Gujarat High Court
M/S Torrent Pharmaceuticals Ltd vs Union Of India on 14 June, 2024
Author: Bhargav D. Karia
Bench: Bhargav D. Karia
NEUTRAL CITATION
C/SCA/17988/2019 ORDER DATED: 14/06/2024
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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO. 17988 of 2019
With
R/SPECIAL CIVIL APPLICATION NO. 6600 of 2022
With
R/SPECIAL CIVIL APPLICATION NO. 17989 of 2019
With
R/SPECIAL CIVIL APPLICATION NO. 18874 of 2021
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M/S TORRENT PHARMACEUTICALS LTD.
Versus
UNION OF INDIA & ORS.
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Appearance:
MR ANAND NAINAWATI(5970) for the Petitioner(s) No. 1
ADVOCATE NOTICE SERVED for the Respondent(s) No. 1
MR PY DIVYESHVAR(2482) for the Respondent(s) No. 2
MR UTKARSH R SHARMA(6157) for the Respondent(s) No. 4
NOTICE SERVED BY DS for the Respondent(s) No. 3
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CORAM:HONOURABLE MR. JUSTICE BHARGAV D. KARIA
and
HONOURABLE MR. JUSTICE NIRAL R. MEHTA
Date : 14/06/2024
COMMON ORAL ORDER
(PER : HONOURABLE MR. JUSTICE BHARGAV D. KARIA)
1. Rule returnable forthwith. Learned advocate Mr.P.Y.Divyeshvar waives service of notice of rule for respondent no.2 and learned advocate Mr.Utkarsh Sharma waives service of notice of rule for respondent no.4.
2. Heard learned advocate Mr.Anand Nainawati for the petitioner, learned advocate Mr.P.Y.Dvyeshvar for respondent no.2 and learned advocate Mr.Utkarsh Sharma for respondent no.4.
3. These petitions are filed arising out the order passed by the Commissioner (Appeals) dated 07.03.2019 in Appeal Nos.207 and Page 1 of 10 Downloaded on : Fri Jun 28 21:33:49 IST 2024 NEUTRAL CITATION C/SCA/17988/2019 ORDER DATED: 14/06/2024 undefined 208/2018-19, whereby the Commissioner (Appeals) allowed the appeals filed by the department setting aside the orders sanctioning the refund for the months of July, 2017 and August, 2017 by the adjudicating authority. Special Civil Application Nos.17988 and 17989 of 2019 are filed against the common order dated 07.03.2019 passed by the Commissioner (Appeals) in Appeal Nos.207 and 208/2018-19. Special Civil Application No.18874 of 2021 and Special Civil Application No.6600 of 2022 are filed challenging the show cause notice dated 02.12.2021 and the common order in original dated 16.02.2021, which were issued and passed for giving effect to the order passed by the Commissioner (Appeals) fore recovery of the refund sanctioned and paid to the petitioner for the month of July, 2017 and August, 2017 by the adjudicating authority.
4. Brief facts of the case are as under:-
4.1 On 27.10.2017 The petitioner filed of FORM GST TRAN-1 and the transitional credit of Rs. 14,30,19,855/- was sanctioned. On 20.12.2017 Filing of refund claim for the month of July 2017 under FORM GST RFD- 01A for Rs.2,58,59,476/- in terms of Section 54 of CGST Act, 2017.
4.2 On 03.01.2018 filing of refund claim for the month of August, 2017 under FORM GST RFD-01A for Rs.7,80,46,724/- in terms of Section 54 of CGST Act, 2017 4.3 On 07.03.2018 refund order in FORM GST RFD-06 passed by the Ld. Deputy Commissioner, CGST & Central Excise, Ahmedabad, granting the refund of Rs.2,58,59,476/- of accumulated ITC on export Page 2 of 10 Downloaded on : Fri Jun 28 21:33:49 IST 2024 NEUTRAL CITATION C/SCA/17988/2019 ORDER DATED: 14/06/2024 undefined without payment of duty.
4.4 On 24.10.2018, review order passed by the Ld. Commissioner of CGST & Central Excise, Ahmedabad North for filing of appeal against refund order dated 07.03.2018.
4.5 On 25.10.2018, Appeal filed by the Assistant Commissioner of CGST & Central Excise, Ahmedabad North against the refund order granted by the Ld. Deputy Commissioner.
4.6 On 07.03.2019, Order-in-Appeal passed by the Ld. Commissioner (Appeals), allowing the appeal filed by the Department to deny refund granted to the Petitioner for the months of July and August 2017.
4.7 On 16.10.2019, order passed by this Court in Special Civil Application Nos. 17988 and 17989 of 2019 filed by the petitioner, issuing notice to the Department and also granting interim relief to the petitioner, by restraining the Department from initiating any recovery proceedings against the Petitioner in respect of ITC refund already granted to the petitioner.
4.8 On 02.12.2020, demand notice issued to the petitioner, thereby proposing to recover the refunded amount of Rs.2,58,59,476/- and Rs.2,78,40,210/- under Section 73 of CGST Act, 2017.
4.9 On 25.01.2021, reply to the demand notice submitted by the Petitioner.
4.10 On 16.02.2021, impugned Order-in-Original passed by the Page 3 of 10 Downloaded on : Fri Jun 28 21:33:49 IST 2024 NEUTRAL CITATION C/SCA/17988/2019 ORDER DATED: 14/06/2024 undefined respondent No.4, confirming the recovery of an amount of Rs.2,58,59,476/- and Rs.2,78,40,210/- from the petitioner along, along and Mat with applicable interest and also imposing penalty of Rs.25,85,948/- and Rs.2,78,40,210/- for the month of July and August, 2017 on the petitioner under the relevant provisions of Section 73 of CGST Act, 2017.
5. Learned advocates for both the parties submitted that similar petition being Special Civil Application No.12712 of 2019 is argued before this Court today and therefore, they have adopted the arguments made in Special Civil Application No.12712 of 2019 by learned advocates and have submitted that these petitions are also required to be allowed considering the submissions.
6. The issue arising in these petitions pertaining to the refund of unutilized ITC of zero rated supplies of the petitioners is already considered and decided by the order of even date in Special Civil Application No.12712 of 2019 wherein it is held as under:-
"13. Having heard learned advocates for the respective parties and having considered the facts of the case, short question which arises for consideration in this petition is whether the transitional credit as per the form Trans-1 filed by the petitioner and accepted by the department can be considered as an opening balance in electronic credit ledger as unutilized ITC available for granting refund as per the provisions of Section 54 (3) of the CGST Act to the petitioner as per per the claim made by the petitioner in form RFD01A.
14. It would, therefore, we germane to refer to the various provisions of CGST Act. 1. Zero-rated supply" has been defined under Section 16 of the Integrated Goods and Service Tax, 2017 (IGST), which reads as under:-
"Section 16. Zero rated supply.-(1) "zero rated supply"
means any of the following supplied of goods or services or both, namely:-
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(a) export of goods or services or both; or
(b) supply of goods or services or both to a Special Economic Zone developer or a Special Economic Zone unit"
Section 54 of the CGST Act provides for refund of tax sub-Section 3 of Section 54 refers to the of refund of any unutilized input tax credit at the end of tax period, which reads as under:-
"Section 54 Refund of tax (1) Any person claiming refund of any tax and interest, if any, paid on such tax or any other amount paid by him, may make an application before the expiry of two years from the relevant date in such form and manner as may be prescribed:
Provided that a registered person, claiming refund of any balance in the electronic cash ledger in accordance with the provisions of sub-section (6) of section 49, amy claim such refund in the return furnished under section 39 in such manner as may be prescribed (2)......
(3) Subject to the provisions of sub-section (10), a registered person may claim refund of any unutilised input tax credit at the end of any tax period:
Provided that no refund of unutilised input tax credit shall be allowed in cases other than--
(i) zero rated supplied made without payment of tax;
(ii) where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies (other than nil rated or fully exempted supplies), except supplies of goods or services or both as may be notified by the Government on the recommendations of the Council:
Provided further that no refund of unutlised input tax credit shall be allowed in cases where the goods exported out of India are subjected to export duty:
Provided also that no refund of input tax credit shall be allowed, if the supplier of goods or services or both avails of drawback in respect of central tax or claims refund of the integrated tax paid on such supplies.
(4) The application shall be accompanied by -Page 5 of 10 Downloaded on : Fri Jun 28 21:33:49 IST 2024
NEUTRAL CITATION C/SCA/17988/2019 ORDER DATED: 14/06/2024 undefined
(a) such documentary evidence as may be prescribed to establish that a refunds due to the applicant; and
(b) such documentary or other evidence (including the documents referred to in section 33) as the applicant may furnish to establish that the amount of tax and interest, if any, paid on such tax or any other amount paid in relation to which such refund is claimed was collected from, or paid by, him and the incidence of such tax and interest had not been passed on to any other person."
Rule 89. Application for refund of tax, interest, penalty, fees or any other amount:
"(4) In the case of zero-rated supply of goods or services or both without payment of tax under bond or letter of undertaking in accordance with the provisions of sub-section (3) of section 16 of the Integrated Goods and Services Tax Act, 2017 (13 of 2017), refund of input tax credit shall be granted as per the following formula:- Refund Amount= (Turnover of zero-rated supply of goods+ Turnover of zero-rated supplyof services) x Net ITC divided by Adjusted Total Turnover Where,-
(A) "Refund amount" means the maximum refund that is admissible;
(B) "Net ITC" means input tax credit availed on inputs and input services during the relevant period;
(C) "Turnover of zero-rated supply of goods" means the value of zero-
rated supply of goods made during the relevant period without payment of tax under bond or letter of undertaking;
(D) "Turnover of zero-rated supply of services" means the value of zero-rated supply of services made without payment of tax under bond or letter of undertaking, calculated in the following manner, namely:-
Zero-rated supply of services is the aggregate of the payments received during the relevant period for zero-rated supply of services and zero-rated supply of services where supply has been completed for which payment had been received in advance in any period prior to the relevant period reduced by advances received for zero-rated supply of services for which the supply of services has not been completed during the relevant period;
(E) "Adjusted Total turnover" means the turnover in a State or a Union territory, as defined under clause (112) of section 2, excluding the value of exempt supplies other than zero-rated supplies, during the relevant period;
(F) "Relevant period" means the period for which the claim has been filed"
15. In terms of the above provisions of refund, refund application is required to be filed through electronic portal. Section 168 of the CGST Act Page 6 of 10 Downloaded on : Fri Jun 28 21:33:49 IST 2024 NEUTRAL CITATION C/SCA/17988/2019 ORDER DATED: 14/06/2024 undefined empowers the Central Board of Indirect Taxes and Customs (CBIC) to issue such orders, instructions or directions to the Central Tax Officer as deem fit for the purpose of uniformity in the implementation of the CGST Act. The CBIC issued the Circular No.17/17/2017-GST dated 15.11.2017, whereby it was clarified that the applications/documents/forms pertaining to refund claims on account of zero rated supplies shall be filed and processed manually till further orders, which reads as under:- "1.1***** 1.2 ***** 1.3 ***** 2.4 The application for refund of unutilized input tax credit on inputs or input services used in making such zero- rated supplies shall be filed in FORM GST RFD-01A on the common portal and the amount claimed as refund shall get debited in accordance with sub-rule (3) of rule 86 of the CGST Rules from the amount in the electronic credit ledger to the extent of the claim. The common portal shall generate a proof of debit (ARN Acknowledgement Receipt Number) which would be mentioned in the FORM GST RFD-01A submitted manually, along with the print out of FORM GST RFD- 01A to the jurisdictional proper officer, and with all necessary documentary evidences as applicable (as per details in statement 3 or 5 of Annexure to FORM GST RFD-01), within the time stipulated for filing of such refund under the CGST Act.
2.5 The registered person needs to file the refund claim with the jurisdictional tax authority to which the taxpayer has been assigned as per the administrative order issued in this regard by the Chief Commissioner of Central Tax and the Commissioner of State Tax. In case such an order has not been issued in the State, the registered person is at liberty to apply for refund before the Central Tax Authority or State Tax Authority till the administrative mechanism for assigning of taxpayers to respective authority is implemented. However, in the latter case, an undertaking is required to be submitted stating that the claim for sanction of refund has been made to only one of the authorities. It is reiterated that the Central Tax officers shall facilitate the processing of the refund claims of all registered persons whether or not such person was registered with the Central Government in the earlier regime."
16. The CBIC thereafter issued a Circular No.59/23/2018-CGST dated 04.09.2018, whereby it is clarified that measure of the amount of refund, which is eligible to the applicant seeking refund unutilized of credit of ITC on account of zero-rated supply of goods are provided. Relevant formula as prescribed for computing unutilized amount of ITC in para 3 of the said circular is as under:-
"3. System validations in calculating refund amount 3.1 Currently, in case of refund of unutilized input tax credit (ITC for short), the common portal calculates the refundable amount as the least of the following amounts:
a) The maximum refund amount as per the formula in rule 89(4) or rule 89(5) of the Central Goods and Services Tax Rules, 2017 Page 7 of 10 Downloaded on : Fri Jun 28 21:33:49 IST 2024 NEUTRAL CITATION C/SCA/17988/2019 ORDER DATED: 14/06/2024 undefined (hereinafter referred to as the "CGST Rules") [formula is applied on the consolidated amount of ITC, i.e. Central tax + State tax/Union Territory tax +Integrated tax+Cess (wherever applicable)];
b) The balance in the electronic credit ledger of the claimant at the end of the tax period for which the refund claim is being filed after the return for the said period has been filed; and
c) The balance in the electronic credit ledger of the claimant at the time of filing the refund application.
3.2 After calculating the least of the three amounts, as detailed above, the equivalent amount is to be debited from the electronic credit ledger of the claimant in the following order:
(a) Integrated tax, to the extent of balance available;
(b) Central tax and State tax/Union Territory tax, equally to the extent of balance available and in the event of a shortfall in the balance available in a particular electronic credit ledger (say, Central tax), the differential amount is to be debited from the other electronic credit ledger (i.e., State tax/Union Territory tax, in this case)."
17. The provisions of Goods and Service Tax Act replace the indirect tax regime with effect from 01.07.2017. Central Goods and Service Tax Act 2017 and State Goods and Service Tax Act 2017 and Integrated Goods and Service Tax 2017, were enacted by the legislature which came into effect from 01.07.2017, which intended to subsume all indirect taxes including the Central Excise Act, 1944, the Finance Act, 1994 (Service Tax Act) and Value Added Tax Act. As per the scheme of the GST all the three Acts provide for seamless flow of Input Tax Credit to avoid cascading effect of various taxes. The CGST Act therefore provided the transitional arrangement for carry forward and availment of credit of eligible indirect taxes paid on the Goods & Services under the erstwhile regime. In this regard, Section 140 of the CGST Act is therefore enacted for the transition of the various credit of indirect taxes in different Act as under:-
"i) Closing balance of credit of erstwhile taxes in the last return filed prior to the introduction of GST:
ii) Un-availed credit taxes paid on capital goods procured in the erstwhile regime.
iii) Credit of taxes paid on stock of raw materials, work-in-progress and finished goods as on 30.06.2017.
iv) Credit relating to goods exempted under the earlier regime which are taxable under the GST regime.
v) Credit of in transit goods and services on which taxes are paid in the erstwhile regime and such goods and services are received in the GST regime."Page 8 of 10 Downloaded on : Fri Jun 28 21:33:49 IST 2024
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18. Rule 117 of the Rules provides that if a registered person has to claim Transitional Credit under Section 140 of the CGST Act, a declaration in Form GST TRAN-1 was required to be filed within 90 days of the appointed day i.e. on or before 28.09.2017. As per the provisions of Section 140 of the CGST Act read with Rule 117 of the Rules, the transitional credit, closing balance of credit of taxes lying and shown in last return filed by the assessee prior to introduction of CGST i.e. as on 30.06.2017 will be carried forward as credit in Electronic Credit Ledger as on 01.07.2017. in view of the above, GST regime, the credit balance as on of the unutilized input tax credit in earstwhile regime as on 30.06.2017 shall be available as opening balance of unutilized input tax credit as on 01.07.2017.
19. Therefore, as per provisions of Section 140(1) of the CGST Act, a registered person shall be entitled to take, in his electronic credit ledger, the amount of CENVAT credit of eligible duties carried forward in the return relating to the period ending with the day immediately preceding the appointed day i.e. 01.07.2017. The petitioner, is therefore, entitled to get the benefit of amount of CENVAT credit of eligible duties carried forward in the return in GST Form TRAN-1, which was verified and approved by the GST authority.
20. Therefore, the adjudicating authority has rightly sanctioned the refund to the petitioner considering the closing balance of CENVAT credit carried forward as per GST Form TRAN-1 filed by the petitioner as on 01.07.2017. However, the Commissioner (Appeals) appears to have a very pedantic literal approach of the provisions of Section 54(3) of the CGST Act, 2017 thereby allowed the appeal of the department on the ground that when the petitioner filed refund claim in statement 3A of the GST-RFD-01A for the months of July and August, 2017, the transitional credit as per form GST TRAN-1 was not verified and was not given effect in the electronic credit ledger and therefore, obviously there cannot be any balance of such unutilized CENVAT credit which was carried forward as on 01.07.2017. Therefore, in effect there was no unutilized ITC credit lying in the balance in respect of the refunds granted. However, the Commissioner (Appeals) ought to have given the benefit of transitional CENVAT credit carried forward as per GST TRAN-1 filed by the petitioner and approved by the authority in the month of September, 2017 as if such credit was available as on 01.07.2017 as an opening balance in the electronic credit ledger. Reliance placed by the Commissioner (Appeals) on Circular No.59/33/2018-GST dated 04.09.2018 to the effect that the balance in the electronic ledger of the claimant on the end of the tax period for which, the refund claim is being filed after the return for the said period has been field literally interpreted so far as the first two months of GST regime i.e. July, 2017 and August, 2017, for which there is a provision of Section 140(1) would have direct impact and therefore, the Commissioner (Appeals) committed an error by in relying upon Circular Page 9 of 10 Downloaded on : Fri Jun 28 21:33:49 IST 2024 NEUTRAL CITATION C/SCA/17988/2019 ORDER DATED: 14/06/2024 undefined No.59 dated 04.09.2018, which would not be applicable in the facts of the case as the petitioner is entitled to get the benefit of carried forward of CENVAT credit as on 01.07.2017 in view of the provisions of Section 140(1) read with Section 54(3) of the CGST Act, 2017 read with Rule 89(4) and 117 of the Rules.
21. It is not in dispute that the petitioner was entitled to the refund on the zero rated supplies and only ground for allowing the appeal of the department by the CIT appeals is that no balance was available in electronic credit ledger as on the date on which the petitioner was entitled to get refund i.e. end of the month i.e. July, 2017 and August,2017 because the carried forward of CENVAT credit erstwhile regime was approved by the authority in the month of September, 2017. In such circumstances, the petitioner would never be available to utilize the carried forward of CENVAT credit, which would contrary to the provisions of Section 140(1) of the CGST Act.
22. In view of the above analysis and foregoing reasons, the petition succeeds and is accordingly allowed. The impugned order dated 22.03.2019 passed by the Commissioner (Appeals) is hereby quashed and set aside. As a result, the consequential notice and orders for recovery of the refund sanctioned and paid to the petitioner by the adjudicating authority are also quashed and set aside. Rule made absolute to the aforesaid extent. No order as to costs."
7. In view of the above, this petitions adopting the same reasoning succeed and are accordingly allowed. The order dated 07.03.2019 passed by the Commissioner (Appeals), show cause notice dated 02.12.2020 and orders in original for recovery dated 16.02.2021 and 07.03.2019 are hereby quashed and set aside. Rule is made absolute to the aforesaid extent. No order as to costs.
Sd/-
(BHARGAV D. KARIA, J) Sd/-
(NIRAL R. MEHTA,J) ABHISHEK Page 10 of 10 Downloaded on : Fri Jun 28 21:33:49 IST 2024