Nahar Industrial Enterprises Limited Vs Union of India (Rajasthan High Court)
The Rajasthan High Court disposed of a batch of writ petitions involving a common issue relating to rejection of claims for refund of unutilised input tax credit (ITC) under Section 54(3) of the CGST Act, 2017. The petitioner, a textile manufacturer engaged in spinning, weaving and processing, manufactured cotton yarn, cotton blended yarn, polyester/viscose yarn and polyester/viscose blended yarn. The GST on inputs ranged from 5% to 28%, while GST on output supplies ranged from 0.1% to 12%. For the period January 2020 to March 2020, the petitioner claimed a refund of Rs.1,31,39,059/- on account of accumulated unutilised ITC arising from an alleged inverted duty structure. The adjudicating authority rejected the claim, holding that the petitioner’s case did not fall within an inverted duty structure, and the appellate authority affirmed the rejection. As no GST Appellate Tribunal was functioning, the petitioner approached the High Court.
The petitioner contended that Section 54(3) and Rule 89(5) do not require a one-to-one correlation between individual inputs and outputs and that refund has to be determined GSTIN-wise by applying the statutory formula. It argued that all inputs and all output supplies must be considered together and that the authorities wrongly denied the refund on the basis that the rates of tax on inputs and outputs were “more or less the same.” It also submitted that Rule 89(5) does not recognise a stock-based approach and that the statutory formula governs computation of the refund. The respondents argued that refund is available only where ITC accumulates because the rate of tax on inputs exceeds that on output supplies, that the petitioner’s principal inputs and outputs largely attracted similar GST rates, and that the accumulation resulted from higher purchases and lower output during the relevant period rather than an inverted duty structure. They also relied upon CBIC circulars and the Supreme Court’s decision in Union of India & Others Vs. VKC Footsteps India Private Limited.
