Facts of the Case

The Petitioner, M/s FortuneArrt LED Lighting Pvt. Ltd., represented by its Director, filed two writ petitions before the Telangana High Court under Article 226 of the Constitution of India.

The Petitioner challenged Rule 89(5) of the Central Goods and Services Tax Rules, 2017, as amended through:

  • Notification No. 21/2018-Central Tax dated 18.04.2018; and
  • Notification No. 26/2018-Central Tax dated 13.06.2018.

The Petitioner also challenged Rule 89(5) of the Telangana Goods and Services Tax Rules, 2017, as amended through:

  • G.O.Ms. No. 108 dated 01.06.2018; and
  • G.O.Ms. No. 131 dated 16.07.2018.

The central grievance pleaded in the writ petitions was that the impugned Rule, to the extent it denied refund of unutilized tax credit in respect of tax paid on input services, was alleged to be:

  • ex facie ultra vires the Constitution of India;
  • ultra vires the provisions of the Central Goods and Services Tax Act, 2017;
  • without authority of law;
  • manifestly unreasonable;
  • discriminatory;
  • illegal; and
  • void.

In W.P. No. 2243 of 2021, the Petitioner additionally sought setting aside of the order of the first Respondent uploaded on the portal on 11.11.2020 for the period March 2018 to April 2019.

In W.P. No. 2253 of 2021, the Petitioner sought setting aside of the order of the first Respondent uploaded on the portal on 11.11.2020 for the period July 2017 to March 2018.

However, when the matters were taken up for hearing, learned counsel for the Petitioner, acting on the basis of written instructions, submitted that the Petitioner wished to withdraw both writ petitions.

The Telangana High Court accordingly dismissed both writ petitions as withdrawn, without costs.

Issues Involved

The writ petitions, as instituted, raised the following principal issues:

  1. Whether Rule 89(5) of the CGST Rules, 2017, as amended by Notification Nos. 21/2018-Central Tax and 26/2018-Central Tax, was constitutionally and statutorily valid to the extent it denied refund of unutilized ITC relating to tax paid on input services.
  2. Whether the corresponding Rule 89(5) of the Telangana GST Rules, 2017, as amended through G.O.Ms. No. 108 and G.O.Ms. No. 131, was valid to the same extent.
  3. Whether exclusion of input-service tax credit from the refund computation was alleged to be contrary to the CGST Act, 2017.
  4. Whether the impugned provisions were without authority of law, manifestly unreasonable, discriminatory, illegal or void, as pleaded by the Petitioner.
  5. Whether the refund-related orders uploaded on the GST portal on 11.11.2020 for the relevant periods were liable to be set aside.
  6. Whether any substantive adjudication of these issues remained necessary after the Petitioner sought withdrawal of both writ petitions.

Petitioner’s Arguments

The uploaded common order does not record detailed oral arguments on merits because the Petitioner ultimately sought withdrawal of both writ petitions. Therefore, no submissions beyond those appearing from the reliefs and pleadings reproduced in the order should be attributed to the Petitioner.

From the prayers reproduced in the judgment, the Petitioner’s pleaded case was that:

  1. Rule 89(5) of the CGST Rules, as amended, denied refund of unutilized tax credit relating to tax paid on input services.
  2. The corresponding Rule 89(5) of the Telangana GST Rules suffered from the same alleged defect.
  3. To that extent, the provisions were alleged to be ex facie ultra vires the Constitution of India and the CGST Act, 2017.
  4. The impugned provisions were alleged to be without authority of law, manifestly unreasonable, discriminatory, illegal and void.
  5. The Petitioner sought consequential setting aside of the first Respondent’s orders uploaded on the portal on 11.11.2020 for the respective tax periods involved in the two writ petitions.
  6. At the stage of hearing, however, learned counsel for the Petitioner submitted, on written instructions, that the Petitioner wished to withdraw the writ petitions.

Respondent’s Arguments

The uploaded common order does not record any detailed substantive arguments on the constitutional validity or merits of Rule 89(5).

The Court recorded the appearance of:

  • learned Senior Standing Counsel for the Central Board of Indirect Tax & Customs for Respondent Nos. 1, 2 and 4; and
  • learned Senior Standing Counsel, Commercial Tax, for Respondent No. 3.

Since the Petitioner sought withdrawal of the writ petitions, the Court did not proceed to record or determine detailed competing submissions on the merits of the Rule 89(5) challenge.

Court Order / Findings

The Telangana High Court passed a short common order with the following operative findings:

  1. The Court heard learned counsel appearing for the Petitioner, the Central indirect tax authorities and the State Commercial Tax authority.
  2. Learned counsel for the Petitioner submitted, on the basis of written instructions, that the Petitioner wished to withdraw the writ petitions.
  3. In view of that submission, W.P. Nos. 2243 and 2253 of 2021 were dismissed as withdrawn.
  4. The Court imposed no costs.
  5. As a consequence, miscellaneous petitions pending, if any, were also dismissed.

Important Clarification

This is the most important aspect of the order:

The Telangana High Court did not decide the constitutional or statutory validity of Rule 89(5) on merits.

The judgment should not be reported as holding that:

  • Rule 89(5) is constitutionally valid;
  • Rule 89(5) is unconstitutional;
  • refund of unutilized ITC on input services must be granted;
  • refund of unutilized ITC on input services must necessarily be denied; or
  • the Petitioner’s substantive challenge was accepted or rejected on merits.

The reason is straightforward: the Petitioner voluntarily sought withdrawal of the writ petitions on written instructions, and the High Court dismissed them as withdrawn.

Accordingly, the order contains no adjudication on the merits of the challenge to Rule 89(5), no final interpretation of the refund formula, and no substantive determination of the alleged constitutional or statutory invalidity pleaded by the Petitioner.

A further clarification is that the prayers reproduced in the order represent the Petitioner’s challenge and allegations. They are not findings of the High Court.

Sections Involved

·         Article 226 of the Constitution of India

·         Rule 89(5) of the Central Goods and Services Tax Rules, 2017

·         Rule 89(5) of the Telangana Goods and Services Tax Rules, 2017

·         Notification No. 21/2018-Central Tax dated 18.04.2018

·         Notification No. 26/2018-Central Tax dated 13.06.2018

·         G.O.Ms. No. 108 dated 01.06.2018

·         G.O.Ms. No. 131 dated 16.07.2018

·         Central Goods and Services Tax Act, 2017

Link to download the order -

https://www.mytaxexpert.co.in/uploads/1783333766_1175compressed.pdf

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