner was for a period prior to issuance of the circular dated 31.03.2020. Consequently, rejection of the petitioner’s claim for accumulated input tax credit by the respondent No.3 Deputy Commissioner, State Tax, Circle Barmer with reference to para 3 of the Circular dated 31.03.2020, is invalid on the face of the record and cannot be sustained.
15. Thus, the order dated 05.01.2021 is hereby quashed and set aside. The respondents are directed to forthwith, refund the accumulated input tax credit to the petitioner as per its entitlement.
16. The writ petition is allowed in these terms.”
6. Division Bench of this Court while dealing with the challenge of the Circular No.135/05/2020-GST held it to be in conflict with Section 54 (3)(ii) of the Act. It was also considered that claim of refund of ITC was prior to date of issuance of the Circular.
7. The additional reason given shall not nullify the fact that the Circular had not stood the judicial scrutiny. The Appellate Authority has allowed the appeal solely relying upon the Circular No.135/05/2020-GST. Consequently, the impugned order is set aside. The matter is remitted back to the Appellate Authority to decide the appeal afresh in accordance with law.
8. The writ petition is allowed.
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