Snehal Upadhyay-

Published on: September 14, 2021 at 11:31 IST

The Supreme Court agreed with Madras High Court’s judgement which upheld the fiscal formula which was included in the Central Goods and Service Tax Rules to execute refund of unutilized Input Tax Credit (ITC) added on account of input services.

The Division Bench of Supreme Court comprising Justice D.Y. Chandrachud and Justice M.R Shah pronounced the judgement in between two contradicting judgements of Gujrat High Court and Madras High Court on the validation of Rule 89(5) of the Central Goods and Service Tax Rules, 2017.

Rule 89(5) of the Central Goods and Service Tax Rules, 2017 mentions a formula for the refund of ITC in “A case of refund on account of inverted duty structure”.

The Gujarat High Court in its judgement stated that “By prescribing a formula in sub-Rule (5) of Rule 89 of the CGST Rules to execute refund of unutilised ITC accumulated on account of input services, the delegate of the legislature had acted contrary to the provisions of sub-Section (3) of Section 54 of the CGST Act which provides for a claim of refund of any unutilised ITC.”

Whereas, the Madras High Court, while pronouncing its judgment in the case of Tvl. Transtonnelstory Afcons Joint Venture refused to follow the judgement given by the Gujarat High Court.

Madras High Court stated that “Section 54(3)(ii) does not infringe Article 14 (right to equality). Refund is a statutory right and the extension of the benefit of refund only to the unutilised credit that accumulates on account of the rate of tax on input goods being higher than the rate of tax on output supplies by excluding unutilised input tax credit that accumulated on account of input services is a valid classification and a valid exercise of legislative power.”

When the matter in dispute reached the Apex Court, the Court agreed with the Madras High Court’s judgment and stated that “We strongly urge the GST Council to reconsider the formula and take a policy decision regarding the same.”

Also Read: What is the Taxation Laws Amendment Bill, 2021?

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