Circular 135/2020 Overruled – Denial of Refund Under Section 54(3)(ii) If Input And Output Supplies Are The Same

Parveen Kumar Mahajan 24 Mar 2022 19,932 Views 0 comment Print Goods and Services Tax | Articles

The section 54(3)(ii) of the CGST Act allows refund ‘where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies (other than nil rated or fully exempt supplies), except supplies of goods or services or both as may be notified by the Government on the recommendations of the Council.’

Circular 135/05/2020 dated 31-03-2020 is clarifying that refund of accumulated ITC under clause (ii) of sub-section (3) of section 54 of the CGST Act would not be applicable in cases where the input and the output supplies are the same.

The circular is clarifying the provisions stated in section 54(3)(ii) with example.

An applicant trading in goods has purchased, say goods “X” attracting 18% GST. However, subsequently, the rate of GST on “X” has been reduced to, say 12%.

It may be noted that refund of accumulated ITC in terms clause (ii) of sub-section (3) of section 54 of the CGST Act is available where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies. It is noteworthy that, the input and output being the same in such cases, though attracting different tax rates at different points in time, do not get covered under the provisions of clause (ii) of sub-section (3) of section 54 of the CGST Act. It is hereby clarified that refund of accumulated ITC under clause (ii) of sub-section (3) of section 54 of the CGST Act would not be applicable in cases where the input and the output supplies are the same.

JUDGEMENT OVERRULED THE CIRCULAR

“M/s SHIVACO ASSOCIATES & ANR. Vs JOINT COMMISSIONER OF STATE TAX” 2022-VIL-209-CAL

FACTS OF THE CASE

The case of the petitioner is that the petitioners are engaged in the business of purchasing LPG gas in bulk through tanker and thereafter bottling the same in bottles / cylinders of 4kgs, 6kgs, 14kgs, 17kgs and 21kgs and sell the same to commercial customers on GST applicable at the rate of 18% and to the domestic customers at the rate of 5%.

Prior to 25.01.2018 the input and output tax on liquefied petroleum gases to commercial as well as domestic consumers was 18%. By a notification dated 28.06.2018 published in the Gazette of India, Extraordinary, the rate of output tax on domestic LPG has been reduced to 5%. The petitioners claim refund of the unutilized ITC accumulated on account of inverted tax structure as the rate of tax on inputs is higher than the rate of tax on output supply.

The prayer of the petitioners for refund stood rejected by the adjudicating authority as well as by the Appellate Authority relying on a Circular No. 135/2020-GST dated 31.03.2020 wherein it has been mentioned that the tax-payers cannot claim refund in terms of clause (ii) of Section 54(3) of the CGST Act, 2017 in cases where the input and output supplies remain the same.

JUDGEMENT PART

The Hon’ble Court set aside and quashed the orders passed after relying the above-mentioned circular. The court further held that the petitioners will be entitled to the refund as claimed.

The relevant paras of the judgment on which basis the said judgment has been given, are reproduced as under:

The respondents, relying upon the aforesaid circular, are restricting the claim of the petitioners which is otherwise admissible under the Act. Had the circular not been there, then the petitioners’ claim would have been allowed.
The issue at present is whether the benefit which is available under the Act can be taken away and/or restricted by the circular.
Any circular issued under Section 168(1) of the Act is only for the purpose of bringing uniformity in the implementation of the Act. The intention of the legislature as expressed in Section 54(3) of the Act is clear and unambiguous. The Section, in absolute uncertain terms, mentions that refund of any unutilized input tax credit may be claimed where credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies. The Act does not restrict refund only in respect of supplies which are different at the input and output stage. The board thought it fit to reduce the tax in respect of domestic consumers with effect from 25.01.2018 and there is no reason as to why the benefit of accumulated input tax credit will not be passed on to the petitioners.
Section 168(1) strives to lay down that for the purpose of uniformity in the implementation of the Act, orders, instructions or directions may be issued.

Circular 135-2020 Overruled – Denial of Refund Under Section 54(3)(ii) If Input And Output Supplies Are The Same

‘Uniformity in implementation’ does not mean curbing benefits available in the Act by introducing new provisions. A circular cannot supplant or implant any provision which is not available in the Act.
The circular dated 31.03.2020 is imposing a restriction to release certain benefits which are provided under the Act. In M/s. Jindal Stainless Ltd. (supra) the Hon’ble Court took into consideration various other judgments to arrive at a decision. The Court took note of the judgment in the matter of Dilip Kr. Ghosh Vs. Chairman; AIR 2005 SC 3485 wherein it was held that circular cannot override the Rules occupying the field and if there is a clash between the Rule and the Circular, the Circular has to be treated as non-est.
In Additional District Magistrate (Rev.) Delhi Administration V. Shri Ram; AIR 2000 SC 2143, the Court held that conferment of rule making power by an Act does not enable the rule making authority to make a rule which travels beyond the scope of the enabling Act or which is inconsistent therewith or repugnant thereto.
In the present case, the Act does not mention about non-granting of the benefit of accumulated input tax credit where the input and output supplies are the same.
The circular is trying to restrict the refund to a particular set of supplies. The circular is trying to create a class inside the class, which is impermissible.
According to the Act, refund is permissible in respect of all classes where the input tax is higher than the output tax. By way of the circular, the Board is curtailing the said benefit and making refund permissible only if the input and output supplies are different. The same amounts to overreaching the provisions as laid down in the Act.
It cannot be said that the legislature was unmindful of the fact that there may be instances where the input and output supplies are the same. On the contrary, it can be said that the legislature consciously did not create any distinction for allowing refund in all cases where the input tax is more than the output tax. The said benefit is applicable to all similar cases.

To reach to me for any suggestions, rectifications, amendments and/or further clarifications in regard of this article my email address is pkmgstupdate@gmail.com.

(PARVEEN KUMAR MAHAJAN)
Advocate