June 12, 2019

Input tax credit of rejected refund amount can be taken manually by taxpayer if not recredit by tax authorities

Where rejection of refund claim by the GST authorities, the rejected ITC should be recredit to Input tax credit ledger of taxpayer for utilisation. However Since there is no mechanism to do so, this resulted in certain difficulties to taxpayers in cases where the existing Input Tax Credit (‘ITC’) was not recredited by tax authorities for utilisation.

In this case, the Gujrat High Court (‘HC’) has provided valuable guidance on the subject in the case of M/s. Garden Silk Mills Ltd. Vs. Union of India (R/Spl Civil Appl No. 7397 Of 2018) vide order dated 11 April 2019. It has been stated that Input tax credit of rejected refund amount can be taken manually by taxpayer if not recredit by tax authorities

1. Introduction

The taxpayer filed manual refund claim, which was rejected by GST officer. The taxpayer did not appeal against the refund rejection order and claimed recredit of rejected ITC refund amount back in the Electronic Credit Ledger. The GST authorities submitted that no undertaking under Rule 93 of CGST Rules was filed and there was no mechanism to recredit the refund claim to Electronic Credit Ledger in the common portal.

The HC ruled in favour of the taxpayer by directing taxpayer to file an undertaking under Rule 93 of CGST Rules with the GST officer and claim recredit of ITC on the basis of Form GST RFD PMT 03. In case there was no mechanism to recredit the same, manual credit can be taken by the taxpayer.

2. Facts

The taxpayer was engaged in the manufacture of Polyester Filament based Yarns, Textile grade Polyester Chips, Grey Fabrics and Finished Fabrics. Taxpayer made supplies for both domestic consumption as well as to Special Economic Zone (SEZ).
In accordance with Section 54(3) of the Central Goods and Services Tax Act, 2017 (‘CGST Act’), the taxpayer filed in all six refund claims on the following grounds:
- Refund of accumulated input tax credit on account of inverted duty structure.
- Refund of accumulated input tax credit on account of supplies made to SEZ without payment of tax.
- Refund of accumulated input tax credit (“ITC’) on account of exports without payment of Integrated Goods and Services Tax (‘IGST’).
The taxpayer filed manual refund claims in Form GST RFD01A as per the CGST Act read with Central Goods and Services Tax Rules, 2017 (‘CGST Rules), relevant notifications and circulars. The ARN refund receipt was also generated.
The GST Officer issued six deficiency memos dated 16 January 2017 in Form RFD03, pointing out several deficiencies on scrutiny of the refund application.
The taxpayer submitted a response to the deficiency memos issued and rectified all the deficiencies pointed out by the GST Officer.
Thereafter, there was no response from the GST officer on the status of refund claim.
Upon subsequent enquiry, the GST Officer vide order dated 7 March 2018, rejected the refund claims on the ground that the taxpayer has failed to submit compliance/ file a fresh refund application within the prescribed time limit of 30 days in terms of Circular No. 17/17/2017GST dated 15 November 2017 in respect of deficiency memos.
The taxpayer brought go the notice of the GST officer that proper procedure as envisaged under the CGST Act and Rules, read with Circular 17/17/2017GST ought to have been followed while adjudicating the refund application. Further, the refund claims were rejected on the grounds not envisaged in law and withholding of credit was contrary to the Government objectives.
Pursuant to rejection of refund claims, the taxpayer requested the finalisation of refund claims by crediting the Electronic Credit Ledger through the common portal as per Rule 93(2) of CGST Rules. However, there was no response received from the GST Officer.

3. Arguments of the taxpayer

There are specific provisions on grant of refund arising pursuant to zero rated supplies under CGST Act. As per Section 54(6) of the CGST Act read with Rule 91 of the CGST Rules, ninety percent (90%) of the refund amount claimed should be granted on provisional basis within a week. The GST officer has failed to comply with the same.
The GST officer has to pass order under section 54(5) of the CGST Act within sixty days (60 days) from the date of receipt of the refund application complete in all respects. The GST officer has failed to comply with the same.
As per of Rule 93(2) of CGST Rules, where any amount claimed as refund is either fully or partly rejected under Rule 92, the amount debited earlier, to the extent of rejection, is required to be recredited to the Electronic Credit Ledger vide order in Form GST PMT03.
As the taxpayers have given up the right to appeal the refund rejection order, the GST authorities were statutorily bound to recredit the amount to the Electronic Credit Ledger.

4. Arguments of the GST authorities

Refund rejected under Rule 92 could be recredited to Electronic Credit Ledger only if the appeal is finally rejected or if the claimant gives an undertaking in writing to GST officer that he shall not file an appeal.
As the taxpayer has not submitted any such undertaking, no amount could be recredited to the Electronic Credit Ledger.

5. Rejoinder by the taxpayer

While the order in GST PMTO3 has already been issued, the rejected amount has not been recredited in the Electronic Credit Ledger.
As per the GST authorities, there is no mechanism to recredit the rejected amount to the ELECTRONIC CREDIT LEDGER of the taxpayer online on the common portal.
Recredit was not refused on the ground of noncompliance of GST law, but on the ground that there is no mechanism to do so.
In such case, the taxpayer should be permitted to manually take the credit.

6. Judgement of the HC

Case decided in favour of the taxpayer.
It is an admitted position that the taxpayer where has not filed any appeal. Hence, the question of the rejection of appeal does not arise. Arguments of the GST authorities rejected.
The taxpayer should file an undertaking under Rule 93 of the CGST Rules stating that the refund order would not be appealed against.
Directions issued to the GST Officer to recredit the amount of ₹ 17,55,13,818 to the Electronic Credit Ledger of taxpayer on the basis of Form GST RFD PMT 03. In case the same is not possible, the taxpayer shall be permitted to manually take credit of the aforesaid amount.

DISCLAIMER: The views expressed are strictly of the author and VJM & Associates LLP. The contents of this article are solely for informational purpose. It does not constitute professional advice or recommendation of firm. Neither the author nor firm and its affiliates accepts any liabilities for any loss or damage of any kind arising out of any information in this article nor for any actions taken in reliance thereon.

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