InSpecial Civil Application No. 5010 of 2021 -GUJ HC- Gujarat High Court directs GST authorities to refund Rs. 8.06 lakh to Pee Gee Fabrics Private Limited, says authorities adopted pedantic approach in rejecting refund application
Justice Biren Vaishnav & Justice Bhargav D. Karia [15-09-2023]

Read Order:Pee Gee Fabrics Private Limited V. Union of India

Chahat Varma

New Delhi, September 29, 2023: The Gujarat High Court has directed the GST authorities to refund an amount of Rs. 8,06,852 to Pee Gee Fabrics Private Limited (petitioners) in a GST-related dispute.

In this petition, the petitioners had contested the order passed by the Joint Commissioner (Appeals), Ahmedabad, which upheld the decision made by the Deputy Commissioner of Central GST, rejecting the petitioner's refund application, dated 08.08.2019.

Factual matrix of the case was that the petitioner company was registered as a manufacturing service provider in the textile division under the Central Goods and Service Tax Act, 2017. They were engaged in the business of textile manufacturing, starting from raw yarn, and also conducted trading activities involving fabrics. The petitioner company was liable to pay GST at a rate of 5% for the sale of fabrics. In contrast, the raw materials used for fabric production, including yarn, colours and chemicals, stores and consumables, as well as power and fuel, were subject to higher GST rates, ranging from 12% to 28%.The petitioner contended that there was no dispute regarding their entitlement to a refund of Input Tax Credit (ITC) in accordance with Notification No. 20/2018, as well as Circular No. 56/2018, under Rule 89 read with Rule 54(3)(ii) of the Central Goods and Service Tax Rules (CGST Rules). They asserted their right to receive a refund of ITC due to the inverted duty tax structure, amounting to Rs. 22,78,798. However, this amount was proportionally reduced because of the erroneous claim of input tax credit on capital goods made by the petitioner for the year 2017-2018 in August 2018.

The petitioner argued that the authorities should not have rejected their refund application, submitted on 08.08.2019, on the basis that a refund could not be claimed through a second application filed under the ‘Any other’ category, as per Circular No. 94/2019 dated 28.03.2019.Top of Form

On the other hand, the GST authorities argued that the petitioners were not entitled to file a second refund application for the same month, i.e., August 2018, as the refund application they had initially submitted, had already been approved and the refund had been disbursed. It was further contended that the petitioner company had voluntarily reversed the ITC related to capital goods in August 2018. This reversal, which had not been done previously, was considered binding upon the petitioner company. Consequently, the authorities contended that a refund for the reversed ITC on capital goods could not be claimed again under the provision of inverted duty tax structure as outlined in Section 54 of the GST Act.

The division bench of Justice Biren Vaishnav and Justice Bhargav D. Karia observed that the authorities had overlooked the fact that the petitioners were legitimately entitled to ITC in accordance with the inverted duty tax structure, as determined by Rule 89 of the GST Rules. Furthermore, it was noted that the GST Portal had prevented the petitioners from submitting a refund application for the full entitled amount and limited it to Rs. 14,71,946.

The bench noted that the petitioners had been left with no alternative but to submit a second application to claim the remaining balance of the refund amount. It was emphasized that the authorities had failed to take into account that the petitioners had not filed a second refund application for the same month. Instead, they had filed an application to seek the balance amount of the refund that had not been granted, despite the petitioners being eligible for it.

Thus, the court remarked that the authorities had adopted a pedantic approach by rejecting the refund application filed by the petitioners for balance amount of refund of Rs. 8,06,852.

As a result, the authorities were directed to approve the refund of Rs. 8,06,852 in accordance with the refund application submitted by the petitioners on 08.08.2019.