Refund of unutilized ITC even in respect of “input services
VKC Footsteps India Pvt Ltd Vs UoI
• GST – Petitioner is engaged in the business of manufacture and supply of footwear which attracts GST @5% and the majority of the inputs and input services procured by them attract GST @12% or 18% – inspite of utilisation of credit for payment of GST on outward supply, there is accumulation of unutilized credit in electronic credit ledger – Respondents are allowing refund of accumulated credit of tax paid on inputs such as synthetic leather, PU polyol etc. but refund of accumulated credit of tax paid on procurement of ‘input services’ such as job work service, goods transport agency service
etc. is being denied – petitioners have, therefore, challenged validity
of amended rule 89(5) of the CGST Rules, 2017 to the extent it
denies refund of input tax credit relatable to Input services.
Hon’ble Gujarat High Court Held : It appears that rule 89(5) of the Rules and more particularly the explanation (a) thereof, provides that Net Input Tax Credit 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-rule (4A) or (4B) or both – therefore, the grievance of the petitioner is that only the “inputs” is referred to in Explanation (a) to sub-rule (5) of Rule 89 of the CGST Rules, 2017 and, therefore, “Input Tax Credit” on “Input services” are not eligible for calculation of the amount of refund by applying
rule 89(5) –
Thus, it results in violation of provisions of sub-section 3 of Section 54 of the CGST Act, 2017 which entitles any registered person to claim refund of “any” unutilized input tax credit – section 7 of the Act provides that “scope of supply” includes all forms of supply of goods or services, therefore, for the purpose of calculation of refund of accumulated “input tax credit” of “input services” and “capital goods” arising on account of inverted duty structure is not included into “inputs” which is explained by the Circular 79/53/2018-GST dated 31.12.2018 wherein it is stated that the intent of law is not to allow refund of tax paid on “input services” as part of unutilised “input tax credit” –
…..… Therefore, as per provision of sub-section 3 of Section 54 of the CGST Act, 2017, the legislature has provided that registered person may claim refund of “any unutilised input tax”, therefore, by way of Rule 89(5)of the CGST Rules, 2017, such claim of the refund cannot be restricted only to “input” excluding the “input services” from the purview of “Input tax
……….the intent of the Government by framing the Rule restricting the statutory provision cannot be the intent of law as interpreted in the Circular No.79/53/2018GST dated 31.12.2018 to deny the registered person refund of tax paid on “input services’ as part of refund of unutilised input tax
Explanation (a) of Rule 89(5) of the Rules is held to be contrary to the provisions of section 54(3) of the Act –
• Net ITC should mean “input tax credit” availed on “inputs” and “input services” as defined under the Act – Respondents are directed to allow the claim of the refund made by the petitioners considering the unutilised input tax credit of “input services” as part of the “net input tax credit” (Net ITC) for the purpose of calculation of the refund of the claim as per rule 89(5) of the Rules for claiming refund under sub-section 3 of section 54 of the Act – Petitions are allowed.