InW.P. (C) 9908/2021 -DEL HC-Delhi High Court rules that amended Rule 89(4)(C) of CGST Rules cannot be applied retrospectively
Justice Vibhu Bakhru & Justice Amit Mahajan [15-09-2023]

Read Order:M/s. Indian Herbal Store Pvt. Ltd. V. Union of India &Ors.

Chahat Varma

New Delhi, October 11, 2023: The Delhi High Court has provided relief to M/s. Indian Herbal Store Pvt. Ltd. (petitioner) in a case concerning the refund of accumulated Input Tax Credit (ITC) for exports made before the amendment to Rule 89(4)(C) of the Central Goods and Services Tax Rules(CGSTRules), 2017. The Court determined that the amendment could not be retroactively applied and that ITC should be computed in accordance with the rules that were in effect during the export period.

Briefly stated, in the said case, the petitioner's claim for a refund related to the period from 01.10.2018 to 30.09.2019. The petitioner had filed four separate applications for each of the four quarters, and these applications were rejected through four separate orders. The rejection of the petitioner's refund claim was primarily based on two grounds. First, it was because the petitioner had not produced the relevant Foreign Inward Remittance Certificates (FIRCs) and correlated them with the exports made. Second, it was due to the computation of the eligible export turnover not being compliant with Rule 89(4)(C) of the Rules. The petitioner succeeded in addressing the issue regarding non-submission of the FIRCs. However, the Appellate Authority upheld the refund rejection orders on the grounds that the export turnovers for the relevant tax period were not compliant with Rule 89(4)(C) of the Rules.

The division bench comprising of Justice Vibhu Bakhru and Justice Amit Mahajan acknowledged that there was no dispute over the fact that the amended Sub-rule (4) of Rule 89 of the Rules had prospective application, beginning from 23.03.2020.

The bench highlighted that it's crucial to recognize that, according to Sub-clause (a) of Clause (2) of the Explanation to Section 54(1) of the CGST Act, the time limit for applying for a refund related to the export of goods and/or services is calculated from the date when the goods and/or services are exported.

The bench also held that the term 'turnover' should be interpreted in the context of the specific period it pertains to. It should be understood as referring to the period during which the turnover is generated, which is the date of supply. Consequently, it logically follows that the ITC associated with the turnover of a specific period must, unless explicitly or implicitly indicated otherwise, be calculated in accordance with the rules in effect during that specific period.

In light of this perspective, the bench determined that the appellate authority had made a mistake by applying Rule 89(4)(C) of the Rules, as amended with effect from 23.03.2020, to calculate the export turnover for the purpose of determining the petitioner's refund. Therefore, it was decided that the petitioner's request for a refund of the accumulated ITC related to its exports during the period from 01.10.2018 to 30.09.2019, should be granted.

The court additionally emphasized that the amendment to Rule 89(4)(C) of the Rules had been struck down by the Karnataka High Court in the case of M/s Tonbo Imaging India Pvt. Ltd. v. Union of India [LQ/KarHC/2023/857]. Consequently, as of the present date, the amended provision no longer existed.