NOVEMBER 15, 2022

By CA Raghav Rathi

DEPARTMENT has recently issued Circular No. 181/13/2022-GST dt. 10.11.2022 to clarify the following two issues:

(a) Clarification as to formulae amended under Rule 89(5) w.e.f. 05.07.2022.

++ Since amendment in formulae of refund under inverted duty structure (i.e., under rule 89(5) of the CGST Rules, 2017), an ambiguity persists as to whether the said formulae would be applicable for all the refund applications filed after 05.07.2022 (irrespective of the tax period), or refund application filed before 05.07.2022 but pending with the department, or refund application filed for the tax period post 05.07.2022. The said ambiguity has been clarified to a certain extent vide said circular as to the date of applicability of the said formulae.

The aforesaid Circular, Clause 2, Sr.no.1 of the table has discussed two scenarios in relation to amendment under Rule 89(5):

i) Whether the amended formulae would be applicable for the refund application filed before 05.07.2022 and pending with the department? or

ii) Whether the amended formulae would be applicable for all the new refund application filed post 05.07.2022?

That the circular has specifically clarified that the amendment made to Rule 89(5) should be seen to have prospective effect and all the refunds applications post 05.07.2022 should be dealt with in terms of the new formulae. For the refund application already pending with the department, the same should be dealt in accordance with the formulae subsisting before amendment.

Clarification against Sr.no. 1 of clause 2 of the table has not specifically identified or clarified whether the said formulae would be applicable only for the refund filed for tax period post 05.07.2022.

However, the following wordings of the circular (reproduced below) is of importance -

"The said amendment is not clarificatory in nature and is applicable prospectively with effect from 05.07.2022. Accordingly, it is clarified that the said amended formula under sub-rule (5) of rule 89 of the CGST Rules, 2017 for calculation of refund of input tax credit on account of inverted duty structure would be applicable in respect of refund applications filed on or after 05.07.2022. The refund applications filed before 05.07.2022 will be dealt as per the formula as it existed before the amendment made vide Notification No. 14/2022-Central Tax dated 05.07.2022."

Emphasis Supplied

It can, therefore, be inferred that the new refund formulae is applicable for all the refunds applications filed post 05.07.2022 (irrespective of the tax period). No differentiation is made for the refunds filed for the tax period prior to 05.07.2022 and post 05.07.2022. It is simply stated that all the refunds filed post 05.07.2022 has to be in accordance to the amended formulae.

Moreover, the said clarification is in accordance with the settled legal principles that rules framed are procedural in nature and the procedural requirements cannot restrict the benefits that gets accrued by legislation. Reliance may also be placed on the Judgement passed by Hon'ble High Court of Andhra Pradesh in the matter of M/s SEMBCORP ENERGY INDIA LTD reported at 2022-TIOL-1258-HC-AP-GST.

(b) Clarification as to refunds barred for goods falling under chapter 15 and 27.

++ GOI vide notification no. 09/2022-CT(Rate) dt. 13.07.2022 has barred the refunds under inverted duty structure for the goods falling under chapter 15 and 27 w.e.f. 18.07.2022. The ambiguity as to the applicability of the said notification was persistent.

The circular [Sr.no. 2 of clause 2 refers] in the aforesaid matter has raised and discussed the following three issues:

i) Whether the notification restricts all the refund applications filed and pending with the department as on 18.07.2022? or

ii) Whether the notification restricts filing of any refund application post 18.07.2022? or

iii) Whether the notification restricts refund for prospective tax period from 18.07.2022?

However, the circular in a very generalized manner, even after raising specific question, clarifies that the refunds filed before 18.07.2022 may be sanctioned however, refunds filed post 18.07.2022 may be restricted.

The operative part of the circular is as follows:

"The restriction imposed vide Notification No. 09/2022-Central Tax (Rate) dated 13.07.2022 on refund of unutilised input tax credit on account of inverted duty structure in case of specified goods falling under chapter 15 and 27 would apply prospectively only. Accordingly, it is clarified that the restriction imposed by the said notification would be applicable in respect of all refund applications filed on or after 18.07.2022, and would not apply to the refund applications filed before 18.07.2022"

Emphasis Supplied

The said clarification is without any substance insofar as supplies effected prior to 18.07.2022 for which the refund has not been filed but could have been filed within the time limit prescribed under section 54(1) of the CGST Act, 2017. It is well settled law that merely not exercising the right accrued does not vitiate the rights. Reliance can be placed on the Judgement passed by Hon'ble Madras High Court in the case of JENEFA INDIA reported at 2021-TIOL-2119-HC-MAD-GST and by Hon'ble Delhi High Court in the case of PITAMBRA BOOKS PVT. LTD. reported at 2020-TIOL-206-HC-DEL-GST.

Therefore, in the author's opinion, the circular restricting the exercising of rights accrued prior to 18.07.2022 is not in accordance to law and requests the CBIC for appropriate re-consideration of the said clause 2, Sr.no.2.

[The views expressed are strictly personal.]