Supreme court upholds the validity of section 54(3) of CGST Act and held that refund for unutilized input tax credit cannot be claimed on account of input services.
Section 54 of the CGST Act, 2017 — Refund — Input Services—The appellant department challenged the judgment dated 24 July 2020 of the Division Bench of the Gujarat High Court, wherein it was held that Explanation (a) to Rule 89(5) which denies the refund of unutilised input tax paid on “input services” as part of “input tax credit” accumulated on account of inverted duty structure is ultra vires the provision of Section 54(3) of the Act, 2017. By its judgment dated 21 September 2020, in Tvl. Transtonnelstroy Afcons Joint Venture v. Union of India and connected cases the Division Bench of the Madras High Court came to a contrary conclusion. The court observed that Refund is a matter of a statutory prescription and Parliament was within its legislative authority in determining whether refunds should be allowed of unutilised ITC tracing its origin both to input goods and input services or, as it has legislated, input goods alone. The proviso to Section 54(3) is not a condition of eligibility but a restriction which must govern the grant of refund under Section 54(3). The court observed that the Gujarat High Court held that by prescribing a formula in sub-Rule (5) of Rule 89 of the CGST Rules to execute refund of unutilized 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 Act which provides for a claim of refund of any unutilized ITC. The Division Bench of the Madras High Court on the other hand while delivering its judgment in Tvl. Transtonnelstory Afcons Joint Venture declined to follow the view of the Gujarat High Court noting that the proviso to Section 54(3) and, more significantly, its implications do not appear to have been taken into consideration.
Held that—The Hon’ble Supreme Court held that the appeals filed by the Union of India against the judgment of the Gujarat High Court dated 4 July 2020 are allowed and the judgment shall be set aside. The appeals filed by the assessees against the judgment of the Madras High Court in Tvl. Transtonnelstroy Afcons Joint Venture and connected cases dated 21 September 2020 shall stand dismissed. The observations in paragraphs 104 to 111 shall be considered by the GST Council to enable it to take a considered view in accordance with law.
Supreme court upholds the validity of section 54(3) of CGST Act and held that refund for unutilized input tax credit cannot be claimed on account of input services.
Section 54 of the CGST Act, 2017 — Refund — Input Services—The appellant department challenged the judgment dated 24 July 2020 of the Division Bench of the Gujarat High Court, wherein it was held that Explanation (a) to Rule 89(5) which denies the refund of unutilised input tax paid on “input services” as part of “input tax credit” accumulated on account of inverted duty structure is ultra vires the provision of Section 54(3) of the Act, 2017. By its judgment dated 21 September 2020, in Tvl. Transtonnelstroy Afcons Joint Venture v. Union of India and connected cases the Division Bench of the Madras High Court came to a contrary conclusion. The court observed that Refund is a matter of a statutory prescription and Parliament was within its legislative authority in determining whether refunds should be allowed of unutilised ITC tracing its origin both to input goods and input services or, as it has legislated, input goods alone. The proviso to Section 54(3) is not a condition of eligibility but a restriction which must govern the grant of refund under Section 54(3). The court observed that the Gujarat High Court held that by prescribing a formula in sub-Rule (5) of Rule 89 of the CGST Rules to execute refund of unutilized 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 Act which provides for a claim of refund of any unutilized ITC. The Division Bench of the Madras High Court on the other hand while delivering its judgment in Tvl. Transtonnelstory Afcons Joint Venture declined to follow the view of the Gujarat High Court noting that the proviso to Section 54(3) and, more significantly, its implications do not appear to have been taken into consideration.
Held that—The Hon’ble Supreme Court held that the appeals filed by the Union of India against the judgment of the Gujarat High Court dated 4 July 2020 are allowed and the judgment shall be set aside. The appeals filed by the assessees against the judgment of the Madras High Court in Tvl. Transtonnelstroy Afcons Joint Venture and connected cases dated 21 September 2020 shall stand dismissed. The observations in paragraphs 104 to 111 shall be considered by the GST Council to enable it to take a considered view in accordance with law.