Ms Dhirajlal Velji Atha HUF Through Its Authorized Signatory Nalini Kumar vs. The Union Of INDIA Through Its Pr Secretary Ministry Of Finance Deptt Of Revenue

Facts

The petitioner, M/s. Dhirajlal Velji Atha (HUF), filed a writ petition challenging Rule 89(5) of the Central Goods and Services Tax (CGST) Rules, 2017, as originally stood and as amended by Notification No. 26/2018-Central Tax dated June 13, 2018. The petitioner argued that the rule, which restricted the refund of unutilized Input Tax Credit (ITC) by disallowing refund on 'Capital Goods' and 'Input Services' for inverted duty structures, was unconstitutional. The petition also sought to quash the Order-in-Appeal No. 30-31/CGST/JSR/2020 dated October 29, 2020, which dismissed their appeal against the rejection of their refund application for unutilized ITC amounting to Rs. 10,28,542/- for the period July 2017 to September 2017. The petitioner sought a direction to grant the refund.

Held

The Court noted that the petitioner's counsel submitted that the validity of Rule 89(5) of the CGST Rules, 2017, as substituted with effect from July 1, 2017, by notification dated June 13, 2018, had been upheld by the Apex Court in the case of Union of India & others Vrs. VKC Footsteps India Private Limited. The Supreme Court, in its judgment, affirmed the view of the Madras High Court and disapproved of the view of the Gujarat High Court, holding that the appeals challenging the Gujarat High Court's decision were allowed and the judgment was set aside. Consequently, appeals filed by assessees against the Madras High Court's judgment were dismissed, and as a result, the writ petitions filed by the assessees were also dismissed. The Court found that the issue raised by the petitioner had been settled by the Apex Court's decision. Therefore, the writ petition was rendered infructuous. The Court did not decide on the merits of the refund claim itself, as the primary challenge to the rule was rendered moot by the Supreme Court's ruling.

Key Issues

1. Whether Rule 89(5) of the CGST Rules, 2017, as originally stood and amended, is unconstitutional and contrary to Section 54(3)(ii) of the CGST Act, 2017, by restricting the refund of unutilized Input Tax Credit (ITC) on account of 'Capital Goods' and 'Input Services' for inverted duty structures? (Question of law) 2. Whether Notification No. 26/2018-Central Tax, dated June 13, 2018, which substituted Rule 89(5) retrospectively from July 1, 2017, is arbitrary, unreasonable, confiscatory, and violative of Articles 14 and 19(1)(g) of the Constitution of India, and contrary to Section 54(3)(ii) of the CGST Act? (Question of law) 3. Whether the Order-in-Appeal No. 30-31/CGST/JSR/2020 dated October 29, 2020, which dismissed the petitioner's appeal for refund of Rs. 10,28,542/- for July 2017 to September 2017, is liable to be quashed? (Question of fact and law) Petitioner's arguments: The petitioner contended that Rule 89(5) was unconstitutional and contrary to Section 54(3)(ii) of the CGST Act, as it illegally restricted the refund of unutilized ITC on capital goods and input services. They argued that the notification substituting the rule was arbitrary and violative of constitutional provisions. Respondents' arguments: The respondents argued that the challenge to the vires of Rule 89(5) was no longer maintainable in light of the Supreme Court's decision in Union of India & others Vrs. VKC Footsteps India Private Limited.