Refund of Inverted Duty Structure to be allowed on Input Services also

Refund of Inverted Duty Structure to be allowed on Input services also

Gujrat High Court in VKC Footsteps India Private Limited on 24-07-2020 has pronounced as under:

1. Section 54(3) allows refund of any unutilized ITC but Rule 89(5) restricts refund to Inputs. [Para 23]

2. Clause (ii) of the proviso to section 54(3) also deals with both supply of goods and services and not the only supply of goods [Para 23].

3. Law in section 54(3) has been wrongly interpreted in Circular No. 79/53/2018 dated 31-12-2018 to deny a refund of ITC on input services. [Para 24]

4. Explanation (a) to Rule 89(5) which denies refund of unutilized Input tax on input services is ultra vires the provisions of section 54(3) [Para 25].

5. Therefore refund of input services is also allowed under inverted duty structure [Para 27].

6. Court drew support from the first discussion paper on GST issued by empowered committee dated 10-11-2009 [Para 16]; International VAT/GST Guidelines published on Feb 2006 [Para 17]; FAQ on GST dated 31-03-207 {Para 18].

7. Court also drew support from Delhi High Court in Intercontinental Consultants & Technocrats affirmed by Supreme Court to hold that rule which goes beyond statute is ultra vires.

8. Supreme Court decision in Lohara Steel Industries quoted to lay down that offending portion which is severable can be struck down.

Comments: Issues shall arise with respect to

a) Applicability of this Judgment in other states. In the view of the author, since GST is central act and rule has been declared ultra vires, the judgment should apply all across India.

b) Refund of Input services not claimed in refund applications filed prior to this judgment, can whether be claimed now having regard to restrictions imposed by the portal which does not allow to file an application for refund for a tax period again. In this regard, Delhi High Court in Pitambra Books has allowed filing a manual application for a refund where the portal places restrictions beyond the law.