Notification Cannot Be Given Retrospective Effect To Deny Refund On Unutilised ITC Claimed Within Limitation Period: Madras HC Allows Gillette's Plea

Single Bench of Justice C. Saravanan observed that since Rule 90(3) of the CGST Rules, 2017 which deals with “acknowledgement of refund claim”, was inserted with effect from May 18, 2021, vide Notification No.15/2021-CT, the same cannot be given retrospective effect for denying refund on unutilized ITC claimed within the limitation period.

Legitimate export incentives are to be granted as long as there is substantial compliance with the provision, added the Bench.

The observation came in reference to a petition seeking direction to the Joint Commissioner of GST & Central Excise (first respondent) for extension of the benefit of proviso introduced under Rule 90(3) of the CGST Rules, 2017 to exclude the number of days from the date of filing of refund claim to the date of issue of Deficiency Memo for the purpose of computation of limitation period.

Rule 90(3) of the CGST Rules, 2017 provides for communication in FORM GST RFD-03 (deficiency memo) where deficiencies are noticed. The said sub-rule also provides that once the deficiency memo has been issued, the claimant is required to file a fresh refund application after the rectification of the deficiencies.

Facts of the case:

The Petitioner/ Assessee has filed refund claims for refund of unutilized Input Tax Credit on the goods exported/ supplied during July 2017, August 2017 and September 2017, which was rejected on the ground of limitation in the light of the CBIC Circular No.125/44/2019. The said order of rejection of refund was also affirmed by the Appellate Authority, stating that computation of limitation was to be reckoned from the date of re-presentation of the refund claims on Oct 18, 2019 and were thus beyond the period of two years from the “relevant date” in terms of Explanation 2(a)(i) to Section 54 of the CGST Act, 2017.

Thus, the Petitioner has challenged the Circular No.125/44/2019 dated 18.11.2019 issued by the Central Board of Indirect Taxes and Customs (third respondent), as per which it was stated that since a refund application filed after correction of deficiency is treated as a fresh refund application, such a rectified refund application, submitted after correction of deficiencies, shall also have to be submitted within 2 years of the relevant date, as defined in the explanation after sub-section (14) of section 54 of CGST Act. Thus, essentially, the Petitioner is seeking a direction to the first respondent to reconsider the refund claim on its merits.

Observations:

The Bench found that the refund claims for the exports made by the petitioner during July 2017, August 2017 and September 2017 were filed during the months of September 2018 and October 2018, in the portal and were thus prima facie in time, since it was in accordance with Circular No.79/53/2018-GST, which was vague.

In this case, the Bench noted that the petitioner had made export of services without payment of tax.

“In terms of Section 16(2) of IGST Act, credit of Input Tax may be availed for making Zero Rated Supplies, notwithstanding such supplies may be an exempt supply”, added the Bench.

Since the petitioner has affected Zero Rated Supplies within the meaning of Section 16(1) of IGST Act, 2017, the Bench observed that the “relevant date” during the period in dispute would be 2 years from the end of the “tax period”.

“As per Sub-Clause 3 to Section 16 of IGST Act, a registered person making Zero Rated Supply shall be eligible to claim refund of unutilized Input Tax Credit on supply of goods or services or both, without payment of integrated tax, under bond or Letter of Undertaking, in accordance with the provisions of Section 54 of CGST Act or the rules made thereunder, subject to such conditions, safeguards and procedures as may be prescribed”, added the Bench.

Justice Saravanan went on to explain that amendment to Explanation 2(e) to Section 54 of CGST Act, 2017 with effect from Feb 01, 2019 vide Notification No.02/2019-CT, pursuant to CGST Amendment Act, 2018 (31/2018) dated Aug 30, 2018 was intended clarify that “the period of limitation for refund of utilized Input Tax Credit in the case of refund of unutilized Input Tax Credit under clause (ii) of the first Proviso to sub-section (3), the due date for furnishing of return under section 39 for the period in which such claim for refund arises”.

Since the refund claim was filed within two years from the “relevant date” as defined in Explanation 2(a) to Section 54(14) of CGST Act as it stood during the period in dispute, the Bench clarified that the amendment to Clause 2(e) to Section 54(14) of CGST Act vide Notification No.02/2019-CT is not relevant for the purpose of computation of limitation.

Therefore, the High Court allowed the petition, observing that the refund claims were filed within a period of 1 year and few months, and hence, Order of the Appellate Commissioner affirming the Order of the Lower Authority rejecting the refund claim are unsustainable.

Counsel for Petitioner/ Assessee: G. Natarajan

Counsel for Respondent/ Revenue: S. Gurumoorthy

Case Title: Gillette Diversified Operations vs. Joint Commissioner of GST and Central Excise

Citation: 2025 LiveLaw (Mad) 113

Case Number: W.P.Nos.6524, 6527, 6531, 6537 and 6541 of 2022

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