Page 33 - GSTL_ 28th May 2020_Vol 36_Part 4

2020 ] WHETHER REFUND OF ITC ON CAPITAL GOODS IS PERMITTED UNDER THE LAW? J93
substantive provision which provides unconditional absolute rights to registered
person for claiming refund of unutilised input tax credit which includes the in-
put tax credit on capital goods as well. Even Section 54 of CGST Act, 2017 entitles
the person making zero-rated supplies to claim refund of input tax credit on cap-
ital goods.
However, the Rule 89 of CGST Rules, 2017 is overriding Section 16 of
IGST Act and Section 54 of CGST Act, 2017. It is settled law that rules cannot
override the statute and if overrides, the same becomes ultra vires the statutes
and become invalid. The same is held by Apex Court in case of General Officer
Commanding-in-Chief v. Dr. Subhash Chandra Yadav [AIR 1988 SC 876]; Additional
District Magistrate (Rev.) Delhi Administration v. Shri Ram [AIR 2000 SC 2143].
It is worth mention that Government vide Circular No. 18/18/2017-GST,
dated 16-11-2017 clarified that ITC on capital goods is not refundable under LUT
option. It is not known why the Government is not willing to refund the ITC on
capital goods under LUT option alone while granting the refund under other
option (i.e. Zero-rated supplies with payment of IGST). In any case, the clarifica-
tion given in the circular is contrary to the above interpretation of legal provi-
sions thereby it is non est in law as held by the Hon’ble SC in the case of Commis-
sioner v. Ratan Melting and Wire Industries - 2008 (12) S.T.R. 416 (S.C.).
From the above referred provisions, the law does allow getting the re-
fund of input tax credit on capital goods as well. This would also be good trade
policy as the grant of refund on capital goods would increase the competitive-
ness of the Indian goods and services in international market.
_______

[Continued from page J83]

Accordingly, in view of the forgoing paras AAR observes that as the ser-
vice provided by the expat employees to the project office falls under the catego-
ry of “Services by an employee to the employer in the course of or in relation to
his employment”, no GST is leviable on the salary paid to the expat employees
and reflected in the books of account of the project office.
Ruling
In view of aforementioned discussion, the question is answered in nega-
tive.
Conclusion
Thus, from the above cited advance ruling, which clarifies that where
there is Employer-Employee relation exists in that case no GST is leviable on the
salary paid by the employer to the employees and even if reflected in the books
of account.
_______

GST LAW TIMES  28th May 2020  33