TMI Blog2020 (10) TMI 890X X X X Extracts X X X X X X X X Extracts X X X X ..... .2019 Section 54 (3) of the CGST Act provides that refund of any unutilized ITC may be claimed where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies (other than nil rated or fully exempt supplies). Further, Section 2 (59) of the CGST Act defines inputs as any goods other than capital goods used or intended to be used by a supplier in the course or furtherance of business. Thus, inputs do not include services or capital goods. Therefore, clearly, the intent of the law is not to allow refund of tax paid on input services or capital goods as part of refund of unutilized input tax credit. Accordingly, in order to align the CGST Rules with the CGST Act, notification No.26/2018-Central Tax, dated 13.06.2018 was issued wherein it was stated that the term Net ITC, as used in the formula for calculating the maximum refund amount under rule 89 (5) of the CGST Rules, shall mean input tax credit availed on inputs during the relevant period other than the input tax credit availed for which refund is claimed under sub-rules (4A) or (4B) or both. Thus, both the law and the related rules clearly prevent the refund of tax paid o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty as per the facts enumerated below: 2.2 The appellant has filed application for refund claim of GST amounting to ₹ 64,11,146/- (₹ 32,05,573/- CGST +₹ 32,05,573/- SGST) in respect of Inverted Duty Tax Structure for the Tax period of May-2018 on 10.08.2018 and after preliminary scrutiny of the claim,, 90% refund claim amounting to ₹ 57,65,530/- (₹ 28,85,015/- CGST + ₹ 28,80,515/- SGST) had been sanctioned on provisional basis vide RFD-04 No. Refund GST/BEH-E/18/P-059 dated 31.08.2018. 2.3 Further, during the course of detailed scrutiny of documents submitted by the appellant, the adjudicating authority had noticed that the appellant had wrongly taken Net ITC in RFD-01 which included ineligible ITC of Capital Goods (₹ 51,97,848/- and ineligible ITC of Input Services ₹ 1,76,403/-). 2.4 Thus the appellant had shown Net ITC of ₹ 1,20,82,033/- in the RFD-01A for the month of May-2018 which included of ITC availed or Capital Goods and Input Services. Thus, the appellant appeared to have wrongly mentioned the Net ITC in RFD-01A as ₹ 1,20,82,033/-instead of ₹ 67,07,782/- (₹ 1,20,82,33/- - ₹ 53,74,251/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... State/UT Tax Cess 0 Total 0 0 1036895 Thus it appeared that the appellant has suppressed/mis-declared value of Net ITC resulting in excess claim of refund. As per above, the appellant was eligible for refund of ₹ 10,36,895/- {₹ 518448/- CGST +₹ 518447/- SGST} whereas, by mis-declaring the Net ITC, the appellant had claimed the refund of ₹ 64,11,146/- and an amount of ₹ 57,65,530/-[₹ 28,85,015/- CGST ₹ 28,80,515/- SGST] had been sanctioned provisionally vide RFD-04 No. Refund GST/BEH/E/18/P-059 dated 31.08.2018. In view of the above, the appellant appeared to have wrongly filed the refund claim of ₹ 47,28,635/-[₹ 23,66,567/- CGST ₹ 23,62,068/- SGST] by mis-declaring/ suppressing correct value of Net ITC with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of the penalty imposed, subject to the condition that such reduced penalty is also paid within the period so specified. 3. Being aggrieved with the impugned order dated 23.01.2019, the appellant has filed the appeal an the following grounds which are summarized as under:- -that however due to lack of proper understanding of the procedural provisions and rules as applicable for filing of refund under the receipt deemed exports for procurement of capital goods under EPCG, the appellant in a bona-fide belief filed the refund under the inverted duty scheme only as mentioned above. -that against said arbitrary SCN, a crisp reply was submitted wherein it was explained that appellant was eligible for refund under inverted duty structure along with refund under receipt of deemed exports. The only procedural error incurred by the appellant was that two separate refund claims were not filed by them. Hence the same should be considered as principally the appellant is eligible for refund. It was explained that GST is a new law with complicated provisions and thus the allegation of suppression is not correct. The request for dropping penalty along with interest was also made. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been defined for the purpose of Rule as (a) Net ITC shall mean input tax credit availed on inputs during the relevant period other than the input tax credit availed for which refund is claimed under sub-rules (4A) or (4B) or both; and -that the SCN had alleged that inclusion of amount of ITC claimed in capital goods and input services was incorrect in the Net ITC . However, no reason for said observation has been given either in the SCN or in the OIO. -that the claim of refund filed by the appellant in accordance with the provisions of Section 54 of the CGST Act 2017 was correct. To explain the context, the provisions of Section 54 (3) of the CGST Act 2017 are reproduced 3) Subject to the provisions of sub-section (10), a registered person may claim refund of any unutilised input tax credit at the end of any tax period: Provided that no refund of unutilised input tax credit shall be allowed in cases other than-- (i) zero rated supplies made without payment of tax; (ii) where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies (other than nil rated or fully exempt supplies), except su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 54 (3) (ii) allows refund of all those intakes (be it in whatever form i.e. goods of services) which are either used or on which some activity is done to produce the output which is further supplied. The given section has direct nexus with the manufacturing process. Hence it means that where the intake (goods or services) have higher rale of tax than the outward (resulted goods of services), the refund can be claimed under given Section. -that since in the manufacturing process undertaken by, both capital goods and input services are used for manufacturing and supply of output product which has not been questioned that contextually the word inputs used in the Rule 89 (5), has to be understood in context of same and capital goods along with input services should also be included for the purpose of determination of Net ITC. -that since it has been explained above that Section allows the refund of inputs, input services and capital goods under Section 54 (3 (ii) of the Act. However, under the Rule 89 (5), the learned adjudicating authority has wrongly interpreted the word inputs in given case. Hence same needs to be correctly interpreted by way of a circular in this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... OURT it was held by Hon ble CESTAT that Interpretation of statutes - Statutory rules - They cannot go beyond statute - In case of conflict with main enactment, rule has to give way. [paras 26, 27] -that further recently in case of M /s. Voylla fashion Pvt. Ltd. vs. Union of India (Rajasthan High Court); D.B. Civil Writ Petition No. 24375/2018; 31/10/2018 the legal sanctity of Rule 89 (5) has been challenged and notices have been issued to the department. Thus in light of above since matter is sub-judice no order should be passed which shall be prejudicial to the interest of the appellant till the said writ is disposed off. Because without prejudice to above, even if it is assumed that amount of NET ITC for Rule 89(5) under CGST Rules 2017 was incorrect, in such a case, the appellant as eligible for refund for receipts under deemed exports and thus on substantive basis, the refund should be allowed to them. -that during the course of proceedings the appellant has explained that it received the capital goods under EPCG Scheme on which it was entitled to claim the refund under the provisions of receipt under deemed exports . The provisions for same are contained under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dural lapse condonable and refund admissible - Section 93 of Finance Act, 1994. [para 5] -that the allegation of suppression/mis declaration levelled against the appellant is incorrect. All the documents were submitted during course of refund filing and the given demand has been raised on the basis of documents submitted by the appellant. Thus the SCN should not have been issued under Section 74 (1) of the CGST Act 2017 and thus should be dropped. Because the penalty confirmed under Section 122 (2) (b) of the Act is beyond the scope of SCN and hence should be dropped immediately. Since the penalty was proposed under Section 122 (1) of the Act only which has not been confirmed, hence levying a penalty under Section 122 (2) (b) is illegal and should be dropped. In this context, the appellant has also placed various reliance in their defence are as under: -that in case of CCE ST, Belgum vs Swarnagriri Wire Insulation Pvt Ltd reported in 2014 (301) ELT 46 (Kar) = 2014 (5) TMI 640 - KARNATAKA HIGH COURT it was held that Penalty - Imposition of - Permissibility, when no proposal made in the show cause notice HELD : Adjudication order to be confined to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or any wilful misstatement or suppression of facts to evade tax, shall be liable to a penalty equal to ten thousand rupees or the tax due from such person, whichever is higher. 4. Personal hearing in the matter was held on 12.02.2020. Shri Yash Dhadda, Chartered Accountant, on behalf of the appellant has appeared and explained the case in detail. He reiterated the submission already made in their grounds of appeal and also submitted a copy of Annexure-5 in Statement 1A (Rule 89 (2) (h) and requested to decide the case at the earlist. 5. I have carefully gone through the case records and submissions made in the appeal memorandum as well as additional written submission submitted in the Form of Annexure-5 in Statement 1A under Rule 89 (2) (h) of the CGST Rules, 2017 at the time of personal hearing held on 12.02.2020. I find that the adjudicating authority has rejected the refund claim on the ground that the appellant has wrongly taken Net ITC of ₹ 1,20,82,033/- in column 4 of table instead of ITC of ₹ 67,07,782/- ((₹ 1,20,82,033/- ₹ 67,07,782/-) resulting excess claim of refund as mentioned in the table below in RFD-01A for the month of May-2018, which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... As per Rule 89 (5) of CGST Rules, 2017 in the case of refund on account of inverted duty structure, refund of input tax credit shall be granted as per the following formula:- Maximum Refund Amount={(Turnover of inverted rated supply of goods and services) x Net ITC / Adjusted Total Turnover} - tax payable on such Inverted rated supply of goods and services. Explanation :- For the purposes of this sub-rule, the expressions- (a) Net ITC shall mean input tax credit availed on inputs during the relevant period other than the input tax credit availed for which refund is claimed under sub-rules (4A) or (48) or both; and (b) [ Adjusted Total turnover and relevant period shall have the same meaning as assigned to them in sub-rule (4).] Refund of unutilized ITC in case of inverted tax structure, as provided in Section 54 (3) of the CGST Act, 2017 is available where ITC remains unutilized even after setting off of available ITC for the payment of output tax liability. Where there are multiple inputs attracting different rate of tax, in the formula provided in Rule 89 (5) of the CGST Rules, the term Net ITC cover the ITC availed on all inputs in the relevant per ..... X X X X Extracts X X X X X X X X Extracts X X X X
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