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 amended, and an Order-in-Appeal dated October 29, 2020, which dismissed their appeal against the rejection of their refund application. The refund sought was for unutilized Input Tax Credit (ITC) amounting to Rs. 2,85,46,025/- for the period January 2018 to March 2018. The petitioner argued that Rule 89(5) was unconstitutional and contrary to Section 54(3)(ii) of the CGST Act, as it disallowed refunds on capital goods and input services. The respondents were various authorities under the CGST regime.

Held

The High Court noted that the petitioner's counsel submitted that the validity of Rule 89(5) of the CGST Rules, 2017, as substituted, had been upheld by the Supreme Court in Union of India & others Vrs. VKC Footsteps India Private Limited (2022) 2 SCC 603. 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 filed by the Union of India against the Gujarat High Court's judgment were allowed, and the appeals filed by the assessees against the Madras High Court's judgment were dismissed. Consequently, the writ petition filed by the assessees were also dismissed. The Supreme Court urged the GST Council to reconsider the formula in Rule 89(5) for potential anomalies. In light of the Apex Court's decision settling the issue regarding the vires of Rule 89(5), the High Court found the present writ petition to be infructuous. Therefore, the Court disposed of the writ petition as such.

Key Issues

1. Whether Rule 89(5) of the CGST Rules, 2017, as originally stood and as amended by Notification No. 26/2018-Central Tax dated June 13, 2018, is unconstitutional and contrary to Section 54(3)(ii) of the CGST Act, 2017, to the extent it restricts the refund of unutilized Input Tax Credit (ITC) by disallowing refund on capital goods and input services? The petitioner argued that the rule, by restricting refunds to input goods and excluding capital goods and input services, was arbitrary, unreasonable, confiscatory, and violated Articles 14 and 19(1)(g) of the Constitution, and was also contrary to the substantive provisions of Section 54(3)(ii) of the CGST Act. The respondents contended that the rule was valid. 2. Whether Notification No. 26/2018-Central Tax dated June 13, 2018, which substituted Rule 89(5) with retrospective effect from July 1, 2017, is liable to be quashed? The petitioner argued it was arbitrary, unreasonable, confiscatory, and violative of constitutional provisions and Section 54(3)(ii) of the CGST Act. 3. Whether the Order-in-Appeal No. 30-31/CGST/JSR/2020 dated October 29, 2020, which dismissed the petitioner's appeal against the rejection of their refund claim of Rs. 2,85,46,025/- for the period January 2018 to March 2018, is liable to be quashed? The petitioner sought a direction to grant the refund based on Section 54(3)(ii) of the CGST Act.