2024 (6) TMI 896 - HC - GST

Denial of refund of accumulated Input Tax Credit on account of inverted duty structure - Classification of Spunbonded Polypropylene Bed Sheets under GST - HELD THAT - Upon a thorough examination of the documents presented to the Court and taking into account the arguments put forth by the parties this Court opines that respondent no. 4 inadequately considered various factual elements in its decision-making process. It is firmly established as reiterated by the Supreme Court in Puma Ayurvedic 2006 (3) TMI 141 - SUPREME COURT that the onus of proving a product s classification under a specific tariff heading lies with the revenue authority which must demonstrate that such classification aligns with the understanding of consumers or common parlance. However the respondent authorities have failed to fulfil this burden of proving that the PPSB Bed Sheets manufactured by the petitioner fall under tariff heading 5603 rather than 6304. As established by the Supreme Court in Union of India v. Garware Nylons Ltd 1996 (9) TMI 123 - SUPREME COURT the burden of proof rests with the taxing authorities herein the respondent authorities to substantiate their claims regarding the taxable nature of a particular case or item. Mere assertions in this regard hold no weight. Thus this Court has maintained that there must be tangible evidence to support the appropriate findings which may be presented either orally or through documentation. The order of the appellate authority are quashed and set aside - application disposed off.

Summary

Issues Involved:
1. Classification of Spunbonded Polypropylene Bed Sheets (PPSB Bed Sheets) under the Customs Tariff Act.
2. Refund of accumulated Input Tax Credit (ITC) due to inverted duty structure.
3. Procedural fairness and principles of natural justice in issuing Show Cause Notices.
4. Entitlement to interest on delayed refunds.

Detailed Analysis:

1. Classification of PPSB Bed Sheets:
The core issue revolves around the classification of PPSB Bed Sheets. The petitioner argues that PPSB Bed Sheets should be classified under heading 6304 of the Customs Tariff Act, which pertains to "Miscellaneous Textile Articles," and thus taxed at 5%. The respondents, however, classify them under heading 5603, which pertains to "Non-Wovens," and thus taxed at 12%. The petitioner asserts that PPSB Bed Sheets are a processed form of non-woven fabric, undergoing further processes like cutting and stitching, making them distinct textile articles under heading 6304. The Court found that the respondents failed to provide sufficient evidence to support their classification under heading 5603.

2. Refund of Accumulated ITC Due to Inverted Duty Structure:
The petitioner sought a refund of accumulated ITC amounting to Rs. 39,61,030/- due to the inverted duty structure, where the GST rate on input supplies (PP Granules at 18%) exceeds that on outward supplies (PPSB Bed Sheets at 5%). The refund claim was initially denied by the respondent authorities, who argued that the final products should be classified under Chapter 39 and taxed at 18%. The appellate authority later revised this decision, classifying PPSB Bed Sheets under heading 5603 and taxing them at 12%. The Court quashed this order, noting that the respondents failed to adequately consider the factual elements and the legal principles involved.

3. Procedural Fairness and Principles of Natural Justice:
The petitioner contended that the Show Cause Notices lacked specificity and failed to provide a rationale for questioning the classification, thus violating the principles of natural justice. The Court agreed, noting that the respondents did not provide the petitioner with a fair hearing or sufficient opportunity to present their case. The Court emphasized that the burden of proof lies with the revenue authority to demonstrate the correct classification, which the respondents failed to do.

4. Entitlement to Interest on Delayed Refunds:
The petitioner argued that they are entitled to interest on delayed refunds under Section 56 of the CGST Act, which stipulates that interest accrues if a refund remains undisbursed beyond sixty days from the filing of the refund application. The Court recognized this entitlement, noting that the refunds remained unprocessed throughout the dispute period, and thus, the petitioner is entitled to the refund along with accrued interest.

Conclusion:
The Court quashed the impugned order and directed the appellate authority to reassess the matter de novo, ensuring impartiality and adherence to procedural fairness. The Court highlighted the importance of providing a fair hearing and the burden of proof lying with the revenue authority to substantiate their claims. The petitioner was also recognized as entitled to interest on delayed refunds. All pending applications were disposed of, and no costs were awarded.