Simran Chandwani Vs Principal Commissioner of CGST, Delhi North And Ors. (Delhi High Court)
Delhi High Court held that denial of refund claim of accumulated Input Tax Credit (ITC) due to inverted duty structure merely because of incorrect classification of goods by the supplier is unjustified and unsustainable in law.
Facts-
The petitioner is engaged in the business of selling footwear which is chargeable to goods and services tax at the rate of 5% or 12%, depending on whether the price of the footwear is below Rs. 1,000/- or above Rs. 1,000/-. One of the components used in manufacturing of footwear is PVC straps, which is chargeable to goods and services tax at the rate of 18%.
In view of the said inverted duty structure, the petitioner filed an application for refund of ITC aggregating Rs. 5,47,894/-. The respondents issued an acknowledgment acknowledging the said application. Thereafter, the respondents issued the show cause notice calling upon the petitioner to show cause as to why her refund claim should not be rejected.
Notably, the refund claim was rejected on the issues relating to excess ITC in violation of Rule 36(4) of the CGST Rules and on account of the input being the complete finished products but charged at a higher rate.
Conclusion-
Held that the one of the suppliers had erroneously mentioned HSN 6404 in respect of the goods supplied in its invoices notwithstanding that it had also furnished the certificate acknowledging the same. As noticed above, the Adjudicating Authority had not accepted the petitioner’s contention while observing that the petitioner had obtained the declaration just to “shelter their vicious thinking to gain cash refund”. We find that the aforesaid reasoning is based on mere suspicion and surmises and not on cogent material. According to the petitioner, the petitioner had produced a certificate from the said supplier acknowledging that it had incorrectly classified the goods under HSN 6404 instead of HSN 6406. The fact that the GST had been charged by the said supplier at the correct rate, in our view, is a material factor to be considered by the Adjudicating Authority. We find no ground to doubt the petitioner’s explanation that the six invoices incorrectly mentions the classification of the goods and therefore, the petitioner ought not to be denied the benefit of the accumulated ITC.
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
1. The petitioner has filed the present petition, inter alia, praying that the respondents be directed to refund an amount of Rs. 5,47,894/-along with interest. The petitioner is, essentially, aggrieved by the denial of refund of the unutilized Input Tax Credit (hereafter ‘ITC’) on account of the inverted duty structure.
2. The petitioner claims that she is engaged in the business of selling footwear which is chargeable to goods and services tax at the rate of 5% or 12%, depending on whether the price of the footwear is below Rs. 1,000/- or above Rs. 1,000/-. One of the components used in manufacturing of footwear is PVC straps, which is chargeable to goods and services tax at the rate of 18%.
3. In view of the said inverted duty structure, the petitioner claims that she is entitled to a refund of the accumulated unutilized ITC.
4. On 05.02.2021, the petitioner filed an application for refund of ITC aggregating Rs. 5,47,894/- (CGST Rs. 1,42,414/- + SGST Rs. 4,05,480/-) for the period of July, 2020 to December, 2020 in the appropriate format (FORM GST RFD-01). The respondents issued an acknowledgment in FORM GST RFD-02 dated 10.02.2021 acknowledging the said application. Thereafter, the respondents issued the show cause notice dated 09.03.2021 in FORM GST RFD-08 calling upon the petitioner to show cause as to why her refund claim should not be rejected. The Proper Officer had flagged four issues in the show cause notice dated 09.03.2021. The first issue related to the mismatch of figures relating to eligible ITC in RFD-01 and GSTR-3B, Annexure B and GSTR-2A. The petitioner was called upon to furnish an explanation regarding the same. The second issue related to two invoices appearing at serial no.55 and 56 of Annexure B involving the ITC of an amount of Rs. 16,272.18/-which did not appear in GSTR-2A uploaded by the petitioner.
5. The third issue related to ineligible ITC under Rule 36(4) of the Central Goods and Services Tax Rules, 2017 (hereafter ‘the CGST Rules’). According to the Proper Officer, the claim for the ITC could not exceed more than 20% of the eligible credit in respect of the invoices and debit notes which have not been uploaded by the supplier. It was alleged that the petitioner had violated the said condition as laid down in Rule 36(4) of the CGST Rules in respect of her claims for the month of October, 2020 and November, 2020 as she had availed excessive ITC amounting to Rs. 1,03,210.09/.
6. The fourth issue related to the returns filed by one of the suppliers in respect of the goods supplied to the petitioner. The said supplier had classified the goods supplied as HSN 6404, which was the code for the finished products (complete shoes). The supplier had charged GST at the rate of 18% and therefore, the concerned officer had questioned the petitioner’s claim for the inverted duty structure in respect of the said goods. He reasoned that if the input was the same product as supplied by the petitioner, the goods supplied would not be chargeable to tax at a lower rate.
7. The petitioner replied to the show cause notice on 18.03.2021. The petitioner’s explanation in regard to issue no.1 and 2 were subsequently accepted by the Adjudicating Authority and are not relevant for the present appeal. The petitioner’s claim for refund was rejected on account of issue no.3 and 4. That are the issues relating to excess ITC in violation of Rule 36(4) of the CGST Rules and on account of the input being the complete finished products but charged at a higher rate.
8. In respect of issue no.3 – the issue relating to availing ITC exceeding 20% of the ITC as reflected by the supplier, the Adjudicating Authority found that the petitioner had availed excess ITC of Rs. 1,03,210.09/- for the month of October, 2020 to November, 2020. A tabular statement indicating the said finding is set out below:
