2021-TIOL-237-SC-GST

UoI Vs VKC Footsteps India Pvt Ltd

GST -  Refund of Tax - Inverted Duty Structure - Section 54 of CGST Act, 2017 - Rule 89 of CGST Rules, 2017 - Whether it is necessary to interpret Rule 89(5) and,in particular, the definition of Net ITC therein so as to include the words 'input services' - Whether s.54(3)(ii) is violative of Article 14 of the Constitution - Whether Rule 89(5) is in conformity with s.54(3)(ii) - Judgment of the Madras High Court [in TRANSTONNELSTROY AFCONS JOINT VENTURE - 2020-TIOL-1599-HC-MAD-GST ] challenged by assessee whereas UOI has filed appeals against the judgment of the Gujarat High Court in VKC Footsteps -  2020-TIOL-1273-HC-AHM-GST .

Held:

+ Legislature has to draw the balance when it decides upon granting a refund of accumulated ITC which has remained unutilized. In doing so, Parliament while enacting sub-Section (3) of Section 54 has stipulated that no refund of unutilized ITC shall be allowed other than in the two specific situations envisaged in clauses (i) and (ii) of the first proviso.

+ To construe 'inputs' so as to include both input goods and input services would do violence to the provisions of Section 54(3) and would run contrary to the terms of Explanation-I.

+ The clear intent of Parliament was to confine the grant of refund to the two categories spelt out in clauses (i) and (ii) of the first proviso. That clauses (i) and (ii) are the only two situations in which a refund can be granted is evident from the opening words of the first proviso which stipulates that "no refund of unutilised input tax credit shall be allowed in cases other than". What follows is clauses (i) and (ii). The intent of Parliament is evident by the use of a double - negative format by employing the expression "no refund" as well as the expression "in cases other than".

+ With the clear language which has been adopted by Parliament while enacting the provisions of Section 54(3), the acceptance of the submission which has been urged on behalf of the assessee would involve a judicial re-writing of the provision which is impermissible in law. Reading the expression 'input' to cover input goods and input services would lead to recognising an entitlement to refund, beyond what was contemplated by Parliament.

+ Refund is a matter of a statutory prescription. Parliament was within its legislative authority in determining whether refunds should be allowed of unutilised ITC tracing its origin both to input goods and input services or, as it has legislated, input goods alone.

+ While recognising an entitlement to refund, it is open to the legislature to define the circumstances in which a refund can be claimed. The proviso to Section 54(3) is not a condition of eligibility but a restriction which must govern the grant of refund under Section 54(3).

+ The precedents of this Court provide abundant justification for the fundamental principle that a discriminatory provision under tax legislation is not per se invalid. A cause of invalidity arises where equals are treated as unequally and un-equals are treated as equals. Both under the Constitution and the CGST Act, goods and services and input goods and input services are not treated as one and the same and they are distinct species.

+ When there is neither a constitutional guarantee nor a statutory entitlement to refund, the submission that goods and services must necessarily be treated at par on a matter of a refund of unutilized ITC cannot be accepted. Such an interpretation, if carried to its logical conclusion would involve unforeseen consequences, circumscribing the legislative discretion of Parliament to fashion the rate of tax, concessions and exemptions.

+ If the judiciary were to do so, it would run the risk of encroaching upon legislative choices, and on policy decisions which are the prerogative of the executive.

+ Bench is unable to accept the challenge to the constitutional validity of s.54(3) of the Act, 2017.

+ It may be true that in certain specific statutory provisions, the Act recognizes, by using the expression 'prescribes', that rules may be framed for that purpose. But the converse cannot be assumed inferentially, by presuming that in other areas, recourse to the rule making power cannot be taken.

+ The rules may interstitially fill-up gaps which are unattended in the main legislation or introduce provisions for implementing the legislation. So long as the authority which frames the rules has not transgressed a provision of the statute, it cannot be deprived of its authority to exercise the rule making power.

+ It is for this reason that the powers under Section 164 are not restricted to only those sections which grant specific authority to frame rules. If such a construction, were to be acceptable, it would render the provisions of Section 164 otiose.

+ Clause (ii) of the first proviso is not merely a condition of eligibility for availing of a refund but a substantive restriction under which a refund of unutilized ITC can be availed of only when the accumulation is relatable to an inverted duty structure, namely the tax on input goods being higher than the rate of tax on output supplies.

+ There is, therefore, no disharmony between Rule 89(5) on the one hand and Section 54(3) particularly Clause (ii) of its first proviso on the other hand.

+ Explanation (a) to Rule 89(5) in defining 'Net ITC' to mean ITC availed on inputs (goods) is, as a matter of fact, entirely in line with the main provision, Section 54(3).

+ ASG, has conceded that certain inadequacies might exist in the formula. The use of such formulae is a familiar terrain in fiscal legislation including delegated legislation under parent norms and is neither untoward nor ultra vires .

+ An anomaly per se cannot result in the invalidation of a fiscal rule which has been framed in exercise of the power of delegated legislation.

+ However, these inequities are to be ironed out by the Government in the course of the application of the formula. This Court should not in the exercise of the power of judicial review allow itself to become a one-time arbiter of any and every anomaly of a fiscal regime despite its meeting the jurisdictional framework for the validity of the legislation, including delegated legislation.

+ In the present case however, the formula is not ambiguous in nature or unworkable, nor is it opposed to the intent of the legislature in granting limited refund on accumulation of unutilised ITC. It is merely the case that the practical effect of the formula might result in certain inequities.

+ The reading down of the formula as proposed by prescribing an order of utilisation would take this Court down the path of recrafting the formula and walk into the shoes of the executive or the legislature, which is impermissible. However, given the anomalies pointed out by the assessees, Bench strongly urges the GST Council to reconsider the formula and take a policy decision regarding the same.

Conclusion

+ Judgment of the Madras High Court [in TRANSTONNELSTROY AFCONS JOINT VENTURE - 2020-TIOL-1599-HC-MAD-GST ] needs to be affirmed by dismissing the appeals challenging that verdict while the appeals against the judgment of the Gujarat High Court [VKC Footsteps -  2020-TIOL-1273-HC-AHM-GST ] by the Union of India should be allowed. [para 62, 69, 70, 75, 81, 85, 92, 94, 103, 106, 107, 111 to 113]

- Appeals by UOI are allowed / Appeals by assessees dismissed: SUPREME COURT OF INDIA

2021-TIOL-1835-HC-MAD-GST

KPN Travels India Ltd Vs DG of GST Intelligence

GST - The appellant is the Managing Director of a Company registered under the Indian Companies Act, 1956, which is engaged in the business of transportation - The appellant sought for issuance of Writ of Certiorari to quash the summons issued by the Department u/s 70 of the CGST Act 2017 - The appellant received a notice from the Assistant Commissioner (SC), Salem stating that there are certain discrepancies in the GST returns in GSTR-3B filed by the appellant for the financial years 2018-19 and 2019-20, while compared with the online service providers returns of the appellant viz., GSTR-8 - The appellant submitted explanation with appropriate details - Meanwhile, the Department conducted a search in the premises of the appellant and the appellant would state that they were harassed and their employees were attacked, which necessitated lodging of a complaint with the police concerned and a case had been registered - The appellant was also issued summons u/s 70 of the CGST Act - The appellant claimed that there were issued in a mechanical manner & that a writ petition seeking stay on such summons had been filed - The appellant further claimed that the Department attached about 14 bank accounts u/s 83 of the CGST Act - These include the accounts of the appellant and other directors in the company - Subsequently, the High Court passed interim directions lifting the attachment, but such direction was later stayed - Taking note of the submission that the appellant's business activity had been crippled, the representation dated 27.01.2021, was directed to be considered and appropriate interim orders shall be passed, if found tenable, considering the lifting of the provisional attachment in respect of a few Bank accounts to enable the appellant to carry on its business activities.

Held - The pleas of the appellant are based on an incorrect understanding of Section 6(2)(b) and Section 70 of the CGST Act 2017 - the words "proceedings" and "inquiry" cannot be mixed up to read as if there is a bar for the respondent to invoke the power under Section 70 of the CGST Act: HC

+ Firstly, we need to take note of whether the State tax authorities and the Central tax authorities enjoy concurrent jurisdiction, the issue of cross-empowerment of the State tax authorities and the Central tax authorities. We have pointed out about the clarification relied on by the Revenue dated 05.10.2018. Thus, the ambiguity with regard to the initiation of enforcement action by the State and the Central authorities has been lingering for quite some time and the matter having been brought to the notice of the GST Council, in its meeting held during January 2017, it was decided that both the Central and State tax administrations have the power to take intelligence-based enforcement action in respect of the entire value chain. Based on such decision of the GST Council, the CBEC issued clarification dated 05.10.2018. Thus, this puts an end to the ambiguity and it is clear from the said clarification that if an intelligence-based enforcement action is taken against a taxpayer, which is assigned to State tax authority, the Central tax authority is entitled to proceed with the matter and take it to the logical conclusions and the same principle is applicable vice versa. This circular was referred to in Siddhi Vinayak Trading Company (supra) and the challenge was rejected by referring to the above clarification issued by the CBEC. (Para 27);

+ We need to take note of the word "inquiry" occurring in Section 70 of the CGST Act and the proper officer has power to summon any person whose attendance he considers necessary to give evidence or to produce a document or any other thing in any inquiry, in the same manner, as provided in the case of a Civil Court. The bar contained under Section 6(2)(b) of the CGST Act is with regard to any proceedings initiated by a proper officer on a subject matter, on the same subject-matter, the proper officer under the Central Act cannot initiate any action referred. (Para 31);

+ In our considered view, the scope of Section 6(2)(b) and Section 70 is different and distinct, as the former deals with any "proceedings on a subject matter/same subject matter" whereas, Section 70 deals with power to summon in an inquiry and therefore, the words "proceedings" and "inquiry" cannot be mixed up to read as if there is a bar for the respondent to invoke the power under Section 70 of the CGST Act. (Para 32);

+ In G.K.Trading Company vs. Union of India reported in - 2021-TIOL-31-HC-ALL-GST , upon considering the scope of Section 6(2)(b) and Section 70, it was pointed out that the word "proceedings" used in Section 6(2)(b) is qualified by the words "subject-matter" which indicate an adjudication process/proceedings on the same cause of action and for the same dispute, which may be proceedings relating to assessment, audit, demands and recovery and offences and penalties etc. It was further pointed out that these proceedings are subsequent to inquiry under Section 70 of the CGST Act and the words "in any inquiry" are referable to the provisions under Chapter XIV viz., Sections 67, 68, 69, 71 and 72. Thus, it was held that the proper officer may invoke power under Section 70 in any inquiry and the prohibition under Section 6(2)(b) shall come into play when any proceeding on the same subject-matter had already been initiated by a proper officer under the State Act. Therefore, the contention raised by the appellant stating that in issuance of summons for conducting an inquiry and to obtain a statement from the appellant cannot be construed to be bar under Section 6(2)(b) of the CGST Act. Thus, the key words occurring in both the provisions viz., "in any inquiry" and "proceedings on the same-subject matter" indicate the crucial difference between these two provisions. (Para 33); there is no ground made out by the appellant for quashing the summons issued by the respondent under Section 70 of the CGST Act: HC

- Writ Appeal dismissed: MADRAS HIGH COURT