Facts of the case : The assessee has challenged the validity of Section 89(5)
as amended by notifications issued later on the following grounds:
Section 54(3) of the CGST Act, 2017 – A registered person may claim refund of any unutilised input tax credit at the end of any tax period :
Provided that no refund of unutilised input tax credit shall be allowed in cases other than –
i. zero-rated supplies made without payment of tax;
ii. where the credit has accumulated on account of rate of tax on inputs
being higher than the rate of tax on output supplies (other than nil rated
or fully exempt supplies).
Provided further that no refund of unutilised input tax credit shall be
allowed in cases where the goods exported out of India are subjected to
export duty Provided also that no refund of input tax credit shall be allowed, if the supplier of goods or services or both avails of drawback in respect of central tax or claims refund of the integrated tax paid on such supplies.
Rule 89(5) of CGST Rules(as amended by Notification Nos. 21/2018-CT and
26/2018-CT) – With effect from 1st July 2017, In the case of refund on account of inverted duty structure, refund of input tax credit shall be granted as per the following formula-
Maximum Refund Amount = {(Turnover of inverted rated supply of goods and services) x Net ITC ÷ Adjusted Total Turnover} - tax payable on such inverted rated supply of goods and services.
Explanation: For the purposes of this subrule, the expressions -
Net ITC shall mean input tax credit availed on inputs during the relevant
period other than the input tax credit availed for which refund is claimed
under sub-rules (4A) or (4B) or both
Adjusted Total turnover shall have the same meaning as assigned to it in
sub-rule (4).
The provisions of the rule and the section stated above are contradictory to each other.
Judgement : Considering the above, High Court of Gujarat has issued a Notice to Union Of India returnable on 10.10.2018. The demand notice dated 21.06.2018 issued to the assessee was stayed.