Explore the Karnataka High Court’s verdict on Rule 89(4)(C) & Rule 96(10) of CGST Rules post the Tonbo Imaging India Pvt Ltd case (Writ Petition No. 13185/2020, dated 16/02/2023). Understand the court’s reasoning, implications, and gain insights into the author’s perspectives on these contentious rules.
Views on Rule 89(4)(C) & Rule 96(10) of CGST Rules in light of Karnataka High Court Judgement in Tonbo Imaging India Pvt Ltd Vs Union Of India, Appeal Number: Writ Petition No. 13185 of 2020
Dated: 16/02/2023
Said judgement has declared Rule 89(4) ( c ) of CGST Rules as ultra vires the Act and the Constitution. Let us understand the reasoning by the Court in simple but detailed manner + My humble views on said Rule in addition to Reasoning by the Court+ My humble views on another dacronian delegated legislation i.e. Rule 96(10) of CGST Rules.
1. Rule 89(4) (c) lays down the restriction that in case of refund claim of unutilized ITC on export of goods under LUT, value of exports will be lower of
> Actual value
> 1.5 times of value of same goods domestically supplied by applicant or by similarly place suppliers.
2. This rule was clearly ultra Vires the CGST Act and also as per settled principle based on the maxim ” Lex non cogit ad impossibilia” on account of the fact that in case of export of especially manufactured/customized/packed products, it is not possible to determine valuation as per this Rule.
3. It was an invalid peace of delegated legislation since not supported by powers u/s 54 and Section 164, of CGST Act and Section 16 of IGST Act.
4. It was clearly in violation of Article 14 of Constitution which lays down the fundamental right of Equality before the Law. Article 14 allows classification/differentiation while making any legal provision only when such classification is based on intelligible/logical criteria and such classification is in consonance with objects to be achieved by the Legislature/Government by making such classification/differentiation.
5. Since restriction imposed by said rule is not applicable in case of exports on payment of IGST, it was clearly in violation of article 14.
6. Said Rule is also against Article 19(1) (g) of the Constitution i.e. right to carry on business/profession/occupation. Due to restriction placed by this Rule, exports claiming refund of unutilized ITC will suffer due to higher finance cost on account of working capital blockage/addition to input cost due to incapability of claiming refund of ITC.
7. These rules are completely against objectives of Foreign Trade Policy, noble vision of Government regarding international trade, commitment by India as a member of WTO and Article 286 of the Constitution.
8. Intention/object sought to be achieved of GST Council by insertion of Rule 89(4) ( c) and Rule 96(10) is far away from the destination of being logical or just or proper. In former case, object is to prevent exports from making export of goods at artificially inflated values to claim higher refund claims. Excess foreign exchange that will be realized on account of such exports may be effectively sent back out of India taking benefits of loopholes in the Law. In order to achieve this objective, Government needs to tighten norms for post refund audit.
9. Similarly object behind Rule 96(10) is to prevent exporter from claiming refund of ITC availed on inputs/input services not utilized for exports when they have not paid IGST on imports/nominal tax at the rate of 0.1% being merchant exporter/no effective tax payment on inputs being EOU/STP/EHTP. Problem envisaged by Government will exist in those cases where registered person is engaged in domestic as well as export supplies and ratio of domestic supplies to total turnover is significant. But the same in not true in case of exports having major chunk of export supplies
10. In view of above, Government can not punish law compliant exporters/ genuine beneficiaries on account of malpractices by others. This will be against Article
11. Moreover explanation to Rule 96(10) to the effect that if payment of IGST on imports is made then restriction placed by Rule 96(10) will not be applicable is far away from standard of being just/proper/rational. Again violation of Article 14,Article 19 (1) (g) along with Section 164 of CGST Act.
12. Moreover it has been very precisely held in Apex Court Ruling in case of Mohit Minerals that GST Council can, by no means, encroach upon legislative powers of legislature or Parliament.
13. Section 54 of CGST Act and Section 16 of IGST Act can be distinguished from Section 16,49,41,38,17,19,18 and Section 55 of CGST Act as far as delegation of power of placing restrictions to executive is concerned.
14. All above grounds also need to be distinguished against strongly reiterated principle of giving widest latitude to Government/Parliament in case of fiscal legislations.
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