HC allows refund under Inverted Duty Structure in case of input and output supplies being same

In BMG INFORMATICS PVT. LTD. v. UNION OF INDIA [Case No. WP(C)/3878/2021 dated September 02, 2021], BMG Informatics Pvt Ltd (“the Petitioner') after submitting a claim for a refund under FORM-GST-RFD-02 under Section 54(3)(ii) of Central Goods and Services Tax Act, 2017 (“CGST Act') received a Show-Cause Notice dated April 10, 2020 (“SCN') rejecting the refund claimed on grounds of misdeclaration of total turnover for the period October – December 2018.

Pursuant to which, an Order dated May 22, 2020 was passed by the Assistant Commissioner, rejecting an amount of refund of Rs.3,92,594 on the ground that although Section 54(3)(ii) of the CGST Act provides for Inverted Duty Structure i.e. refund allowed on availment of accumulated Input Tax credit ('ITC') on Input Tax rate being more than Output tax rate, but, since the input and output supplies in the current case being the same, even though attracting a different tax rate depending upon the class of buyer, the case would not be covered by Section54(3)(ii) of the CGST Act. In arriving at the said conclusion, the Assistant Commissioner had relied on Para 3.2 of clarificatory Circular No. 135/05/2020-GST, dated March 31, 2020 which provides that refund cannot be availed under Section 54(3)(ii) ibid in case the input and outputs are the same though attracting different tax rates at different points in time.

On an appeal being filed, the Ld. Joint Commissioner (Appeals) vide Order dated November 06, 2020 noted that the Assistant Commissioner had rejected the claim of refund of the Petitioner on a ground that Section 54(3)(ii) ibid was not applicable in the case which was not incorporated in the SCN leading to violation of the principles of natural justice. Further, held that the Petitioner is entitled to the benefit of refund of duty under Section 54(3)(ii) of the CGST Act.

The Hon’ble Gauhati High Court noted that when Para 3.2 of Circular No. 135/05/2020-GST dated March 31, 2020is read with the provisions of Section 54(3)(ii) of CGST Act, it is observed that “one hand the section provides no refund unutilised ITC shall be allowed in cases other than where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies and on the other hand, the Circular provides that such refunds will not be available in the event the input supplies and the output supplies are the same, even though there may be a difference in the tax rates on the input supplies and the output supplies.' the same appears to be in conflict and contrary to the provisions of the Section 54(3)(ii)of CGST Act.

Further, noted that whenever there is a conflict between the provisions of a statutory Act and that of a notification or circular issued by an administrative authority, the provisions of the statutory Act would prevail over such conflicting provisions of a notification or a circular of an administrative authority.

Held that in view of the clear unambiguous provisions of Section 54(3)(ii) of CGST Act, it was of the view that the provisions of Para 3.2 of Circular No. 135/05/2020-GST dated March 31, 2020 would have to be ignored. As such, rejection of the claim for refund in the order passed by the Assistant Commissioner referring to the provisions of the above-mentioned Circular would be unsustainable in law.