Page 29 - GSTL_20th August 2020_Vol 39_Part 3

2020 ] REFUND ON ACCOUNT OF INVERTED DUTY STRUCTURE J61
Intention of the Legislature was to provide common level field for the goods and
services, however the restriction on the accumulated credit of the input tax on inputs is
not in line with the Statement of Objects and Reasons of Goods and Services Tax Bill.
In certain cases as the refund is not utilized for the unutilized credit on input
services, the taxable person would be bound to consider such input tax credit on services
as the cost of the product to be supplied. Ordinarily the credit of the input tax which is
allowed does not form part of the cost of the product but once the assessee is of the view
that the credit of the input tax would not be utilized in the near future, he would be
bound to consider it as cost. This would have a cascading effect on the product to be sup-
plied.
Hon’ble High Court of Gujarat in case of Shree Rama Newsprint Limited v. Un-
ion of India [2018 (17) G.S.T.L. 592 (Guj.)] - Petitioner made a plea that Rule 89(5) of
the Central Goods and Services Tax Rules, 2017 as amended vide Notification No.
21/2018-C.T., dated 18-4-2018 and Notification No. 26/2018-C.T., dated 13-6-2018 to
the extent that the said provision denies grant of refund of unutilized tax credit in respect
of tax paid on input services is ultra vires to the Constitution of India. Matter is pending
for further hearing.
Writ petition has been filed before High Court of Gujarat by Adani Wilmar Ltd.
as reported in TOG-561-HC-GUJ-GST-2019. Petitioner raised the plea that Rule 89(5)
denies grant of the refund of the unutilized tax credit in respect of the tax paid on input
services is ultra vires to the Constitution of India and provisions of the Central Goods
and Services Tax Act, 2017. Matter is pending for further hearing.
Hon’ble High Court of Gujarat in case of The Quarry Owners Association v.
Union of India on 25 July, 2019 [2020 (37) G.S.T.L. J76 (Guj.)] - Petition plea that Rule
89(5) of the Central Goods and Services Tax Rules, 2017 as amended vide Notification
No. 21/2018-C.T., dated 18-4-2018 and Notification No. 26/2018-C.T., dated 13-6-2018
to the extent that the said provision denies grant of refund of unutilized tax credit in re-
spect of tax paid on input services is ultra vires to the Constitution of India and provi-
sions of the Central Goods and Services Tax Act, 2017.
In an application filed before AAR under GST, Maharashtra by DAEWOO-
TPLjV - 2019 (27) G.S.T.L. 446 (A.A.R. - GST) - Whenever the Section 54 is to be ap-
plied, it has to be applied only in accordance with the Rule 89 of CGST Rules, 2017 as
amended from time to time. The significance and the necessity of subordinate legislation
become a component of legislation. We do not see anything in Rule 89 of the CGST
Rules, 2017, as amended by the Notifications 21 and 26 of 2018, that overrides Section
54 of the CGST Act, 2017 and they have to be read together harmoniously while granting
refunds. Both the Notification No. 21/2018-C.T. (Rate), dated April 18, 2018 and Notifi-
cation No. 26/2018-C.T., dated 13-6-2018 do apply to the applicant which prescribe the
method for carrying out provisions of Section 54(3) of the CGST Act, 2017 and therefore
do not allow refund of ITC availed on input services (and remaining unutilized) in whole
or part thereof, in view of the definition of ‘input’ contained in the sub-section (59) of
Section 2 of the GST Act, 2017 and the definition of ‘Net ITC’ contained in the Notifica-
tion No. 26/2018-C.T., dated 13-6-2018.
Input Tax Credit on inputs to be first adjusted with output tax
Rule 89(5) of CGST Rules, 2017
Maximum Refund Amount = {(Turnover of inverted rated supply of goods
and services) x Net ITC ÷ Adjusted Total Turnover} - tax payable on such
inverted rated supply of goods and services.

GST LAW TIMES  20th August 2020  29