HC: Grants partial ITC refund on export as Petitioner cannot suffer for system glitches

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The Hon’ble HC, Delhi in the matter of Vision Distributors v. Commissioner, State GST & Ors. [W.P.(C)8317/2019 decided on December 12, 2019] held directed the Respondents to grant refund of Input Tax Credit (“ITC”) made in cash and for the remaining amount directed the Respondents to pass a reasoned order.

Facts:

Vision Distributors (“the Petitioner”) is engaged in the business of sale and purchase of mobile phones. The output supplies made by the Petitioner are also in the course of exports out of India. The Petitioner was registered under the provisions of Delhi Value Added Tax, 2014 (“DVAT Act”). When the Goods and Services Tax was enforced w.e.f. July 1, 2017, the Petitioner migrated to the said system of taxation. The Petitioner states that it was entitled to carry forward its electronic ledger account of unutilized ITC in terms of Section 140 of the Central Goods and Services Tax Act, 2017 (“CGST Act”).

In terms of Rule 117 of the Central Goods and Services Tax Rules, 2017 (“CGST Rules”), the credit of input tax could be submitted in Form GST TRAN-1 within ninety days of the appointed date which was July 1, 2017. Consequently, the last date for submission of Form GST TRAN-1 was September 28, 2017. However, the Form GST TRAN-1 was not made available on the web portal of the Respondents upto August 25, 2017. On account of the aforesaid lapse on the part of the Respondents, the Petitioner could not upload its Form GST TRAN-1 either in the month of July, 2017, or for most part of month of August 2017.

However, the business activity of the Petitioner continued, namely, of undertaking exports. The Petitioner states that in the month of July, 2017 it made exports entailing deposit of tax in cash to the tune of Rs. 1,37,37,029/, even though the Petitioner was entitled to CGST credit of Rs.3,13,06,050/- as noticed hereinabove, as on July 1, 2017.

Issue:

Petitioner seeks a direction to the Respondents to issue refund of Rs. 3,05,09,355/-.

Held:

The Hon’ble HC, Delhi in W.P.(C)8317/2019 decided on December 12, 2019 held as under:

  • Petitioner cannot be made to suffer on account of failure on the part of the Respondents in devising smooth transition to GST regime w.e.f. July 1, 2017. The Petitioner, being an exporter under the GST regime is entitled to undertake zero rated supplies. The Petitioner claims to have undertaken exports in the months of July and August, 2017 and since its unutilized ITC to the tune of Rs. 3,13,06,050/-, which was accumulated up to June, 2017, was not reflected in its ITC ledger as on July 1, 2017, it could not utilize the same w.e.f. July 1, 2017. The same resulted in the Petitioner having to shell out, in cash, Rs. 1,37,37,029/- which would not have been required, had the Respondents taken care to ensure that the Petitioner was able to utilize its accumulated ITC in the said months.

 

  • Even the Form GST TRAN-1 was made available on the portal of the Respondents only from August 25, 2017. The rights of the parties cannot be subjugated to the poor and inefficient software systems adopted by the Respondents. The system limitations cannot be a justification to deny the relief, to which the Petitioner is legally entitled. We, therefore, reject the hyper technical objections sought to be raised by the Respondents to the effect, that no refund can be granted, because the system did not reflect any credit lying in the ITC ledger of the Petitioner for the months of July and August, 2017. If that is so, it is entirely the Respondents making. In fact, to permit the Respondents to get away with such an argument would be putting premium on inefficiency. The Court, therefore, reject the submission.
  • The Petitioner claims that it is entitled to a complete refund of Rs. 3,05,09,355/- as explained hereinabove. So far as the Petitioner’s claim for refund of cash deposit to the tune of Rs. 1,37,37,029/- is concerned, that, cannot be denied to him. Directed the Respondents to refund the amount Rs. 1,37,37,029/- to the Petitioner within four weeks from December 12, 2019. For remaining amount, the Petitioner has already submitted the documents in that regard. Directed the Respondents to pass a reasoned order on the same within four weeks.

Relevant provisions:

Section 140 of the CGST Act:

“140. Transitional arrangements for input tax credit.

(1) A registered person, other than a person opting to pay tax under section 10, 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, furnished by him under the existing law in such manner as may be prescribed:

Provided that the registered person shall not be allowed to take credit in the following circumstances, namely:-

(i) where the said amount of credit is not admissible as input tax credit under this Act; or

(ii) where he has not furnished all the returns required under the existing law for the period of six months immediately preceding the appointed date; or

(iii) where the said amount of credit relates to goods manufactured and cleared under such exemption notifications as are notified by the Government.”

Rule 117 of the CGST Rules:

117. Transitional Provisions

Tax or duty credit carried forward under any existing law or on goods held in stock on the appointed day.-

(1) Every registered person entitled to take credit of input tax under section 140 shall, within ninety days of the appointed day, submit a declaration electronically in FORM GST TRAN-1, duly signed, on the common portal specifying therein, separately, the amount of input tax credit 1[of eligible duties and taxes, as defined in Explanation 2 to section 140] to which he is entitled under the provisions of the said section:

Provided that the Commissioner may, on the recommendations of the Council, extend the period of ninety days by a further period not exceeding ninety days.

Provided further that where the inputs have been received from an Export Oriented Unit or a unit located in Electronic Hardware Technology Park, the credit shall be allowed to the extent as provided in sub-rule (7) of rule 3 of the CENVAT Credit Rules, 2004.

Section 54 of the CGST Act:

“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, may claim such refund in the return furnished under section 39 in such manner as may be prescribed.

(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 supplies 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 exempt 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 unutilised 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.

….

8) Notwithstanding anything contained in sub-section (5), the refundable amount shall, instead of being credited to the Fund, be paid to the applicant, if such amount is relatable to-

(a) refund of tax paid on export of goods or services or both or on inputs or input services used in making such exports;

(b) refund of unutilised input tax credit under sub-section (3);

 (c) refund of tax paid on a supply which is not provided, either wholly or partially, and for which invoice has not been issued, or where a refund voucher has been issued;

(d) refund of tax in pursuance of section 77;

(e) the tax and interest, if any, or any other amount paid by the applicant, if he had not passed on the incidence of such tax and interest to any other person; or

(f) the tax or interest borne by such other class of applicants as the Government may, on the recommendations of the Council, by notification, specify.”

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