The Delhi High Court, has stayed the Paragraph 8 of Circular No. 125/44/2019-GST dated 18.11.2019 which stated that Refund Period can’t be spread across Two Financial Years and to be filed in Chronological Order.
Introduction :- The petitioner , Pitambara Books , who is engaged in the business of manufacturing and trading of books, is registered under the Goods and Service Tax Act 2017. The business involves procuring raw materials and allied goods from the domestic market for manufacture of final product through its in-house manufacturing facility, which is then exported to markets in Sudan, Russia, Ethiopia, Guinea and other African/Asian countries etc. The export activity of the petitioner is categorised as zero-rated supplies as defined under Section 16(1)(a) of the Integrated Goods and Services Tax Act, 2017.
Facts of the case :- Petitioner procured raw material after paying GST from domestic market and manufactured the final product in the months from November, 2017 to June, 2018. However, the production done in the above months was exported only in June, 2018.
Therefore, the ITC earned by the petitioner is spread over two financial years i.e. 2017-18 and 2018-19 and whereas the export against the said purchases was made only in the financial year 2018-19.
The Petitioner claims that the eligible refund in terms of the Rule 89(4) for the period from November, 2017 to June, 2018 i.e. for eight months would be Rs. 2.80 crores in accordance with the figures available in the GSTR 3B return . As per Section 16(1) and 16(3) of IGST and 54(3) of CGST Act, the petitioner is eligible for the refund of accumulated unutilised ITC of Rs. 2.80 crores on account of export of goods.
The current position is that by virtue of the circular No. 125/44/2013/GST, dated 18-11-2019, which inhibited refund claims for a period of two separate (not successive) financial years, the petitioner is not able to claim the refund as the option of selecting the tax period which lies with the petitioner in terms of the aforesaid provisions, has been denied.
Petitioner has been trying to file the refund application for the unutilised input tax credit claimed in the respective months of production; however the impugned circulars have denied the petitioner the statutory rights. Rule 89(4) of the CGST Rules which provides the formula for calculating input tax for refund restricts the computation of the refund taking the basis of ITC “availed during the relevant period”. The “relevant period” has been defined in Rule 89(4)(F) as the period for which the claim has been filed and restrict the refund claims only on monthly basis.
Respondent’s View :-Ms. Bhatnagar, learned senior standing counsel for revenue on the other hand, has argued that under the scheme of the Act, the tax period is on month to month basis. She submits that though the Government has provided for clubbing of the months and the quarters, however, under no circumstances can the refund claims spill over from one year to another.
She argues that Petitioner does not have unfettered rights for claiming refund. Section 16(3) of the IGST Act, clearly stipulates that the refund is subject to conditions, and therefore, the Government is well within its jurisdiction to impose conditions by way of the impugned circular.
Further, she submits that under Section 2(106) of the GST Act, the tax period has been defined to mean a period for which a return is required to be filed. The return under the Act has to be filed on a month to month basis and, therefore, the petitioner does not have any right to claim refund for one financial year, in another.
Observation of the division bench comprising of Justice Vipin Sanghi and Justice Justice Sanjeev Narula
The division bench comprising of Justice Vipin Sanghi and Justice Justice Sanjeev Narula observed that the matter certainly requires our consideration and we have already called upon the respondents to file a detailed counter affidavit to meet the contentions of the petitioner.
However, at this stage, we are of the prima facie view that by way of the impugned circulars, though the respondents recognized the difficulties faced by the exporters and have permitted them to file refund claim for one calendar month/quarter or by clubbing successive calendar months/quarters, yet the restriction pertaining to the spread of refund claim across different financial years is arbitrary.
There is no rationale or justification for such a constraint. In the instant case, where exports are not made in the same financial year, question arises as to whether Respondents can restrict the filing of the refund for tax periods spread across two financial years and deprive the petitioner of its valuable right accrued in his favour.
In exports, availability of the rotation of funds is essential for the business to thrive. Moreover, businesses do not run according to the whims of the executive authorities.
The business world cannot be told when to place orders for exports; when to manufacture the goods for export; and; when to actually undertake the exports. Respondents’ impugned circulars have thus blocked the capital of the petitioner and the unutilised ITC and it has accumulated huge amount of unutilised ITC to the tune of Rs.30 crores. Merely because the petitioner made exports in the month of June, 2018, we do not see any justification to deny the refund of the ITC which have accumulated in the previous financial years.
The entire concept of refund of ITC relating to zero rated supply would be obliterated in case the respondents are permitted to put any limitation and condition that takes away petitioner’s right to claim refund of all the taxes paid on the domestic purchases used for the purpose of zero rated supplies.
The incentive given to the exporters would lose its meaning and this would cause grave hardship to the exporters who are earning valuable foreign exchange for the country. The Respondents cannot, artificially by acting contrary to the fundamental spirit and object of the law, contrive ways to deny the benefit, which the substantive provisions of the law confer on the tax payers.
Thus, in our considered opinion, the petitioner has a strong prima facie case, and we cannot deny the petitioner of its right to claim refund which is visible from the mechanism provided under the Act. The impugned circulars take away the vested right of the taxpayer that has accrued in the relevant period.
Having regard to the aforenoted circumstances, till the next date of hearing, we stay the rigour of paragraph 8 of Circular No. 125/44/2019-GST dated 18.11.2019 and also direct the Respondents to either open the online portal so as to enable the petitioner to file the tax refund electronically, or to accept the same manually within 4 weeks from today.
Respondents are directed to process the petitioner’s claim in accordance with law once the tax refund is filed.
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