Intas Pharmaceuticals Ltd. Vs Union of India & Ors. (Gujarat High Court)
Summary: The Gujarat High Court allowed the petition filed by M/s Intas Pharmaceuticals Ltd. and quashed the Commissioner (Appeals)’s order dated 22.03.2019, as well as the consequential proceedings for recovery of refund already sanctioned to the petitioner. The central issue before the Court was whether transitional CENVAT credit carried forward through GST TRAN-1, although verified and credited in the electronic credit ledger only in September 2017, could be treated as an opening balance of unutilized input tax credit as on 01.07.2017 for determining refund eligibility for July and August 2017.
The petitioner had been registered under the erstwhile Central Excise Act, Finance Act, 1994, Gujarat Value Added Tax Act and Central Sales Tax Act. It filed applications under Section 140 of the CGST Act for transitional credit, including a claim of Rs.79.90 crores on 19.09.2017 and another of Rs.21.94 crores on 20.12.2017. The first application resulted in transitional credit of Rs.79,89,56,035/- being transferred as CGST in the electronic credit ledger on 19.09.2017. According to the petitioner, the credit represented the closing CENVAT balance as on 30.06.2017 and therefore had to be regarded as an opening credit available from 01.07.2017.
The petitioner substantially exported pharmaceutical products under bond without payment of CGST and SGST in accordance with Rule 96A. It consequently claimed refund of unutilized ITC under Section 54(3) of the CGST Act read with Rule 89(4) of the CGST Rules for July and August 2017. The refund claims were filed in FORM GST RFD-01A on 25.01.2018 and 06.02.2018 respectively. At the relevant time, because of difficulties with the electronic refund system, the petitioner also submitted the prescribed documents manually in accordance with Circular No. 17/17/2017-GST dated 15.11.2017. The circular prescribed manual filing and processing of refund claims relating to zero-rated supplies.
For determining the eligible refund, the petitioner considered the amount computed under Statement 3A, the balance in the electronic credit ledger at the end of the relevant period and the credit availed during the period, taking the lowest of the relevant amounts. The refund was provisionally sanctioned to the extent of 90%, followed by final refund sanction after deduction of ineligible ITC relating to certain items.
A subsequent audit questioned the refunds on the ground that the petitioner had utilized its available IGST, CGST and SGST credit for payment of output tax and therefore did not have sufficient unutilized ITC. The Revenue challenged the refund orders before the Commissioner (Appeals). The petitioner contended, among other things, that the transitional credit credited in September 2017 related to the opening balance as on 01.07.2017 and that Circular No. 59/33/2018-GST dated 04.09.2018 could not retrospectively defeat the refund claims filed for the initial months of the GST regime. The circular dealt, inter alia, with system validation and calculation of the refundable amount.
The Commissioner (Appeals) accepted the Revenue’s case and held that there was no balance of unutilized ITC in the electronic credit ledger for the relevant refund periods. The Commissioner relied upon the circular dated 04.09.2018 and set aside the refund sanction orders to the extent of the refunds granted.
The petitioner also challenged the subsequent proceedings for recovery of the alleged erroneous refund. The petitioner argued that the appellate authority could not require recovery of an erroneous refund without following the statutory procedure under Section 107(11) of the CGST Act, including issuance of a show cause notice and an opportunity of hearing. Thereafter, protective proceedings were initiated and an order dated 18.02.2021 was passed under Section 73 of the CGST Act confirming recovery of the refund along with interest and penalty. Section 73 specifically covers determination of tax not paid or short paid, erroneously refunded tax and wrongly availed or utilised ITC for reasons other than fraud or wilful misstatement or suppression.
The Gujarat High Court identified the short question as whether the transitional credit reflected in TRAN-1 and accepted by the department could be considered as an opening balance in the electronic credit ledger and therefore as unutilized ITC available for refund under Section 54(3). The Court examined Section 16 of the IGST Act concerning zero-rated supplies, Section 54(3) of the CGST Act concerning refund of unutilized ITC, Rule 89(4) prescribing the refund formula, Section 168 concerning CBIC instructions, Section 140 concerning transitional arrangements and Rule 117 concerning the TRAN-1 procedure.
The Court held that the transitional credit represented the closing balance of eligible CENVAT credit under the erstwhile regime as on 30.06.2017 and was required to be treated as the opening balance of unutilized ITC as on 01.07.2017. The fact that the credit was verified and actually reflected in the electronic credit ledger only in September 2017 could not deprive the petitioner of the benefit of the credit for the initial months of GST. The Court considered that such a result would effectively prevent the petitioner from utilizing the transitional credit which Section 140(1) was intended to carry forward into the GST regime.
The Court found that the Commissioner (Appeals) had adopted a pedantic literal interpretation of the electronic ledger position for July and August 2017. According to the Court, the transitional credit approved in September 2017 had to be given effect as though it were available as an opening balance on 01.07.2017. The Court also held that reliance upon Circular No. 59/33/2018-GST dated 04.09.2018 was erroneous in the particular facts because applying its electronic-ledger formulation literally to the first two months of the GST regime would directly affect the operation of Section 140(1).
Accordingly, the Court held that the petitioner was entitled to the benefit of the carried-forward CENVAT credit under Section 140(1), read with Section 54(3), Rule 89(4) and Rule 117. The petition was allowed, the Commissioner (Appeals)’s order dated 22.03.2019 was quashed and set aside, and the consequential notices and orders seeking recovery of the refund sanctioned and paid to the petitioner were also quashed and set aside. Rule was made absolute to that extent, with no order as to costs.
FULL TEXT OF THE JUDGMENT/ORDER OF GUJARAT HIGH COURT
1. Rule returnable forthwith. Learned advocate Mr.Ankit Shah and learned advocate Mr.Utkarsh Sharma waive service of notice of rule appearing for the respective respondents.
2. Heard learned advocate Mr.Hardik Modh for the petitioner, learned advocate Mr.Ankit Shah and learned advocate Mr.Utkarsh Sharma for respondents.
3. Having regard to the controversy in a narrow compass, with the consent of the learned advocates for the respective parties, the matter was taken up for hearing.
4. By this petition, under Article 227 of the Constitution of India, the petitioner has prayed for the following reliefs:-
“11 (a). That this Hon’ble Court be pleased to issue a Writ of Certiorari, or a Writ in the nature of Certiorari, or any other appropriate Writ, Order or direction, calling for the papers and proceedings leading to the Order-in-Appeal Nos. AHM-EXCUS-002-APP-210&211-18-19 dated 22.03.2019 passed by the Commissioner (Appeals) of Central Good and Service Tax, Ahmedabad(Annexure L) and Order dated 28.05.2019 passed in the application for Rectification of Mistake (ROM) (Annexure N) and after looking into the same and the legality thereof, this Hon’ble Court be pleased to quash and set aside the said Order dated 22.03.2019 and 28.05.2019;
(aa) that this Hon’ble Court be pleased to issue a Writ of Certiorari or a writ in the nature of certiorari or any other appropriate Writ, order or directions calling for papers and proceedings leading to Order-in-Original No. 45/JC/MT/GST/2020-21 dated 18.02.2021 (Annexure-0) passed by the Respondent No.4 of Central Goods and Service Tax, Ahmedabad and after looking to the same and legality thereof the Hon’ble Court may be pleased to quash and set aside the said order dated 18.02.2021 (Annexure-O).
(b) that this Hon’ble Court be pleased to issue a Writ of Prohibition, or a Writ in the nature of Prohibition, or any other appropriate Writ, Order or prohibition, prohibiting the Respondents by themselves, their servants and their agents from giving effect to and/or implementing the Order-in- Appeal Nos. AHM-CX-002-APPP-210-211-2018-19 dated 22.03.2019 (Annexure L) and Order dated 28.05.2019 passed in the application for Rectification of Mistake (ROM) (Annexure N)passed by the Commissioner (Appeals) of Central Good and Service Tax, Ahmedabad without complying with the provisions of Section 107(11) of the CGST Act.”
5. Brief facts of the case are as under:-
5.1. The petitioner was earlier registered under the Central Excise Act, the Finance Act 1994, Gujarat Value Added Tax Act and Central Sales Tax Act. In terms of provisions of Section 140 of Central Goods and Services Tax Act, 2017 (for short “the CGST Act”) the petitioner filed the applications to claim transitional credit on 19.09.2017. First application for an amount of Rs.79.90 crores was made on 19.09.2017 and the second application for an amount of Rs.21.94 Crores was made on 20.12.2017. Pursuant to the first application, transitional credit of Rs.79,89,56,035/- upto 30.06.2017 was transferred as CGST in Electronic Credit Ledger being maintained by the Petitioner on 19.09.2017. Even though the transitional credit as per the Tran-1Form was credited on 19.09.2017, the amount of such credit pertained to opening balance of CGST as on 01.07.2017, and therefore, the said amount was reflected in Electronic Credit Ledger for the period July 2017.
5.2. The petitioner substantially exported their pharmaceutical products under bond without payment of CGST and State Goods Services Tax (for short “SGST”) after complying with the procedures laid down under Rule 96A of the CGST Rules and therefore, substantial amount of ITC was lying unutilized in Electronic Credit Ledger. In terms of Section 54(3) of the CGST Act read with Rule 89(4) of Central Goods and Services Rules, 2017 (for short “the Rules”), the petitioner filed the refund claims of unutilized ITC on inputs or input service used in making zero rated supply in prescribed Form GST RFD-01A on the common GST Portal for the month of July 2017 on 25.01.2018 and for the month of August 2017 on 06.02.2018. Upon filing these applications, the common portal generated a proof of filing refund claims for the month of July 2017 and August 2017 through ARNReceipts.
5.3. At the relevant time, there was difficulty in filing all the documents/evidences for refund claim in electronic common portal and therefore, the Petitioner submitted necessary documents in the prescribed Form viz. GST RFD-01A to respondent No.3in terms of Circular No. 17.17.2017 GST dated 15.11.2017. As per Rule 89 of the CGST Rules, the Petitioner computed the following 3 amounts for considering eligible amount of refund of unutilized amount of ITC of input and input service used in manufacture of zero rated supplies:
(i) Computation of refund as per statement 3A i.e. unutilized amount of “Net ITC” proportionate to zero-rated supply of adjusted turnover;
(ii) Balance lying in the Electronic Credit Ledger of the Petitioner at the end of the period for which the refund claimed was filed;
(iii) Balance in electronic credit ledger at the time of filing refund claim.
5.4 Accordingly, the petitioner computed eligible amount of refund claim under each of the head for the months of July 2017 and August 2017, which are as under:-
July, 2017
| Value as per Statement 3A | Blance in Electronic Credit Ledger | Tax Credit availed during the period | Eligible amount (Lowest of all) | |
|---|---|---|---|---|
| Integrated Tax | 81716137 | 856886016 | 179991565 | 81716137 |
| Central Tax | 5151846 | 1088050682 | 811500944 | 5151846 |
| State/UT Tax | 5151846 | 155985908 | 12544909 | 5151846 |
| CESS | 0 | 0 | 0 | 0 |
August, 2017
| Value as per Statement 3A | Blance in Electronic Credit Ledger | Tax Credit availed during the period | Eligible amount (Lowest of all) | |
|---|---|---|---|---|
| Integrated Tax | 2252192 | 647125745 | 267925919 | 2252192 |
| Central Tax | 331749 | 1064037862 | 38377744 | 331749 |
| State/UT Tax | 331749 | 131973088 | 38377744 | 331749 |
| CESS | 0 | 0 | 0 | 0 |
5.5. Respondent No. 3 vide Provisional Sanction Order No.02 dated 08.02.2018 sanctioned the refund provisionally for an amount equal to 90% of the refund claim. Respondent No.3 subsequently vide Final Refund Sanction Order dated 28.03.2018 sanctioned the balance amount of refund claim after deducting ineligible amount of input tax credit of certain items which was not eligible for refund.
5.6. After sanctioning the refund claims, the Audit Team carried out audit of the refund claims sanctioned to the petitioner. It appears from the letter dated 08.08.2018 issued by respondent No.3 to petitioner that the Audit Team in post audit made some observations in respect of the refund claim sanctioned to the petitioner. It was inter alia observed that the Petitioner utilized the entire amount of Input Tax Credit of IGST, CGST and SGST earned during a particular month, for discharging their liability of output supply. As observed by the Respondent No.3 that there was no balance of unutilized ITC of input or input services in supply of the goods lying in terms of provision of Section 54(3) of the CGST Act and therefore, the petitioner was not eligible for the refund. Hence, respondent No.3 sought clarification from the petitioner on of the queries raised by him in the letter dated 08.08.2018 issued to the petitioner.
5.7. The petitioner vide letter dated 14.09.2018 provided satisfactory answers to all queries raised by the respondent No.3 through the letter dated 08.08.2018. The petitioner inter alia stated that even though Transitional Credit was credited on 19.09.2017, but it pertained to 01.07.2017 and therefore, there was balance of Input Tax Credit lying unutilized in Electronic Credit Ledger. The petitioner contended that they filed the refund claims in terms of Circular No. 17/17/2017 dated 15.11.2017.
5.8. Respondent No.3 preferred the appeals challenging the Refund Order Nos.02/Final/2017-18 dated 28.03.2018 and 05/Final/2017-18 dated 20.04.2018 before the Ld. Commissioner (Appeals) of CGST and Central Excise. The Revenue inter alia contended that the Petitioner was eligible for refund of unutilized amount of ITC of input and input service lying in Electronic Credit Ledger. Since the Petitioner utilized the entire amount of IGST, CGST and SGST against liability of tax on outward supply, there was no balance lying in Electronic Credit Ledger and therefore, respondent No.3 wrongly sanctioned the refund claims.
5.9. The petitioner vide letter dated 11.01.2019 filed rejoinder/written submission to the appeal. The petitioner inter alia contended that when the refund amount was calculated as per the formula given in the Statement 3A, the system automatically computed eligible amount of refund considering the value as per the statement 3A. It was inter alia contended that there was no specific column of unutilized credit in GST RFD 01A. The petitioner contended that the Circular No.59/33/2018 dated 04.09.2018 was issued after filing and sanctioning the refund claim for the month of July, 2017 and August, 2017 and therefore, the same would not be applicable. The petitioner also contended that they debited requisite amount of Input Tax Credit which was earlier availed and not eligible for refund in terms of provisions of CGST Act and Rule made thereunder.
5.10. The Ld. Commissioner (Appeals) of GST and Central Tax vide Order-in-Appeal Nos.AHM-CX-002-APPP-210-211-2018-19 dated 22.03.2019 passed the common order for the appeals filed by the Revenue for the months of July 2017 and August 2017. The Ld. Commissioner (Appeals) inter alia observed that the Petitioner did not have balance of unutilized credit of ITC in Electronic Credit Ledger and therefore, the petitioner was not eligible for refund of unutilized amount of credit in terms of Section 54(3) of CGST Act read with Rule 89(4) of CGST Rules. The Ld. Commissioner (Appeals) inter alia referred to the Circular dated 04.09.2018 and quashed and set aside the Order-in-Original dated 22.03.2018 passed by the respondent No. 3 to the extent of sanctioning the refund claim to the petitioner.
5.11. After receipt of the above order dated 22.03.2019, the petitioner realized that there was apparent error from the records as the impugned order ought not to have been passed for recovery of erroneous refund without issuance of the show cause notice as required under Section 107 of the CGST Act.
5.12. The Ld. Commissioner (Appeals) without granting an opportunity of personal hearing, rejected the application of ROM ex-parte by holding that it was devoid of merits and there was no error apparent from the record.
5.13. After issuance of the notice vide order dated 25.07.2019 by this Court, the Additional Commissioner of CGST Ahmedabad North, issued Pre-Consultation show cause notice for recovery of the alleged amount of refund erroneously granted to the Petitioner. The hearing of the pre-show cause notice consultation was scheduled on 08.07.2020, whereby the authorized representative of the petitioner appeared and reiterated the submissions made via email dated 08.07.2020. The petitioner inter alia appraised to the Ld. Adjudicating Authority that the Petitioner challenged the Order-In-Appeal dated 22.03.2019 before this Court, whereby this Court vide order dated 25.07.2019 issued the notice and ordered the respondents not to take any coercive action for recovery of refunded amount.
5.14. The pre-show cause notice was culminated into issuance of the protective show cause notice, whereby the Additional Commissioner of CGST Ahmedabad North, proposed to recovery of erroneously alleged amount of refund sanctioned to the Petitioner.
5.15. The Joint Commissioner of CGST Ahmedabad North vide Order-in-Original No. 45/JC/MT/GST/2020-21 dated 18.02.2021 confirmed and ordered for recovery of erroneously refunded amount under Section 73 of the CGST Act, 2017 along with interest. The respondent imposed penalty as envisaged under Section 73(9). The request made by the Authorized representative of the Petitioner to keep the protective Show Cause Notice in abeyance since the matter was sub judice before this Court, was not accepted on the premise that Section 73(10) of the CGST Act provided specific time limit for adjudication of the Show Cause Notice. As per Section 73(10) the Show Cause Notice was required to be adjudicated within 3 years from due date of furnishing annual return for the financial year for which the refund was erroneously sanctioned. In the present case, refund was sanctioned on 28.03.2018 and therefore, the order was required to be passed on or before 27.03.2021.
6. Learned advocate Mr.Hardik Modh for the petitioner-Company submitted that as per the provisions of Section 54(3) of the CGST Act, the petitioner is entitled to get the refund on unutilized amount of input tax credit of input and input services used in zero rated supplies made without payment of tax in term of Rule 96A of the Rules. The petitioner accordingly computed the eligible amount of refund based on the formula provided under Rule 89(4) of the Rules for claiming refund for the month of July, 2017 and August, 2017, however, the Appellate Authority erred in holding that there was no balance of unutilized input tax credit and electronic credit ledger contrary to the facts inasmuch as the respondent no.3-Assistant Commissioner of CGST after verifying the amount mentioned in GST RF01A and balance lying electronic credit ledger sanctioned the refund claim.
7. It was submitted that the Commissioner (Appeals) did not consider the transitional credit, pertaining to opening balance of the carry forward from earlier excise regime as on 01.07.2017 contrary to the provisions of Section 140(1) of the CGST Act; it specifically provides that registered person is entitled to take credit the amount of CENVAT credit carried forward in the return relating to the period ending with the day immediately preceding the appointed date in electronic credit ledger.
8. It was, therefore, submitted that the petitioner was having closing balance of Rs.79,89,56,035/- in the Central Excise Return filed for the month of June 2017 and the Petitioner filed Tran-1 for carry forward the said credit in GST regime as per Section 140(1) of CGST Act, which was allowed after verification by the respondent no.3 by the respondent authority and the transitional credit was allowed the month of September 2017. It was submitted that the effect of the credit given in the month of July 2017 would relate back to 01.07.2017 and therefore, learned Commissioner (Appeals) ought to have considered such credit as an opening balance in electronic credit ledger. It was, therefore, submitted that the findings of the Commissioner (Appeals) that there was no unutilized input ITC of input or input services used for outward supply is factually incorrect. It was, therefore, submitted that the Commissioner (Appeals) ought to have dismissed the appeal filed by the department for recovery of the erroneous refund along with interest by the impugned order dated 22.03.2019. It was further submitted that the impugned order passed by the Commissioner (Appeals) is contrary to the provisions of Section 107(11) of the CGST Act, which provides for issuance of show cause notice, where appellate authority is of the opinion that the tax was erroneously refunded and no order could have been passed requiring the assessee to pay such tax without giving opportunity of hearing. It was, therefore, submitted that the impugned order dated 28.05.2019 passed by the Commissioner (Appeals) is in violation of the principles of natural justice.
9. It was further submitted that the show cause notice dated 22.10.2020 issued by respondent no.4 relying upon the provisions of Section 73(10) of CGST Act, whereby time limit for issuance of the order under Section 73(9) was 3 years from the due date of furnishing the annual return for the financial year to which the refund was erroneously sanctioned is contrary to the provisions of Section 75(1), which provides that the service of notice or issuance of the order if any stayed by the order of the Court or Appellate Tribunal, the period of such stay shall be excluded in computing the period specified in sub-Sections 73 (10). It was pointed out that in the present case, this Court by order dated 25.02.2019 has stayed the recovery action for recovery of refund and therefore, time limit prescribed under Section 73(10) of the CGST Act is not applicable. It was, therefore, submitted that the impugned show cause notice is also contrary to the provisions of Section 75(11) of CGST Act. It was further submitted that respondent no.4 ought not to have passed the order in original dated 18.02.2021 for recovery of the erroneously refunded amount under Section 73 of the CGST Act along with interest and penalty. It was, therefore, submitted that the impugned orders passed by the Appellate Authority and consequential orders passed by respondent no.4 are liable to quashed and set aside.
10. On the other hand, learned advocates for the respondents submitted that the adjudicating authority erroneously sanctioned the refund in the month of July of Rs.16,15,23,947/- out of total refund claim of Rs.16,57,66,082/-filed by the petitioner as there was no balance of unutilized ITC in electronic credit ledger for the month of July and August 2017. It was pointed out by the learned advocate Mr. Sharma that the Assistant Commissioner Audit Cell vide letter dated 08.08.2018 raised objection sanctioning of the refund in absence of any balance of unutilized ITC and electronic credit ledger. It was submitted that the Assistant Commissioner therefore in compliance of the objection raised by the audit cell, suggested for taking necessary action for safeguard to the revenue by letter dated 08.03.2018 addressed to the adjudicating authority.
11. It was, therefore, submitted that the order passed by the adjudicating authority were accordingly challenged before the Commissioner (Appeals) for review and after reviewing the same, the Commissioner (Appeals) by impugned order passed in Appeal Nos.210 of and 211 of 1819 on 22.03.2019 allowed the departmental appeals setting aside the impugned order in originals to the extent that sanctioned the said refund claims in accordance with the provisions of the Act. Learned advocate Mr.Sharma referred to and relied upon the following averments filed on behalf of respondent nos.1 to 3
“(7) As per section 54 of CGST Act, 2017, it is clear that refund of tax under GST will be made and processed in such form and manner as prescribed. In this regard, section 164 of CGST Act, 2017 provides the government the power to make rules for carrying out the provisions of the Act. Further section 168 of CGST Act, 2017 provides the Board power to issue instructions or directions if it considers it necessary or expedient for the purpose of uniformity in implementation of GST Act.
(8) In accordance with this, the government has notified sub-rule (4) and (5) of rule 89 of CGST Rules, 2017 wherein two scenario are mentioned in which refund of unutilized input tax credit is allowed.These two scenarios are zero rated supplies made without payment of tax and inverted tax structure. It has been prescribed in sub-rule (4) and (5) of rule 89 of CGST Rules, 2017 that the amount of refund under these scenarios is to be calculated using the formulae given in the said sub-rules. The formula uses the phrase ‘Net ITC’ and defines the same as “input tax credit availed on inputs and input services during the relevant period other than the input tax credit availed for which refund is claimed under sub-rules (4A) or (4B) or both”. Board vide their Circular No. 37/11/2018-GST dated 15th March, 2018 (Copy enclosed) clarified that “as the transitional credit pertains to duties and taxes paid under the existing laws viz., under Central Excise Act, 1944 and Chapter V of the Finance Act, 1994, the same cannot be said to have been availed during the relevant period and thus, cannot be treated as part of ‘Net ITC’.
9) In respect of July-17, as per GSTR-3B the claimant had shown eligible ITC of IGST of Rs. 17,99,91,565/-, CGST of Rs.1,25,44,909/- and SGST of Rs.1,25,44,909/-. The total Input Tax Credit (ITC) shown as eligible ITC amounting to Rs.20,50,81,383/-.As per statement 3A submitted by the claimant it was observed that net input tax credit was shown as Rs.17,93,51,529/- as IGST, Rs.1,13,07,332/- as CGST and Rs. 1,13,07,332/- as SGST which is same amount as shown in summary submitted by the claimant. As per GSTR 3B it is seen that the claimant had utilized all the eligible credit of IGST of Rs. 17,99,91,565/-, CGST of Rs. 1,25,44,909/- and SGST of Rs. 1,25,44,909/- for payment of tax for the period of July- 2017. Thus it is evident that there was no unutilized Input Tax Credit available with the claimant for the refund under Sub-section (3) of Section 54 of CGST Act, 2017.
10) Further in respect of August 2017 as per GSTR-3B the claimant has shown eligible ITC of IGST of Rs.26,79,25,919/-, CGST of Rs.3,83,77,744/ and SGST of Rs.3,83,77,744/-. The total Input Tax Credit (ITC) shown as eligible ITC amounting to Rs.34,46,81,407/-.
11) As per statement 3A submitted by the claimant it is observed that net input tax credit is shown as Rs.24,22,76,045/- as IGST, Rs.3,56,87,399/- as CGST and Rs.3,56,87,399/- as SGST which is same amount as shown in summary submitted by the claimant. As per GSTR 3B the claimant has utilized the credit of IGST of Rs.19,18,39,036/-, CGST of Rs.1,23,45,677/- and SGST of Rs.1,23,45,677/- for the month period of August-2017. Thus it appears that there is unutilized input tax credit of IGST of Rs.7,60,86,883/-, CGST of Rs.2,60,79,076/- and, SGST of Rs.2,60,79,076/- available with the claimant for the refund under sub-section (3) of Section 54 of CGST, 2017. Thus the claimant has total unutilized input tax credit of Rs.12,82,45,035/ at the end of August-2017.However, the claimant has claimed refund of IGST credit of Rs.13,02,96,326/-, CGST credit of Rs. 1,91,92,723/- and SGST credit of s .1,91,92,723/-. The claimant had claimed total refund of Rs. 16,86,81,772/- for the August, 2017. Thus it appeared that the claimant had claimed excess refund claim of ITC. In view of the above, it appeared that the claimant had filed refund claim of Rs. 13,02,96,326/- of unutilized ITC of IGST for the relevant period i.e. August-2017. Further, it was observed that the unutilized input tax credit of IGST available at the end of August-2017 is only Rs.7,60,86,883/-. Thus it appeared that the claimant has claimed excess refund of Rs. 5, 42 ,09,443/ – [( Rs. 0.13, 2 ,96,326/-)-( Rs.7,60,86,883/-)] of IGST input tax credit is inadmissible and liable for rejection.
(12) Thus it is evident that there was not sufficient unutilized Input Tax Credit available with the claimant for the refund under Sub-section (3) of Section 54 of CGST Act, 2017. As such the claimant’s contention regarding computation of the refund claim as per the formulae does not hold good and is therefore unacceptable.
(13) It is observed that as per sub-section (3) of the Section 54 of CGST Act, 2017 “a registered person may claim refund of any unutilised input tax credit at the end of any tax period.” It is however evident that the said claimant had availed and utilized the entire credit in July 2017. Further they has ITC balance of Rs.12,82,45,035/- at the end of August-2017. On going through the GST RFD-01A submitted by the claimant it was observed that net input tax credit of IGST, CGST and SGST the total Input Tax Credit (ITC) shown as eligible ITC was same which was shown in summary submitted by the claimant. As per GSTR 3B the claimant had utilized all the eligible credit of IGST, CGST and SGST for payment of tax for the period of July-2017 and August-2017. Thus there is no unutilized Input Tax Credit during July-2017 and insufficient balance at the end of August-2017 available with the claimant for the refund under Sub-section (3) of Section 54 of CGST Act, 2017. As such, it is found that the said claimant was not eligible for refund of the said utilized credit as per formulae arrived at vide Rule 89(4) of CGST Rules. As such the plea put forth by the claimant does not hold any ground.
(14) As per GSTR-3B the claimant has shown eligible ITC of IGST of . Rs.17,99,91,565/- CGST of Rs.1,25,44,909/-. and SGST of Rs.1,25,44,909/-. The total Input Tax Credit (ITC) shown as eligible ITC amounting to Rs.20,50,81,383/. As per statement 3A submitted by the claimant it is observed that net input tax credit is shown as Rs.17,93,51,529/- as IGST, Rs.1,13,07,332/- as CGST and Rs.1,13,07,332/- as SGST which is same amount as shown in summary submitted by the claimant. As per GSTR 3B the claimant has utilized all the eligible credit of IGST of Rs. 17,99,91,565/-, CGST of Rs.1,25,44,909/- and SGST of Rs. 1,25,44,909/- for the month period of July-2017. As per GSTR-3B the claimant has shown eligible ITC of IGST of Rs.26,79,25,919/-, CGST of Rs.3,83,77,744/- and SGST of Rs.3,83,77,744/-. The total Input Tax Credit (ITC) shown as eligible ITC amounting to Rs.34,46,81,407/-. Likewise as per available records the claimant had total unutilized input tax credit of Rs. 12,82,45,035/- at the end of August-2017. Accordingly, the contention put forth by the claimant does not appear admissible both legally as well as factually.
15) TRANS-1 was filed in September 2017, However the claim pertains to the months of July 2017 and August 2017. As such the credit claimed through TRANS-1 cannot be taken as basis for refund claim of the earlier periods. As per Board Circular No. (37/11) / 2018 – GST dated 15th March, 2018, it was clarified “as the transitional credit pertains to duties and taxes paid under the existing laws viz., under Central Excise Act, 1944 and Chapter V of the Finance Act, 1994, the same cannot be said to have been availed during the relevant period and thus, cannot be treated as part of ‘Net ITC’.”
12. Relying upon the above averments, it was submitted that the Commissioner (Appeals) has rightly allowed the appeal filed by the department are required to be upheld as there was no balance available in the electronic credit ledger in the months of July and August, 2017 so as to grant the refund as mandatory under Section 54(3) of the CGST Act. It was, therefore, submitted that the Commissioner (Appeals) after referring to Circular No.59/33 (2018-GST dated 04.09.2018 has rightly allowed the appeals filed by the department by setting aside the order in originals sanctioning the refund to the petitioner.
13. Having heard learned advocates for the respective parties and having considered the facts of the case, short question which arises for consideration in this petition is whether the transitional credit as per the form Trans-1 filed by the petitioner and accepted by the department can be considered as an opening balance in electronic credit ledger as unutilized ITC available for granting refund as per the provisions of Section 54 (3) of the CGST Act to the petitioner as per per the claim made by the petitioner in form RFD01A.
14. It would, therefore, we germane to refer to the various provisions of CGST Act. 1. Zero-rated supply” has been defined under Section 16 of the Integrated Goods and Service Tax, 2017 (IGST), which reads as under:-
“Section 16. Zero rated supply.-(1) “zero rated supply” means any of the following supplied of goods or services or both, namely:-
(a) export of goods or services or both; or
(b) supply of goods or services or both to a Special Economic Zone developer or a Special Economic Zone unit”
Section 54 of the CGST Act provides for refund of tax sub-Section 3 of Section 54 refers to the of refund of any unutilized input tax credit at the end of tax period, which reads as under:-
“Section 54 Refund of tax
(1) Any person claiming refund of any tax and interest, if any, paid on such tax or any other amount paid by him, may make an application before the expiry of two years from the relevant date in such form and manner as may be prescribed:
Provided that a registered person, claiming refund of any balance in the electronic cash ledger in accordance with the provisions of sub-section (6) of section 49, amy claim such refund in the return furnished under section 39 in such manner as may be prescribed
(2)……
(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 supplied 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 exempted 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 unutlised 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.
(4) The application shall be accompanied by –
(a) such documentary evidence as may be prescribed to establish that a refunds due to the applicant; and
(b) such documentary or other evidence (including the documents referred to in section 33) as the applicant may furnish to establish that the amount of tax and interest, if any, paid on such tax or any other amount paid in relation to which such refund is claimed was collected from, or paid by, him and the incidence of such tax and interest had not been passed on to any other person.”
Rule 89. Application for refund of tax, interest, penalty, fees or any other amount:
“(4) In the case of zero-rated supply of goods or services or both without payment of tax under bond or letter of undertaking in accordance with the provisions of sub-section (3) of section 16 of the Integrated Goods and Services Tax Act, 2017 (13 of 2017), refund of input tax credit shall be granted as per the following formula:- Refund Amount= (Turnover of zero-rated supply of goods+ Turnover of zero-rated supplyof services) x Net ITC divided by Adjusted Total Turnover
Where,-
(A) “Refund amount” means the maximum refund that is admissible;
(B) “Net ITC” means input tax credit availed on inputs and input services during the relevant period;
(C) “Turnover of zero-rated supply of goods” means the value of zero-rated supply of goods made during the relevant period without payment of tax under bond or letter of undertaking;
(D) “Turnover of zero-rated supply of services” means the value of zero-rated supply of services made without payment of tax under bond or letter of undertaking, calculated in the following manner, namely:-
Zero-rated supply of services is the aggregate of the payments received during the relevant period for zero-rated supply of services and zero-rated supply of services where supply has been completed for which payment had been received in advance in any period prior to the relevant period reduced by advances received for zero-rated supply of services for which the supply of services has not been completed during the relevant period;
(E) “Adjusted Total turnover” means the turnover in a State or a Union territory, as defined under clause (112) of section 2, excluding the value of exempt supplies other than zero-rated supplies, during the relevant period;
(F) “Relevant period” means the period for which the claim has been filed”
15. In terms of the above provisions of refund, refund application is required to be filed through electronic portal. Section 168 of the CGST Act empowers the Central Board of Indirect Taxes and Customs (CBIC) to issue such orders, instructions or directions to the Central Tax Officer as deem fit for the purpose of uniformity in the implementation of the CGST Act. The CBIC issued the Circular No.17/17/2017-GST dated 15.11.2017, whereby it was clarified that the applications/documents/forms pertaining to refund claims on account of zero rated supplies shall be filed and processed manually till further orders, which reads as under:-
“1.1*****
1.2 *****
1.3 *****
2.4 The application for refund of unutilized input tax credit on inputs or input services used in making such zero- rated supplies shall be filed in FORM GST RFD-01A on the common portal and the amount claimed as refund shall get debited in accordance with sub-rule (3) of rule 86 of the CGST Rules from the amount in the electronic credit ledger to the extent of the claim. The common portal shall generate a proof of debit (ARN Acknowledgement Receipt Number) which would be mentioned in the FORM GST RFD-01A submitted manually, along with the print out of FORM GST RFD- 01A to the jurisdictional proper officer, and with all necessary documentary evidences as applicable (as per details in statement 3 or 5 of Annexure to FORM GST RFD-01), within the time stipulated for filing of such refund under the CGST Act.
2.5 The registered person needs to file the refund claim with the jurisdictional tax authority to which the taxpayer has been assigned as per the administrative order issued in this regard by the Chief Commissioner of Central Tax and the Commissioner of State Tax. In case such an order has not been issued in the State, the registered person is at liberty to apply for refund before the Central Tax Authority or State Tax Authority till the administrative mechanism for assigning of taxpayers to respective authority is implemented. However, in the latter case, an undertaking is required to be submitted stating that the claim for sanction of refund has been made to only one of the authorities. It is reiterated that the Central Tax officers shall facilitate the processing of the refund claims of all registered persons whether or not such person was registered with the Central Government in the earlier regime.”
16. The CBIC thereafter issued a Circular No.59/23/2018-CGST dated 04.09.2018, whereby it is clarified that measure of the amount of refund, which is eligible to the applicant seeking refund unutilized of credit of ITC on account of zero-rated supply of goods are provided. Relevant formula as prescribed for computing unutilized amount of ITC in para 3 of the said circular is as under:-
“3. System validations in calculating refund amount
3.1 Currently, in case of refund of unutilized input tax credit (ITC for short), the common portal calculates the refundable amount as the least of the following amounts:
a) The maximum refund amount as per the formula in rule 89(4) or rule 89(5) of the Central Goods and Services Tax Rules, 2017 (hereinafter referred to as the “CGST Rules”) [formula is applied on the consolidated amount of ITC, i.e. Central tax + State tax/Union Territory tax +Integrated tax+Cess (wherever applicable)];
b) The balance in the electronic credit ledger of the claimant at the end of the tax period for which the refund claim is being filed after the return for the said period has been filed; and
c) The balance in the electronic credit ledger of the claimant at the time of filing the refund application.
3.2 After calculating the least of the three amounts, as detailed above, the equivalent amount is to be debited from the electronic credit ledger of the claimant in the following order:
(a) Integrated tax, to the extent of balance available;
(b) Central tax and State tax/Union Territory tax, equally to the extent of balance available and in the event of a shortfall in the balance available in a particular electronic credit ledger (say, Central tax), the differential amount is to be debited from the other electronic credit ledger (i.e., State tax/Union Territory tax, in this case).”
17. The provisions of Goods and Service Tax Act replaced the indirect tax regime with effect from 01.07.2017. Central Goods and Service Tax Act 2017 and State Goods and Service Tax Act 2017 and Integrated Goods and Service Tax 2017, were enacted by the legislature which came into effect from 01.07.2017, which intended to subsume all indirect taxes including the Central Excise Act, 1944, the Finance Act, 1994 (Service Tax Act) and Value Added Tax Act. As per the scheme of the GST all the three Acts provide for seamless flow of Input Tax Credit to avoid cascading effect of various taxes. The CGST Act therefore provided the transitional arrangement for carry forward and availing of credit of eligible indirect taxes paid on the Goods & Services under the erstwhile regime. In this regard, Section 140 of the CGST Act is therefore enacted for the transition of the various credit of indirect taxes in different Act as under:-
“i) Closing balance of credit of erstwhile taxes in the last return filed prior to the introduction of GST:
ii) Un-availed credit taxes paid on capital goods procured in the erstwhile regime.
iii) Credit of taxes paid on stock of raw materials, work-in-progress and finished goods as on 30.06.2017.
iv) Credit relating to goods exempted under the earlier regime which are taxable under the GST regime.
v) Credit of in transit goods and services on which taxes are paid in the erstwhile regime and such goods and services are received in the GST regime.”
18. Rule 117 of the Rules provides that if a registered person has to claim Transitional Credit under Section 140 of the CGST Act, a declaration in Form GST TRAN-1 was required to be filed within 90 days of the appointed day i.e. on or before 28.09.2017. As per the provisions of Section 140 of the CGST Act read with Rule 117 of the Rules, the transitional credit, closing balance of credit of taxes lying and shown in last return filed by the assessee prior to introduction of CGST i.e. as on 30.06.2017 will be carried forward as credit in Electronic Credit Ledger as on 01.07.2017. in view of the above, GST regime, the credit balance as on of the unutilized input tax credit in erstwhile regime as on 30.06.2017 shall be available as opening balance of unutilized input tax credit as on 01.07.2017.
19. Therefore, as per provisions of Section 140(1) of the CGST Act, a registered person shall be entitled to take, in his electronic credit ledger, the amount of CENVAT credit of eligible duties carried forward in the return relating to the period ending with the day immediately preceding the appointed day i.e. 01.07.2017. The petitioner, is therefore, entitled to get the benefit of amount of CENVAT credit of eligible duties carried forward in the return in GST Form TRAN-1, which was verified and approved by the GST authority.
20. Therefore, the adjudicating authority has rightly sanctioned the refund to the petitioner considering the closing balance of CENVAT credit carried forward as per GST Form TRAN-1 filed by the petitioner as on 01.07.2017. However, the Commissioner (Appeals) appears to have a very pedantic literal approach of the provisions of Section 54(3) of the CGST Act, 2017 thereby allowed the appeal of the department on the ground that when the petitioner filed refund claim in statement 3A of the GST-RFD-01A for the months of July and August, 2017, the transitional credit as per form GST TRAN-1 was not verified and was not given effect in the electronic credit ledger and therefore, obviously there cannot be any balance of such unutilized CENVAT credit which was carried forward as on 01.07.2017. Therefore, in effect there was no unutilized ITC credit lying in the balance in respect of the refunds granted.
However, the Commissioner (Appeals) ought to have given the benefit of transitional CENVAT credit carried forward as per GST TRAN-1 filed by the petitioner and approved by the authority in the month of September, 2017 as if such credit was available as on 01.07.2017 as an opening balance in the electronic credit ledger. Reliance placed by the Commissioner (Appeals) on Circular No.59/33/2018-GST dated 04.09.2018 to the effect that the balance in the electronic ledger of the claimant on the end of the tax period for which, the refund claim is being filed after the return for the said period has been field literally interpreted so far as the first two months of GST regime i.e. July, 2017 and August, 2017, for which there is a provision of Section 140(1) would have direct impact and therefore, the Commissioner (Appeals) committed an error by in relying upon Circular No.59 dated 04.09.2018, which would not be applicable in the facts of the case as the petitioner is entitled to get the benefit of carried forward of CENVAT credit as on 01.07.2017 in view of the provisions of Section 140(1) read with Section 54(3) of the CGST Act, 2017 read with Rule 89(4) and 117 of the Rules.
21. It is not in dispute that the petitioner was entitled to the refund on the zero rated supplies and only ground for allowing the appeal of the department by the CIT appeals is that no balance was available in electronic credit ledger as on the date on which the petitioner was entitled to get refund i.e. end of the month i.e. July, 2017 and August,2017 because the carried forward of CENVAT credit erstwhile regime was approved by the authority in the month of September, 2017. In such circumstances, the petitioner would never be available to utilize the carried forward of CENVAT credit, which would contrary to the provisions of Section 140(1) of the CGST Act.
22. In view of the above analysis and foregoing reasons, the petition succeeds and is accordingly allowed. The impugned order dated 22.03.2019 passed by the Commissioner (Appeals) is hereby quashed and set aside. As a result, the consequential notice and orders for recovery of the refund sanctioned and paid to the petitioner by the adjudicating authority are also quashed and set aside. Rule made absolute to the aforesaid extent. No order as to costs.
