Facts of the Case

M/s. Sine Automation and Integration Pvt. Ltd., engaged in the export of goods under a Letter of Undertaking (LOU), filed a refund application dated 29.08.2018 for unutilised input tax credit amounting to Rs.1,30,30,548/- under Section 54(3) of the CGST Act, 2017. By order dated 11.10.2018, the petitioner was granted 90% of its claim as provisional refund, amounting to Rs.1,17,27,495/-; a show cause notice dated 26.11.2018 proposed rejecting the balance of Rs.21,690/-, and a refund sanction order dated 06.12.2018 ultimately sanctioned Rs.1,30,08,858/-. The Department appealed the order dated 11.10.2018 before the Commissioner of CGST & Central Excise (Appeals), Thane, Mumbai Zone, which, by Order-in-Appeal dated 18 September 2020, directed the petitioner to repay Rs.1,07,08,504/- of the refund already sanctioned, with interest under Section 50 of the CGST Act, on the ground that Circular No.125/44/2019-GST dated 18.11.2019 barred refund claims spanning different financial years. The petitioner challenged this Order-in-Appeal before the Bombay High Court under Article 226.

Issues Involved

  1. Whether the Appellate Authority correctly applied Circular No.125/44/2019-GST dated 18.11.2019 to deny the petitioner's refund claim spanning Financial Years 2017-18 and 2018-19.
  2. Whether Rule 89(4) of the CGST Rules, 2017 permitted clubbing of input tax credit available in the electronic credit ledger across financial years while computing the refund formula for the "relevant period".
  3. Whether the subsequent clarificatory Circular dated 31 March 2020 diluted the earlier circular so as to support the petitioner's claim, and whether the Appellate Authority was obliged to consider its effect.

Petitioner's Arguments

  • The refund claim was in consonance with Rule 89(4) of the CGST Rules, since ITC available in the petitioner's electronic credit ledger — including credit pertaining to FY2017-18 — formed a running account permissibly clubbed with the "relevant period" claimed (April 2018 to July 2019).
  • The Appellate Authority erred in mechanically applying Circular dated 18.11.2019 without regard to the subsequent clarificatory Circular dated 31 March 2020, which diluted the earlier circular and supported clubbing of periods across financial years.

Respondent's Arguments

  • Circular dated 18.11.2019 had rightly been applied by the Appellate Authority in adjudicating the Department's appeal against the provisional refund order.
  • Counsel for the respondents did not dispute that the later Circular dated 31 March 2020 in fact clarified the earlier Circular dated 18.11.2019.

Court Order/Findings

  • It was permissible for the petitioner, under the statutory scheme of the electronic credit ledger, to club ITC available for the period prior to 1 April 2018 (FY2017-18) with the subsequent period while computing refund under Rule 89(4).
  • The Appellate Authority erred in overlooking Rule 89(4) of the CGST Rules and the effect of the clarificatory Circular dated 31 March 2020, which diluted Circular No.125/44/2019-GST, and ought to have recorded a specific finding on this aspect.
  • The Order-in-Appeal dated 18 September 2020 was quashed and set aside.
  • The Department's appeal was restored to the file of the Appellate Authority to be decided afresh, considering the effect of the Circular dated 31 March 2020, within four months, with all contentions of the parties kept open.
  • Pending fresh decision, the Department was directed not to take any coercive action on the basis of the subsequent order dated 18 October 2022.

Important Clarification

A refund claim for unutilised ITC under Section 54(3) of the CGST Act read with Rule 89(4) of the CGST Rules is not barred merely because it draws on input tax credit accumulated in the electronic credit ledger for a period prior to the "relevant period" claimed; such credit forms part of a running account, and adjudicating or appellate authorities must consider later clarificatory circulars before rejecting or reversing a refund on the strength of an earlier circular.

Sections Involved

  • Section 54(3), Central Goods and Services Tax Act, 2017 — provides for refund of unutilised input tax credit on zero-rated supply.
  • Rule 89(4), CGST Rules, 2017 — prescribes the formula for computing refund of ITC on zero-rated supply without payment of tax.
  • Section 50, Central Goods and Services Tax Act, 2017 — provides for interest on delayed payment or erroneous refund recovery.

Decision – In Favour of

Disposed of with directions, in part in favour of the Assessee. The Order-in-Appeal directing repayment of the sanctioned refund was quashed and the Department's appeal restored for fresh adjudication considering the clarificatory circular; no coercive recovery is permitted meanwhile, though the appeal itself remains to be finally decided on remand.

Related Case Laws

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Case Details

  • Court: High Court of Judicature at Bombay
  • Case No.: WRIT PETITION NO.4655 OF 2023
  • CNR: Not available
  • Coram: Justice G.S. Kulkarni and Justice Jitendra Jain
  • Decision Date: 29.11.2023
  • Disposal Nature: Allowed; appeal restored for fresh decision

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