1. Heard Mr. Sai Chandra Haas, learned counsel for the petitioner and Mr. Dominic Fernandes, learned Senior Standing Counsel for CBIC appearing
for respondent Nos.2 and 4 to 6.
2. By filing this writ petition, under Article 226 of the Constitution of India, petitioner prays for the following relief:-
“a) That this Hon'ble Court be pleased to issue a writ of certiorari or any other appropriate writ, order or direction setting aside the
Impugned Order in Appeal No.HYD-GST-SC-AP2-002-21-22 dated 09.04.2021 (received on 21.04.2021) passed by the Respondent No.5 in
confirming the Speaking Order No.19/2020-Refund dated 04.01.2021 passed by the Respondent No.6 for rejecting the claim for Refund of
Rs.77,91,857/- liable to the Petitioner for the year April, 2019 to March, 2020; and
b) This Hon'ble Court be pleased to issue a Writ or order declaring the Board Circular No.135/05/2020-GST dated 31.03.2020 issued by
the Respondent No.2 as ultra vires of Section 54(3)(ii) of the CGST Act, 2017 to the extent that it seeks to reject the refund of accumulated
unutilized tax credit in cases where the input & output supplies are the same; and
c) Consequently, Direct the Respondents and more particularly Respondent No.5 & 6 to refund the amount of Rs.77,91,857/- under inverted
tax structure in terms of Section 54 of CGST Act, 2017 read with appropriate CGST Rules, 2017 to the Petitioner, in the interests of justice
and
d) Award costs to the Petitioner; and
e) For such further and other reliefs, as this Hon'ble Court may deem fit and proper in the nature and circumstances of the case may
require.â€
3. Petitioner is a proprietary concern established in the year 2005 engaged in the business of assembling and supply of computers and computer parts.
Petitioner is a registered person as per provisions of the Central Goods and Services Tax Act, 2017 (briefly, ‘the CGST Act’ hereinafter). It is
also a registered supplier to all the Defence, Research & Development Organisation (DRDO) Laboratories and affiliates across the country.
4. On the materials supplied by it, petitioner added 5% Goods and Services Tax (GST) as per the concessional rate fixed by the Government for
supplies to DRDO. Petitioner filed application on 02.12.2020 before respondent No.6 claiming refund of Rs.77,91,857/- under inverted tax structure in
terms of Section 54 of the CGST Act. Respondent No.6 issued show cause notice dated 28.12.2020 calling upon the petitioner to show cause as to
why refund application should not be rejected for contravention of Section 54(3)(ii) of the CGST Act. Thereafter petitioner submitted reply dated
01.01.2021.
5. Notwithstanding the reply submitted by the petitioner, respondent No.6 rejected the refund application dated 02.12.2020 by a speaking order dated
04.01.2021. While rejecting the refund application of the petitioner, respondent No.6 relied upon a Circular of the Central Board of Indirect Taxes and
Customs (briefly, ‘the Board’ hereinafter) dated 31.03.2020.
6. Aggrieved by such rejection, petitioner filed appeal under Section 107 of the CGST Act before respondent No.5 on 04.02.2021. However,
respondent No.5 by order dated 09.04.2021 confirmed the rejection order dated 04.01.2021 and dismissed the appeal.
7. Aggrieved thereby, the present writ petition came to be filed.
8. Learned counsel for the petitioner submits that the Board has issued a clarificatory Circular dated 06.07.2022 clarifying paragraph 3.2 of the
Circular dated 31.03.2020 relied upon by respondent Nos.6 and 5 while rejecting the refund application of the petitioner. Therefore, in view of the
changed circumstances, respondents may be directed to allow the refund application.
8.1. Learned counsel appearing for respondent Nos.2 and 4 to 6 however submits that respondent Nos.5 and 6 had taken the decision on the basis of
the existing Circular of the Board. Therefore, such decision of the Board cannot be faulted. However, as to applicability of the Circular dated
06.07.2022, he submits that this Circular cannot be applied retrospectively.
9. Submissions made by learned counsel for the parties have received the due consideration of the Court.
10. From a perusal of the order dated 04.01.2021, passed by respondent No.6, it is seen that petitioner had filed refund claim for Rs.77,91,857/- on
02.12.2020 for the period from April, 2019 to March, 2020. Contention of the petitioner was that it had sold goods under concessional/inverted tax rate
to DRDO which had issued the requisite certificates. Petitioner is eligible for refund of the aforesaid amount of credit paid by it towards procuring raw
materials at full rate of tax. Therefore, the request for refund under the inverted tax structure in terms of Section 54 of the CGST Act read with Rules
89(4) and 89(5) of the Central Goods and Services Tax Rules, 2017 (briefly, ‘the CGST Rules’ hereinafter) was made. Respondent No.6
adverted to the Board Circular dated 31.03.2020 more particularly to para 3.2 thereof as per which it was clarified that refund of accumulated Input
Tax Credit (ITC) under clause (ii) of sub-section (3) of Section 54 of the CGST Act would not be applicable in cases where the input and the output
supplies are the same. The main thrust of the above Board’s Circular was that the input and the output supplies should be invariably different. On
the above basis, the refund claim of the petitioner was rejected. This order of respondent No.6 was affirmed in appeal by respondent No.5 vide the
order dated 09.04.2021.
11. At this stage, we may advert to para 3.2 of the Board’s Circular dated 31.03.2020 which reads as under:-
“Refund of accumulated ITC in terms of clause (ii) of sub-section (3) of section 54 of the CGST Act is available where the credit has
accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies. It is noteworthy that, the input and
output being the same in such cases, though attracting different tax rates at different points in time, do not get covered under the provisions
of clause (ii) of sub-section (3) of section 54 of the CGST Act. It is hereby clarified that refund of accumulated ITC under clause (ii) of sub-
section (3) of section 54 of the CGST Act would not be applicable in cases where the input and the output supplies are the same.â€
12. From the above, it is seen that according to the Board, refund of accumulated ITC in terms of Section 54(3)(ii) of the CGST Act was available
where the credit accumulated on account of rate of tax on inputs was higher than the rate of tax on output supplies. Clarifying further, it was held that
refund of accumulated ITC under Section 54(3)(ii) of the CGST Act would not be applicable in cases where input and output supplies are the same.
13. We find that representations were received seeking clarification of paragraph 3.2 of the Board Circular dated 31.03.2020. The clarification was
sought for in cases where the supplier is required to supply goods at lower rate under concessional notification issued by the Government. In order to
clarify the issue and to ensure uniformity, Board exercised power under Section 168(1) of the CGST Act and issued Circular No.173/05/2022-GST
dated 06.07.2022. Board has clarified that it was not the intent of paragraph 3.2 of Circular dated 31.03.2020 to cover the cases where the supplier is
making supply of goods under a concessional notification and the rate of tax on output supply is less than the rate of tax on input supply (of the same
goods) at the same point of time due to supply of goods by the supplier under a concessional notification. Therefore, it has been clarified that in such
cases, refund of accumulated input tax credit on account of inverted structure would be allowed in cases where accumulation of input tax credit is on
account of rate of tax on output supply being less than the rate of tax on inputs (same goods) at the same point of time as per some concessional
notification issued by the Government providing for lower rate of tax for some specified supplies subject to fulfilment of other conditions.
Consequently, paragraph 3.2 of the Circular dated 31.03.2020 has now been substituted by the Circular dated 06.07.2022 as under:-
“3.2 It may be noted that refund of accumulated ITC in terms of clause (ii) of first proviso to sub-section (3) of section 5.4 of the CGST
Act is available where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies. It
is noteworthy that, the input and output being the same in such cases, though attracting different tax rates at different points in time, do not
get covered under the provisions of clause (ii) of the first proviso to sub-section (3) of section 54 of the CGST Act.
3.3 There may however, be cases where though inputs and output goods are same but the output supplies are made under a concessional
notification due to which the rate of tax on output supplies is less than the rate of tax on inputs. In such cases, as the rate of tax of output
supply is less than the rate of tax on inputs at the same point of time due to supply of goods by the supplier under such concessional
notification, the credit accumulated on account of the same is admissible for refund under the provisions of clause (ii) of the first proviso to
sub-section (3) of section 54 of the CGST Act, other than the cases where output supply is either Nil rated or fully exempted, and also
provided that supply of such goods or services are not notified by the Government for their exclusion from refund of accumulated ITC
under the said clause.
14. The above Circular dated 06.07.2022 is clarificatory in nature whereby paragraph 3.2 of the Circular dated 31.03.2020 has been substituted as
supra. Being clarificatory, Circular dated 06.07.2022 inserting the above clarification would have the effect from the date when Circular dated
31.03.2020 came into effect.
15. If this be the position, then the claim of the petitioner is liable to be re-considered on the basis of the Circular dated 31.03.2020 as clarified by the
Circular dated 06.07.2022.
16. Consequently, we set aside the orders dated 04.01.2021 of respondent No.6 and dated 09.04.2021 of respondent No.5. The matter is remanded
back to respondent No.6 for re-consideration in terms of the Circular dated 06.07.2022 as extracted above. Let the above exercise on remand be
carried out by respondent No.6 within a period of eight weeks from the date of receipt of a copy of this order.
17. Writ petition is accordingly allowed.
Miscellaneous applications pending, if any, shall stand closed. However, there shall be no order as to costs.
