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In GST, Rules 89(5) can not override the Section 54(3)

The Rules were meant only for the purpose of carrying out the provisions of the Act and they could not take away what was conferred by the Act or cutting down its effect.”

This is placed with respect to Section 54(3) of CSGT Act , 2017. Rule 89(5) where the rule override the section 54(3). This has been decided by apex court in so many decision that Rules are principal place to help the act and not take away the provision of the Act. Now let us understand and unfold the mystery of the case.

Before going in to detail, it is to understand the definition of the section and rule whether they are on same line.

Section –54(3) Subject to the provisions of sub-section (10), a registered person may claim refund of any unutilised input tax credit at the end of any tax period:

Provided that no refund of unutilised input tax credit shall be allowed in cases other than

(i) zero rated supplies made without payment of tax;

(ii) 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:

Provided further that no refund of unutilised input tax credit shall be allowed in cases where the goods exported out of India are subjected to export duty:

Provided also that no refund of input tax credit shall be allowed, if the supplier of goods or services or both avails of drawback in respect of central tax or claims refund of the integrated tax paid on such supplies.

Rule 89(5) specify that

that by prescribing the formula in Sub-rule 5 of Rule 89 of the CGGST Rules, 2017 to exclude refund of tax paid on “input service”

The refund of unutilised input tax credit is contrary to the provisions of Sub-section 3 of Section 54 of the CSGT Act , 2017 which provides for claim of refund of “any unutilised input tax credit”.

The word “Input tax credit” is defined in Section 2(63) means the credit of input tax. The word “input tax” is defined in Section 2(62), whereas the word “input” is defined in Section 2(59) means any goods other than capital goods and “input service” as per Section 2(60) means any service used or intended to be used by a supplier. Whereas “input tax” as defined in section 2(62) means the tax charged on any supply of goods or services or both made to any registered person. Thus “input” and “input service” are both part of the “input tax” and “input tax credit”. Therefore, as per provision of sub-section 3 of Section 54 of the CGST Act, 2017, the legislature has provided that registered person may claim refund of “any unutilised input tax”, therefore, by way of Rule 89(5)of the CGST Rules, 2017, such claim of the refund cannot be restricted only to “input” excluding the “input services” from the purview of “input tax credit”.

Moreover, clause (ii) of proviso to Sub-section 3 of Section 54 also refers to both supply of goods or services and not only supply of goods as per amended Rule 89(5) of the CGST, Rules 2017

This has been decided in Gujarat High court in the case of VKC Footstep India P Ltd ,

Where the court decided in favor of Company.

Where the intent of the Govt. by restricted the input tax credit by circular No. 79/53/2018 date 31.12.2018 denying the Input on the registered person refund of tax paid on “input services’ as part of refund of unutilised input tax credit was not fair.

In view of the above explanation (a) to rule 89(5) is read down to the extent that defines the Input tax credit to the extent of ITC on input only. The said explanation can not be contrary to the provision section.54(3) of the CGST Act, 2017.

In fact net input tax credit means the ITC on input and input services both as defined in the act.


Therefore , Rule 89(5) of CGST Act, 2017 is held ultra wires section 54(3) (ii) of the CGST Act, 2017 and refund of ITC shall include ITC on goods and services both.


Disclaimer : The contents of this article are solely for information and knowledge and does not constitute any professional advice or recommendation. Author does not accept any liability for any loss or damage of any kind arising out of this information set out in the article and any action taken based thereon.

About the Author: Author is Promoter Partner of G R A N D M A R K & ASSOCIATES , Chartered Accountants in Gurugram (Haryana) and Domain Head of GST Department of GMA. He can be reached at

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May 2024