Balkrishna Industries Limited vs. The Union Of INDIA

Held

The Court held that the petitioner was entitled to the refund of Rs. 21,71,74,611/- with statutory interest. The Court reasoned that while the Circular dated 04.09.2018 prescribed a procedure, it could not override the substantive provisions of the CGST Act and Rules. The Court relied on Supreme Court judgments in J.K. Lakshmi Cement Ltd. and Saiyad Mohammad Bakar El-Edroos, reiterating that subordinate legislation or executive instructions cannot prevail over a statute. Non-compliance with the procedure in paragraph 3.2 of the Circular was considered an irregularity, not an illegality, that could not disentitle the petitioner from its substantive right to refund. The Court distinguished between illegality and irregularity, stating that an irregularity, being a minor lapse in procedure, does not have a debilitating effect on substantive rights. Therefore, the order allowing refund only after debiting IGST and the related communication were quashed. The respondents were directed to pay the refund amount of Rs. 21,71,74,611/- with statutory interest within eight weeks.

Facts

The petitioner, Balkrishna Industries Limited, filed a Special Civil Application challenging an order dated 30.06.2020 by the appellate authority (respondent no.3) and a subsequent communication dated 14.07.2020. The petitioner sought a refund of unutilised input tax credit amounting to Rs. 21,71,74,611/- with interest. The petitioner had claimed refund of Rs. 31,58,80,475/- for zero-rated supplies under Section 54(3)(i) of the CGST Act read with Rule 89(4) of the CGST Rules. The Assistant Commissioner (respondent no.4) initially sanctioned only Rs. 9,72,10,984/-, rejecting the balance of Rs. 21,86,69,491/- primarily for not debiting IGST as per paragraph 3.2 of Circular dated 04.09.2018. The appellate authority held the petitioner eligible for the refund of Rs. 21,71,74,611/- but stipulated it be processed after debiting IGST, which the petitioner contested.

Key Issues

1. Whether the petitioner's claim for refund of unutilised input tax credit under Section 54(3)(i) of the CGST Act, 2017, read with Rule 89(4) of the CGST Rules, 2017, is valid despite not debiting the IGST amount in the credit ledger as per paragraph 3.2 of the Circular dated 04.09.2018? (Question of law) Petitioner's arguments: - The petitioner was entitled to the refund as its eligibility was not disputed by the appellate authority. - The petitioner had complied with Rule 89(3) by debiting an amount equal to the refund claim in the credit ledger. - The refund could not be rejected solely for not debiting IGST in the sequence prescribed by the Circular, as the Circular cannot override the Act and Rules. - A deficiency memo should have been issued to allow correction of the debit sequence. - The Circular's procedure cannot override the substantive right to refund granted by the Act and Rules. Revenue's arguments: - The judgment records no specific arguments for the revenue regarding the validity of the refund claim in light of the circular's non-compliance.