Facts of the Case

Smart Byte Technologies, a proprietorship concern, filed refund claims in respect of accumulated Input Tax Credit arising on account of an inverted tax structure. The refund claims related to the periods January 2020 to March 2020 and April 2020 to June 2020.

The Assistant Commissioner of Central Tax rejected the refund claims through refund rejection orders dated 08.03.2022. Aggrieved by the rejection, the petitioner approached the High Court of Karnataka under Articles 226 and 227 of the Constitution of India.

The petitioner sought quashing of the refund rejection orders and a consequential direction to the respondents to grant the refund claimed on account of accumulated ITC due to the inverted tax structure.

During the pendency of the writ petition, a Circular dated 06.07.2022 was issued by the respondents clarifying the earlier Circular dated 31.03.2020. The petitioner relied upon this subsequent clarification as well as the judgment of the Gauhati High Court in BMG Informatics Pvt. Ltd. vs Union of India & Others, WP(C) No. 3878/2021, decided on 02.09.2021.

Issues Involved

  1. Whether the refund of accumulated Input Tax Credit arising from an inverted tax structure under Section 54(3)(ii) of the CGST Act, 2017 could be rejected on the basis of the Circular dated 31.03.2020.
  2. Whether the subsequent Circular dated 06.07.2022, clarifying the earlier Circular dated 31.03.2020, supported reconsideration of the petitioner’s refund claim.
  3. Whether the petitioner was entitled to seek refund of the difference in GST amount paid under Section 54(3)(ii) of the CGST Act, 2017.
  4. Whether the writ petition was maintainable despite the availability of an alternative remedy by way of appeal against the refund rejection orders.
  5. Whether the refund rejection orders dated 08.03.2022 deserved to be quashed in light of the subsequent clarificatory Circular and the judgment in BMG Informatics Pvt. Ltd.

Petitioner’s Arguments

The petitioner contended that the refund rejection orders dated 08.03.2022 were contrary to the material available on record.

It was argued that the rejection orders were also inconsistent with the Circular dated 06.07.2022, which had been issued during the pendency of the writ petition and clarified the earlier Circular dated 31.03.2020.

The petitioner submitted that the Circular dated 31.03.2020 did not prohibit the grant of refund in its favour. In support of this contention, reliance was placed on the decision of the Gauhati High Court in BMG Informatics Pvt. Ltd. vs Union of India & Others, WP(C) No. 3878/2021, dated 02.09.2021.

According to the petitioner, the legal position concerning the earlier Circular had subsequently been clarified by the respondents themselves through the Circular dated 06.07.2022.

The petitioner therefore argued that the impugned refund rejection orders deserved to be quashed and appropriate directions should be issued for refund of the GST amount in accordance with law.

Respondents’ Arguments

The respondents did not dispute that, during the pendency of the writ petition, the Circular dated 06.07.2022 had been issued clarifying the earlier Circular dated 31.03.2020.

However, the respondents contended that the writ petition lacked merit and was liable to be dismissed.

A principal objection raised by the respondents was that the petitioner had an equally efficacious alternative remedy by way of an appeal against the refund rejection orders.

Accordingly, it was argued that the writ petition was not maintainable and should be dismissed on the ground of availability of an alternative appellate remedy.

Court’s Findings

The High Court observed that the Circular dated 31.03.2020 did not come in the way of the petitioner claiming refund under Section 54(3)(ii) of the CGST Act, 2017.

The Court referred to the judgment of the Gauhati High Court in BMG Informatics Pvt. Ltd. vs Union of India & Others, wherein the relevant legal position had been considered.

The Court further noted that the respondents themselves had reiterated and clarified the position by issuing the subsequent Circular dated 06.07.2022.

According to the High Court, these circumstances were sufficient to show that the petitioner was entitled to seek refund of the amount in question.

The Court also considered the respondents’ objection regarding the availability of an alternative remedy by way of appeal. However, in the peculiar facts and circumstances of the case, and particularly in light of the latest Circular dated 06.07.2022 and the Gauhati High Court judgment in BMG Informatics Pvt. Ltd., the Court held that interference under writ jurisdiction was justified.

The High Court concluded that the impugned orders rejecting the refund deserved to be quashed and that the respondents were required to reconsider the petitioner’s refund claim in accordance with law.

Court Order

The High Court allowed the writ petition.

The refund rejection orders dated 08.03.2022 passed by the Assistant Commissioner of Central Tax in respect of the following periods were quashed:

  • January 2020 to March 2020; and
  • April 2020 to June 2020.

The respondents were directed to reconsider the petitioner’s claim for refund of the difference in GST amount paid under Section 54(3)(ii) of the CGST Act, 2017.

While reconsidering the refund claim, the respondents were specifically directed to bear in mind:

  • the observations made by the High Court in the order;
  • the Circular dated 06.07.2022; and
  • the judgment of the Gauhati High Court in BMG Informatics Pvt. Ltd. vs Union of India & Others.

The reconsideration was directed to be completed as expeditiously as possible and, in any event, within two months from the date of receipt of a copy of the order.

Important Clarification

The judgment importantly clarifies that the Circular dated 31.03.2020 does not, by itself, prevent a taxpayer from claiming refund under Section 54(3)(ii) of the CGST Act, 2017, where the statutory conditions for refund arising from an inverted tax structure are otherwise attracted.

The subsequent Circular dated 06.07.2022 was treated as a material clarification of the earlier position. The Court also placed reliance on the Gauhati High Court decision in BMG Informatics Pvt. Ltd.

Another significant aspect is that the High Court entertained the writ petition notwithstanding the availability of an appellate remedy. This was done in the peculiar facts and circumstances of the case, particularly because of the subsequent clarificatory Circular and the relevant judicial precedent.

The order should not be read as dispensing with the statutory appeal mechanism in every refund dispute. The Court’s interference was expressly connected with the particular facts, the material on record, the latest clarification, and the precedent relied upon

Link to download the order -

https://mytaxexpert.co.in/uploads/1783503555_1530compressed.pdf

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