Refund claims for accrued ITC were denied for no other reason than the supplier’s erroneous classification of the products
Fact and issue of the case
The petitioner has filed the present petition, inter alia, praying that the respondents be directed to refund an amount of Rs. 5,47,894/-along with interest. The petitioner is, essentially, aggrieved by the denial of refund of the unutilized Input Tax Credit (hereafter ‘ITC’) on account of the inverted duty structure.
The petitioner claims that she is engaged in the business of selling footwear which is chargeable to goods and services tax at the rate of 5% or 12%, depending on whether the price of the footwear is below Rs. 1,000/- or above Rs. 1,000/-. One of the components used in manufacturing of footwear is PVC straps, which is chargeable to goods and services tax at the rate of 18%.
In view of the said inverted duty structure, the petitioner claims that she is entitled to a refund of the accumulated unutilized ITC. 4. On 05.02.2021, the petitioner filed an application for refund of ITC aggregating Rs. 5,47,894/- (CGST Rs. 1,42,414/- + SGST Rs. 4,05,480/-) for the period of July, 2020 to December, 2020 in the appropriate format (FORM GST RFD-01). The respondents issued an acknowledgment in FORM GST RFD-02 dated 10.02.2021 acknowledging the said application. Thereafter, the respondents issued the show cause notice dated 09.03.2021 in FORM GST RFD-08 calling upon the petitioner to show cause as to why her refund claim should not be rejected. The Proper Officer had flagged four issues in the show cause notice dated 09.03.2021. The first issue related to the mismatch of figures relating to eligible ITC in RFD-01 and GSTR-3B, Annexure B and GSTR-2A. The petitioner was called upon to furnish an explanation regarding the same. The second issue related to two invoices appearing at serial no.55 and 56 of Annexure B involving the ITC of an amount of Rs. 16,272.18/-which did not appear in GSTR-2A uploaded by the petitioner.
The third issue related to ineligible ITC under Rule 36(4) of the Central Goods and Services Tax Rules, 2017 (hereafter ‘the CGST Rules’). According to the Proper Officer, the claim for the ITC could not exceed more than 20% of the eligible credit in respect of the invoices and debit notes which have not been uploaded by the supplier. It was alleged that the petitioner had violated the said condition as laid down in Rule 36(4) of the CGST Rules in respect of her claims for the month of October, 2020 and November, 2020 as she had availed excessive ITC amounting to Rs. 1,03,210.09/.
The fourth issue related to the returns filed by one of the suppliers in respect of the goods supplied to the petitioner. The said supplier had classified the goods supplied as HSN 6404, which was the code for the finished products (complete shoes). The supplier had charged GST at the rate of 18% and therefore, the concerned officer had questioned the petitioner’s claim for the inverted duty structure in respect of the said goods. He reasoned that if the input was the same product as supplied by the petitioner, the goods supplied would not be chargeable to tax at a lower rate.
The petitioner replied to the show cause notice on 18.03.2021. The petitioner’s explanation in regard to issue no.1 and 2 were subsequently accepted by the Adjudicating Authority and are not relevant for the present appeal. The petitioner’s claim for refund was rejected on account of issue no.3 and 4. That are the issues relating to excess ITC in violation of Rule 36(4) of the CGST Rules and on account of the input being the complete finished products but charged at a higher rate.
In respect of issue no.3 – the issue relating to availing ITC exceeding 2
Observation of the court
The learned counsel for the petitioner has referred to Rule 89 of the CGST Rules and contended that the maximum refund amount was required to be considered in reference to the “relevant period” as defined under Rule 89(4)(F) of the CGST Rules. He submitted that although the ITC availed in the month of October, 2020 and November, 2020 was in excess of the ITC as reflected in GSTR-2A, the ITC reflected in GSTR-2A for the month of December, 2020 would more than cover the same. As noted above, the petitioner’s contention is that this mismatch was on account of some of the suppliers filing the returns on a quarterly basis, whereas the petitioner accounted for the ITC on a monthly basis. The petitioner contends that if there is any excess ITC availed in excess of the limits provided under Rule 36(4) of the CGST Rules, the petitioner may be liable to pay an interest, but the refund of the ITC cannot be denied if there is no excess claim for the “relevant period” as defined under Rule 89(4)(F) of the CGST Rules. The learned counsel also submitted that if Rule 36(4) of the CGST Rules is to be implemented sensu stricto, the petitioner’s claim for the months of December, 2020 would have been higher.
It is material to note that the learned counsel appearing for the respondents does not dispute that if the petitioner is correct that the mismatch is only on account of the suppliers filing the quarterly returns, the petitioner would be entitled to the refund. He, however, states that the petitioner did not submit the relevant documents to establish this claim.
The learned counsel appearing for the parties state that in the aforesaid circumstances, the matter be remanded to the Adjudicating Authority to consider the matter afresh, with liberty to the petitioner to produce all the documents as to substantiate its claims.
In view of the above, the impugned orders dated 05.04.2021 and 18.02.2022 are set aside. The matter is remanded to the Adjudicating Authority to consider the petitioner’s claim regarding availing ITC in excess of the limit as prescribed under Rule 36(4) of the CGST Rules, as noted above and pass a fresh order.
We request the adjudicating authority to pass a fresh order within a period of eight weeks from today.
The petition is disposed of in the aforesaid terms.
Read the full order from here
Simran-Chandwani-Vs-Principal-Commissioner-of-CGST-Delhi-North-And-Ors.-Delhi-High-Court2
