Messrs Filatex India Ltd. & Anr. Vs Union of India & Ors. (Gujarat High Court)
The Gujarat High Court allowed the writ petition filed by the petitioner company challenging orders denying full refund of accumulated Input Tax Credit (ITC) arising from an inverted duty structure under Rule 89(5) of the CGST Rules. The petitioner, engaged in manufacturing and supplying yarn, procured inputs such as Purified Terephthalic Acid (PTA) and Mono Ethylene Glycol (MEG), which attracted GST at 18%, while the final product, yarn, was taxed at 12%, resulting in accumulation of unutilized ITC. Refund claims for the period from February 2021 to February 2022 were filed under Rule 89(5), including ITC on both inputs and input services in the computation of “Net ITC.”
The Assistant Commissioner partly sanctioned the refunds but excluded ITC on input services while computing the refund amount. The authority justified the exclusion by stating that the judgment of the Gujarat High Court in VKC Footsteps India Pvt. Ltd., which had allowed inclusion of input services, was under challenge before the Supreme Court. Appeals filed before the Additional Commissioner were dismissed after the Supreme Court set aside the Gujarat High Court decision in VKC Footsteps.
Before the High Court, the petitioner argued that after the Supreme Court decision in VKC Footsteps, the GST Council recommended amendment of Rule 89(5) to remove anomalies in the refund formula. Consequently, Notification No. 14/2022 dated 05.07.2022 amended Rule 89(5), and subsequent judgments of the Gujarat High Court in Ascent Meditech and Tirth Agro held that the amendment was clarificatory and retrospective in nature. The petitioner contended that the amended formula should apply to all refund claims filed within the statutory limitation period, irrespective of whether they were filed before or after 05.07.2022.
