Madras HC: GST Refund Claim Cannot Be Denied Based on Retrospective Application of Rule 90(3) Proviso

Discovering that the GST refund claim was filed within 2 years from the “relevant date” as specified in Explanation 2(a) to Section 54(14) of the CGST Act, the Madras High Court clarified that a refund claim cannot be refused based on the retrospective operation of the Proviso to Rule 90(3) of the CGST Rules.

The High Court mentioned the same upon finding that the refund claims filed in the portal on Sep 21, 2018, Oct 09, 2018, and Oct 10, 2018, were within two years from the date of exports made during July 2017, August 2017 and September 2017, in time in terms of Circular No. 79/53/2018-GST.

The Single Bench of Justice C. Saravanan noted that since Rule 90(3) of the CGST Rules, 2017, which deals with “acknowledgement of refund claim,” was inserted with effect from May 18, 2021, vide Notification No.15/2021-CT, the same cannot be provided retrospective effect for refusing refund on unused input tax credit (ITC) claimed within the limitation period.

The bench added that legitimate export incentives are to be granted as long as the provision is influentially complied with.

The observation came in reference to a petition aiming direction to the Joint Commissioner of GST & Central Excise (first respondent) for extension of the advantage of proviso introduced under Rule 90(3) of the CGST Rules, 2017 to exclude the number of days from the date of filing of refund claim to the date of issue of Deficiency Memo for calculation of limitation period.

Rule 90(3) of the CGST Rules, 2017 furnishes for communication in FORM GST RFD-03 (deficiency memo) where imperfections are detected. The said sub-rule furnishes that once the deficiency memo has been issued, then the claimant should file a fresh refund application after the rectification of the deficiencies.

Case Facts

The applicant/taxpayer has submitted the refund claims for the refund of unused ITC on the goods exported/ supplied during July 2017, August 2017, and September 2017, which was rejected on the grounds of limitation under CBIC Circular No.125/44/2019.

The cited order of rejection of refund was validated via the appellate authority citing that the calculation of limitation was to be reckoned from the date of re-presentation of the refund claims on Oct 18, 2019, and was therefore beyond the period of two years from the “relevant date” in terms of Explanation 2(a)(i) to Section 54 of the CGST Act, 2017.

Therefore the applicant has contested Circular No.125/44/2019 dated 18.11.2019 issued by the Central Board of Indirect Taxes and Customs (third respondent), under which it was mentioned that a refund application submitted post rectification of deficiency is treated as a fresh refund application these rectified refund application, filed post-correction of the flaws shall also need to be submitted within 2 years of the relevant date, as described in the explanation after sub-section (14) of section 54 of CGST Act.

Therefore, the Petitioner is aiming a direction to the first respondent to reconsider the refund claim on its merits.

Observations:

It was discovered by the bench that the refund claims for the exports made via the applicant during July 2017, August 2017, and September 2017 were filed during September 2018 and October 2018, in the portal and were therefore prima facie in time, since it was following Circular No.79/53/2018-GST, which was vague.
In this case, the Bench observed that the petitioner had made export of services without tax payment.

“In terms of Section 16(2) of IGST Act, credit of Input Tax may be availed for making Zero Rated Supplies, notwithstanding such supplies may be an exempt supply”, the Bench added.

As the petitioner has affected Zero Rated Supplies within the meaning of Section 16(1) of IGST Act, 2017, the Bench noted that the “relevant date” during the period in dispute shall be 2 years from the end of the “tax period”.

“As per Sub-Clause 3 to Section 16 of IGST Act, a registered person making Zero Rated Supply shall be eligible to claim refund of unutilized Input Tax Credit on supply of goods or services or both, without payment of integrated tax, under bond or Letter of Undertaking, in accordance with the provisions of Section 54 of CGST Act or the rules made thereunder, subject to such conditions, safeguards and procedures as may be prescribed”, the Bench cited.

Justice Saravanan went on to justify that amendment to Explanation 2(e) to Section 54 of CGST Act, 2017 with effect from Feb 01, 2019, vide Notification No.02/2019-CT, under CGST Amendment Act, 2018 (31/2018) dated Aug 30, 2018, was intended to explain that “the period of limitation fora refund of utilized Input Tax Credit in the case of a refund of unutilized Input Tax Credit under clause (ii) of the first Proviso to sub-section (3), the due date for furnishing of return under section 39 for the period in which such claim for refund arises”.

Read Also: Madras HC: GST Refund Must be Examine on Documents Related to ITC Availing & Zero-Rated Products Exporting

As the refund claim was submitted within two years from the “relevant date” as described in Explanation 2(a) to Section 54(14) of CGST Act as it stood during the period in dispute, the Bench explained that the amendment to Clause 2(e) to Section 54(14) of CGST Act vide Notification No.02/2019-CT is not appropriate for the calculation of limitation.

Hence, the High Court authorized the petition, observing that the refund claims were filed within 1 year and a few months, and therefore, the Order of the Appellate Commissioner affirming the Order of the Lower Authority rejecting the refund claim is not sustainable.