Bmg Informatics PVT LTD vs. The Union Of INDIA And 3 Ors

Held

The Court held that the Assistant Commissioner's rejection of the refund claim based on paragraph 3.2 of Circular No. 135/05/2020-GST was unsustainable because statutory provisions, like Section 54(3)(ii) of the CGST Act, 2017, prevail over conflicting administrative circulars. The Court noted that the circular's interpretation that refund is not available when input and output supplies are the same, despite attracting different tax rates, contradicts the clear wording of Section 54(3)(ii). The Court also found the Joint Commissioner (Appeals)'s order unsustainable. While the appellate authority correctly identified a violation of natural justice, it erred by directing a refund without a proper factual inquiry into whether the tax rate on input supplies was indeed higher than on output supplies, as required by Section 54(3)(ii). Consequently, both the order of the Assistant Commissioner and the order of the Joint Commissioner (Appeals) were set aside. The matter was remanded back to the Assistant Commissioner to re-examine the refund claim afresh, making a factual determination on the input and output tax rates and passing a reasoned order accordingly within six weeks.

Facts

BMG Informatics Pvt. Ltd. (the assessee) filed a refund claim under FORM-GST-RFD-02 for the period October-December 2018. The Assistant Commissioner, CGST, Guwahati, issued a show-cause notice alleging mis-declaration of turnover. The assessee replied, but their refund claim of Rs. 3,92,594/- was rejected by the Assistant Commissioner's order dated May 22, 2020. The rejection was based on the reasoning that the input and output supplies being the same, even if attracting different tax rates, did not fall under Section 54(3)(ii) of the CGST Act, 2017, citing Circular No. 135/05/2020-GST. The assessee appealed, and the Joint Commissioner (Appeals) reversed the rejection order on November 6, 2020, solely on the grounds of violation of natural justice as the issue was not in the show-cause notice.

Key Issues

1. Whether the rejection of the refund claim by the Assistant Commissioner, based on paragraph 3.2 of Circular No. 135/05/2020-GST, is sustainable in law when it conflicts with Section 54(3)(ii) of the CGST Act, 2017? - Petitioner's argument: The petitioner contended that the Assistant Commissioner's order, relying on a circular that contradicts the statutory provisions of Section 54(3)(ii) of the CGST Act, 2017, is unsustainable. They argued that statutory provisions prevail over administrative circulars. - Revenue's argument: The revenue's argument, as reflected in the Assistant Commissioner's order, was that the input and output supplies being the same, even with different tax rates, does not qualify for refund under Section 54(3)(ii) as per the circular. 2. Whether the order of the Joint Commissioner (Appeals) setting aside the Assistant Commissioner's order solely on the ground of violation of natural justice, without examining the merits of the refund claim under Section 54(3)(ii), is sustainable? - Petitioner's argument: The petitioner argued that the appellate order, while correctly identifying a procedural flaw, erred in directing a refund without a proper factual determination of whether the tax rate on input supplies was higher than on output supplies. - Revenue's argument: The revenue, in essence, supported the need for a proper factual determination, implicitly challenging the appellate order's sufficiency.