Denial of Input Tax Credit (Inverted Duty Structure) to be called invalid

Last updated: 03 August 2020

Court :
Gujarat High Court

Brief :
From the conjoint reading of the provisions of Act and Rules, it appears that by prescribing the formula in Sub-rule 5 of Rule 89 of the CGST Rules,2017 to exclude refund of tax paid on "input service" as part of the refund of the unutilized input tax credit is contrary to the provisions of Sub-section 3 of Section 54 of the CGST Act,2017 which provides for a claim of refund of "any unutilized input tax credit". The word "Input tax credit" is defined in Section 2(63) means the credit of input tax. The word "input tax" is defined in Section 2(62), whereas the word "input" is defined in Section 2(59) means any goods other than capital goods and "input service" as per Section 2(60) means any service used or intended to be used by a supplier. Whereas "input tax" as defined in section 2(62) means the tax charged on any supply of goods or services or both made to any registered person. Thus "input" and "input service" are both part of the "input tax" and "input tax credit". Therefore, as per provision of sub-section 3 of Section 54 of the CGST Act,2017, the legislature has provided that registered person may claim a refund of "any unutilized input tax", therefore, by way of Rule 89(5)of the CGST Rules,2017, such claim of the refund cannot be restricted only to "input" excluding the "input services" from the purview of "Input tax credit". Moreover, clause (ii) of the proviso to Sub-section 3 of Section 54 also refers to both supply of goods or services and not the only supply of goods as per amended Rule 89(5) of the CGST, Rules 2017.

Citation :
VKC Footsteps India Pvt. Ltd. Vs. Union of India