M/S Nahar Industrial Enterprises Limited vs. Union Of INDIA

Held

The Court held that the rejection of refund claims by the authorities was legally unsustainable. It found that the authorities had misinterpreted the statutory scheme of Section 54(3) of the CGST Act, 2017, and Rule 89(5) of the CGST Rules, 2017. The Court reasoned that the accumulation of unutilised input tax credit due to an inverted duty structure, where input tax rates are higher than output tax rates, is a valid ground for refund. The Court rejected the revenue's argument that the stock of inputs during the claim period was a determining factor, stating that Rule 89(5) focuses on output turnover and the quantum of ITC content, not the stock. The Court also noted that while Circulars 79/53/2018-GST and 125/44/2019-GST address the inverted duty structure, the specific computation for multiple outputs was not detailed. The Court decided to set aside the impugned orders and directed the Adjudicating Authority to reconsider the refund claims afresh, applying the law as interpreted by the Court. The Court clarified that if there is no accumulation of unutilised input tax credit, no refund would arise.

Facts

The petitioner, M/s Nahar Industrial Enterprises Limited, filed multiple writ petitions challenging orders passed by the Additional Commissioner (Appeals), Central Goods and Services Tax, Jaipur. These orders disposed of the petitioner's appeals against the rejection of its claims for refund of unutilised input tax credit. The petitioner is engaged in manufacturing textiles, including spinning, weaving, and processing, using various raw materials with GST rates ranging from 5% to 28%. The core of the dispute revolves around the rejection of refund claims for unutilised input tax credit accumulated due to the inverted duty structure, where input tax rates were higher than output tax rates.

Key Issues

1. Whether the rejection of refund claims for unutilised input tax credit, based on the premise that the overall rate of inputs is marginally higher than the rate of output supplies, is legally sustainable under Section 54(3) of the CGST Act, 2017, read with Rule 89(5) of the CGST Rules, 2017? Petitioner's contention: The petitioner argued that the accumulation of unutilised input tax credit due to an inverted duty structure, where input tax rates exceed output tax rates, clearly falls within the ambit of Section 54(3) of the CGST Act, 2017. They contended that the authorities erred by focusing on individual input values and stock rather than the statutory scheme. The petitioner relied on Circular No. 79/53/2018-GST and Circular No. 125/44/2019-GST, which acknowledge the inverted duty structure principle. Revenue's contention: The respondents argued that in certain tax periods, there was no accumulation of unutilised input tax credit, and therefore, no refund was due. They also based their rejection on the ground that high input purchases in stock during the claim period led to the accumulation.