The High Court of Jharkhand allowed the petition which argued that the 2022 amendment to Rule 89(4) of CGST Rules, which introduced a comparison between values indicated in the tax invoice and the shipping bill, should have a prospective effect and held that the explanation inserted in Rule 89(4) of the CGST Rules, 2017 is not of a clarificatory nature and thus will be applied prospectively.
Brief Facts:
The petitioner is an iron and steel manufacturer that procures coal subject to Goods and Services Tax (GST) and Compensation Cess. The petitioner claims the Input Tax Credit (ITC) of the compensation cess on the coal supply. They export goods without tax payment, which accumulates the ITC of Compensation Cess. During a specified period, the petitioner cleared goods for export at cost price due to uncertainty in final pricing. Later, they updated the values in GSTR-1. The petitioner claimed a refund, but a circular was allowed considering subsequent periods. A provisional refund was given, followed by a show-cause notice, leading to a refund denial. The petitioner filed a writ petition, arguing that Rule 89(4) of the CGST Rules' 2022 update, which included a comparison between values shown in the tax invoice and the shipping bill, should take into account prospective effects.
Contentions of the Petitioner:
The learned counsel appearing on behalf of the petitioner contended that the value of supply under section 15 of the CGST Act should be the transaction value and can’t arbitrarily impose a new condition to determine the value of zero-rated exports to whittle down the benefit of refund granted in the Act / Rules and Circulars should align with the parent Act, but the Circular introduced a comparison between invoice and shipping bill values without a basis in the Act or Rules. He further argued that the courts have held that circulars contrary to the parent legislation cannot be applied to deny the legitimate claim of refund of ITC and the respondent lacks jurisdiction to disregard actual goods value for calculating refunds and subordinate legislation cannot create fictional rules. He further contended that the claim that BRCs were not enclosed to the appeal is incorrect as all annexures were sent via email and the authorities' arbitrary calculation of "Turnover of zero-rated supply of goods" adversely affected the petitioner's refund eligibility.
Contentions of the Respondent:
The learned counsel appearing on behalf of the respondent contended that tax collection is authorized by law, and refunds are a government policy to promote exports rather than a constitutional or fundamental right. The importance of verifying invoices during refund processing is highlighted, and concerns are raised about the petitioner's revision of invoice values. They contended that circulars instruct the processing of refunds based on the lower value between tax invoices and shipping bills when discrepancies occur. The respondents emphasize the GST Council's approval, stating that the government has the authority to impose refund restrictions and conditions.
Observations of the Court:
The court observed that a new condition for comparing two numbers was added by the 2022 Amendment Rules that did not exist prior to the amendment. Prior to this, just the actual transaction value was taken into account. The Court came to the conclusion that the modification should take effect immediately because of this significant change in the law. The Court emphasised that the amendment's use of the word "explanation" did not imply that it was in the nature of a clarification or declaration.
The court further observed that while the revised explanation clearly required a comparison with only the FOB value, Paragraph 47 of the rules required a comparison of the value of export in the tax invoice and the export document (which might be either FOB or CIF value). This differentiation made it clear that the explanation did not follow paragraph 47.
The Court emphasized that policy changes should be implemented as of the date of the amendment and should not be made through circulars but rather through amendments to the Parent Act.
The decision of the Court:
The court allowed the petition.
Case Title: M/s. Tata Steel Limited vs. Union of India
Coram: Hon’ble Mr. Justice Rongon Mukhopadhyay, Hon’ble Mr. Justice Deepak Roshan
Case No.: W.P.(T)No. 1719 of 2022
Advocate for the Applicant: Mr. Tarun Gulati, Mr. Sumeet Gadodia, Mr. Salona Mittal
Advocate for the Respondent: Mr. Anil Kumar, Mr. P.A.S.Pati, Mrs. Ranjana Mukherjee
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