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2023 (4) TMI 46 - HC - GSTConstitutional Validity of provision of Rule 89(4) (C) of the CGST Rules, as amended vide Para 8 of Notification 16/2020-CT dated 23.03.2020 and Explanation to Rule 93 of the CGST Rule - refund of unutilized input tax credit - zero rated supply of goods - HELD THAT:- The entire concept of refund of unutilized input tax credit relating to zero-rated supply would be obliterated in case the respondents are permitted to put any limitation and condition that takes away petitioner’s right to claim refund of all the taxes paid on the domestic purchases used for the purpose of zero-rated supplies. The incentive given to the exporters would lose its meaning and this would cause grave hardship to the exporters, who are earning valuable foreign exchange for the country. It should be noted that exporters would have factored in such incentives in the pricing mechanism when they quote and therefore, the restriction of the same would be highly unreasonable, given the objective of the Government that exports should be zero rated and taxes should not be exported - It is also well settled that if the government perceives that there could be a possibility of abuse of a provision, it should adopt measures to keep a check on the same; however, the law cannot be amended on the premise of distrust. It is also relevant to note that in the GST Council Meeting, it was stated that the FOB value of exports will not be changed, which would mean that there is no doubt about the valuation of the goods; therefore, if there is no doubt about the value of the goods, the artificial restriction of refunds by taking the value of domestic supplies seems irrational. Further, the policy of the Government itself will have to satisfy the test of rationality and must be free from arbitrariness and discrimination. In DEPUTY COMMISSIONER OF INCOME TAX & ANR. VERSUS M/S. PEPSI FOODS LTD. (NOW PEPSICO INDIA HOLDINGS PVT. LTD.) [2021 (4) TMI 369 - SUPREME COURT], the Apex Court held that the expression “permissible” policy of taxation would refer to a policy that is constitutionally permissible. If the policy is itself arbitrary and discriminatory, such policy will have to be struck down. As rightly contended by the learned Senior counsel for the petitioner, the impugned Rule 89(4)(C) is arbitrary and unreasonable, in as much as the possibility of taking undue benefit by inflating the value of the zero-rated supply of goods, cannot be a ground to amend the Rule, which deserves to be declared invalid on this ground also. Thus, the impugned Rule 89(4)(C) of the CGST Rules, 2017 as amended vide Para 8 of the Notification No.16/2020-Central Tax dated 23.03.2020 deserves to be declared ultra vires and invalid and consequently deserves to be quashed - petition allowed.
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