Federatio Of Gujarat Weavers Welfare Association vs. Union Of INDIA

Held

The Court held that the respondents do not have the power under Section 54(3) of the CGST Act to provide for the lapsing of accumulated unutilized ITC. The Court reasoned that Section 54(3) of the CGST Act empowers the Central Government to notify goods and services in respect of which a refund of accumulated ITC is not to be granted on account of the rate of tax on inputs being higher than the rate of tax on output supplies. However, it does not confer any power to provide for the lapsing of such accumulated ITC. The Court noted that the CGST Act itself contains specific provisions for the lapsing of ITC (Sections 17(4) and 18(4)), indicating that such a consequence would be expressly provided for if intended. The Court found that the impugned Notification No. 20/2018-Central Tax (Rate) dated July 26, 2018, which inserted proviso (ii) into Notification No. 5/2017-Central Tax (Rate), prescribing the lapsing of accumulated ITC, exceeded the delegated power conferred by Section 54(3)(ii) of the CGST Act. Therefore, proviso (ii) of the opening paragraph of Notification No. 05/2017-C.T. (Rate) dated June 28, 2017, as inserted by Notification No. 20/2018-C.T. (Rate) dated July 26, 2018, was declared ex-facie invalid and liable to be struck down. The Court did not expressly leave any issue undecided.

Facts

The petitioners, Shabnam Petrofils Pvt. Ltd. and a federation of Gujarat Weavers Welfare Association and others, challenged Notification No. 20/2018-Central Tax (Rate) dated July 26, 2018, and Circular No. 56/30/2018-GST dated August 24, 2018. These notifications amended Notification No. 5/2017-Central Tax (Rate) dated June 28, 2017, and effectively provided that accumulated input tax credit (ITC) on inward supplies received up to July 31, 2018, on which tax was paid, would lapse after that date. The petitioners argued that this provision for lapsing of ITC was contrary to Section 54(3) of the Central Goods and Services Tax Act, 2017, and violated Articles 14 and 19(1)(g) of the Constitution. The amount in dispute pertains to unutilized ITC accumulated due to an inverted tax structure.

Key Issues

1. Whether the respondents have the power under Section 54(3) of the CGST Act to provide for the lapsing of accumulated unutilized Input Tax Credit (ITC) as of July 31, 2018. Petitioner's arguments: The petitioners contended that Section 54(3) of the CGST Act only empowers the government to notify goods and services not eligible for refund of ITC accumulated due to an inverted tax structure. They argued that the power to lapse ITC does not inherently flow from the power to deny refund. They asserted that ITC, once validly taken, is an indefeasible right, citing Supreme Court decisions in Collector of Central Excise, Pune v. Dai Ichi Karnataka Ltd. and Eicher Motors Ltd. v. Union of India, and a Gujarat High Court decision in Baroda Rayon Corporation Limited. They further argued that the CGST Act itself provides for lapsing of ITC in Sections 17(4) and 18(4), indicating that such a provision would be expressly stated if intended. They maintained that the impugned notification, by prescribing the lapsing of ITC, exceeded the delegated power under Section 54(3)(ii) of the CGST Act and was thus invalid. Revenue's arguments: The revenue argued that the legislative power to provide for lapsing of ITC inherently flows from the power to deny refund of ITC accumulated on account of an inverted rate structure, as clarified by Circular No. 56/30/2018-GST.