Baker Hughes Asia Pacific Limited vs Union Of India
2022 Latest Caselaw 8494 Raj

                                          (1 of 12)                 [CW-5714/2021]


     HIGH COURT OF JUDICATURE FOR RAJASTHAN AT
                      JODHPUR
               D.B. Civil Writ Petition No. 5714/2021

Baker Hughes Asia Pacific Limited, Having Its Project Office At
Unit No. 203, Reliable Tech Park, MIDC, Airoli, Navi Mumbai
400708, Maharashtra and Project Execution Office at Survey No.
2301/818 and 2408/819, Ahmedabad Highway Near Petrol
Pump, Barmer, Rajasthan 344001 through its Authorised
Signatory Ranveer Milkhi Singh Rana Son Of Shri Milkhi Ram
Rana, Age-47 Years, Resident Of Village & PO Tatehal, Tehsil
Palampur, District Kangra, Himachal Pradesh 176103.
                                                                    ----Petitioner
                                    Versus
1.      Union Of India, Through Its Secretary, Ministry Of
        Finance, 3rd Floor, Jeevan Deep Building, Sansad Marg,
        New Delhi.
2.      The State Of Rajasthan, Through Its Principal Secretary,
        Department Of Finance, Secretariat, Jaipur.
3.      The Deputy Commissioner, State Tax, Circle Barmer,
        Rajasthan.
4.      Central Board Of Indirect Taxes And Customs, Through Its
        Chairman, North Block, New Delhi 110001.
                                                                 ----Respondents


For Petitioner(s)         :     Mr. Tushar Jarwal, Sr. Advocate with
                                Mr. Sheetal Kumbhat.
For Respondent(s)         :     Mr. Mukesh Rajpurohit, ASG.
                                Mr. Sandeep Shah, Sr. Advocate-cum-
                                AAG with Mr. Nishant Bafna.
                                Mr. Hemant Dutt.
                                Mr. Rajvendra Saraswat.



           HON'BLE MR. JUSTICE SANDEEP MEHTA
      HON'BLE MR. JUSTICE VINOD KUMAR BHARWANI

                              JUDGMENT

Judgment pronounced on                  :::             30/06/2022
Judgment reserved on                    :::             24/05/2022



BY THE COURT : (PER HON'BLE MEHTA, J.)

1. The petitioner herein has approached this Court through this

writ petition under Article 226 of the Constitution of India with the

following prayers:

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"a. issue an appropriate writ, order, or direction in the nature of Certiorari or any other writ, order or direction of like nature, calling for record of the Petitioner's case leading to passing of the Impugned Refund rejection Order in Form RFD 06 dated 05.01.2021 (Annexure-1) and after examining its legality and propriety, quash the Impugned Refund rejection Order in FORM RFD 06 dated 05.01.2021 (Annexure-2) as being arbitrary, illegal and constitutionally invalid;

b. issue an appropriate writ, order, or direction in nature of Certiorari or any other writ, order or direction of like nature, to call for, examine the record in relation to the Impugned Circular bearing No. 135/05/2020-GST F.No.CBEC-20/01/06/2019-GST dated 31.03.2020 (Annexure-2) and quash Para 3 of it to the extent it seeks to deny refund in cases where input and output supplies are same as being arbitrary, violative of Article 14, and Article 300A of the Constitution of India and ultra vires Section 54 of the Central Goods and Services Tax Act, 2017;

c. Writ of Mandamus or any other appropriate writ, order or direction in the nature of mandamus directing the Respondent No.2 and 3 [Deputy Commissioner, State Tax] to grant refund of accumulated Input Tax Credit amounting to Rs. 27,02,26,876 as claimed by the Petitioner under FORM-GST-RFD-01 dated 29.09.2020;"

2. Brief facts relevant and essential for disposal of the writ

petition are noted herein below:

The petitioner operating in the State of Rajasthan through its

project Office at Unit No.203, Reliable Tech Park, MIDC, Airoli,

Navi Mumbai, entered into a development contract with the

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company Vedanta Limited which has been granted exclusive rights

to carry out petroleum operations in Rajasthan Block RJ-ON-90/1

by the Government of India. For this purpose, a Production

Sharing Contract was executed between Vedanta and the Central

Government. In order to procure essential goods, materials and/or

equipment required for carrying out the petroleum exploration and

production operations as prescribed in the Production Sharing

Contract, Vedanta entered into a sub contract dated 11.12.2018

with the petitioner for supply of these articles. As per terms of

contract, the petitioner was required to procure the specified

goods, material and/or equipment from India and abroad for

onward dispatch to its Customer i.e. Vedanta. For executing the

aforementioned supply of goods, the petitioner obtained

registration under the CGST/RGST Acts and claims to have been

regularly filing returns and paying tax to the Central/ State

Government. For the purpose of execution of the contract, the

petitioner procured goods from authorised vendors at GST rates

varying between 5% to 28%.

3. It is asserted by the petitioner that in order to reduce the

burden of tax and the cascading effect and to give a boost to the

oil and gas industry, the Central Government issued a Notification

No.3/2017- CGST dated 28.06.2017 providing for an effective GST

Rate of 5% on all supplies made for specified operations subject to

certain conditions. To avail 5% concessional rate of GST under the

said notification, a pre-requisite condition was stipulated i.e. to

provide a certificate from the Directorate General of

Hydrocarbons, Ministry of Petroleum and Natural Gas which clears

the transfer of said goods. The essentiality certificate was issued

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bearing the name of the petitioner as the supplier and Vedanta as

recipient. The petitioner, procured the goods by paying GST from

5% to 28% (Input Tax) and supplied the same to the Vedanta at

the fixed GST rate of 5% (Output Tax) under the notification

No.3/2017-Central Tax (Rate), dated 28.06.2017. It is claimed

that Input Tax Credit available to the petitioner is much higher

than its Output Tax Liability and as a consequence, after complete

utilization of the credit towards the Output Tax Liability, a

significant percentage of Input Tax Credit accumulated in favour of

the petitioner on account of difference in rate of tax (GST) which

was much higher than the rate of output tax. The petitioner has

thus claimed that it is entitled to refund under the inverted duty

structure as provided by the CGST and RGST Acts. For this

purpose, the petitioner has relied upon Section 54 of the CGST Act

which reads as below:

"(1) Any person claiming refund of any tax and interest, if any, paid on such tax or any other amount paid by him, may make an application before the expiry of two years from the relevant date in such form and manner as may be prescribed:

Provided that a registered person, claiming refund of any balance in the electronic cash ledger in accordance with the provisions of sub-section (6) of section 49, may claim such refund in the return furnished under section 39 in such manner as may be prescribed.

...........

(3) Subject to the provisions of sub-section (10), a registered person may claim refund of any unutilized input tax credit at the end of any tax period:

Provided that no refund of unutilized input tax credit shall be allowed in cases other than-

(i) .......

(ii) where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax

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on output supplies (other than nil rated or fully exempt supplies), except supplies of goods or services or both as may be notified by the Government on the recommendations of the Council:"

(Emphasis supplied)

4. The petitioner claims to have filed a legitimate refund claim

quantified at Rs.27,02,26,876/- in FORM No.GST-RFD-01 bearing

Application Reference Number (ARN) AA080920066706Y to the

respondent No.3 Deputy Commissioner, State Tax, Circle Barmer

for the period between September, 2018 to September, 2019 as

per the inverted duty structure in terms of Section 54(3)(ii) of the

CGST Act. Pursuant to receiving the Refund Form, the petitioner's

representative was summoned by the respondent No.3 Deputy

Commissioner, State Tax, Circle Barmer and acting under his

directions, all relevant details were provided in support of the

I.T.C. refund claim. The petitioner alleges that to its utter surprise,

a notice under FORM-GST-RFD-08 dated 19.12.2020 was received

requiring the petitioner to show cause as to why the refund claim

to the tune of Rs.27,02,26,876/- be not rejected in light of the

Circular dated 31.03.2020 issued by the Central Board of Indirect

Taxes and Customs (CBITC) which stipulates that refund under the

inverted duty structure in terms of Section 54(3)(ii) of the

CGST/RGST Act would not be available where the input and output

supplies are the same. Clause 3.2 of the Circular dated

31.03.2020, is the bone of contention between the parties and is

reproduced hereinbelow for the sake of ready reference:

"3.2- It may be noted that refund of accumulated ITC in terms clause (ii) of sub-section (3) of section 54 of the CGST Act is available where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies. It is noteworthy that, the input and output being the same in such cases, though

(6 of 12) [CW-5714/2021]

attracting different tax rates at different points in time, do not get covered under the provisions of clause (ii) of sub-section (3) of section 54 of the CGST Act. It is hereby clarified that refund of accumulated ITC under clause (ii) of sub-section (3) of section 54 of the CGST Act would not be applicable in cases where the input and the output supplies are the same."

(Emphasis supplied).

5. The petitioner relies upon Para 59 of the Circular

No.125/44/2019-GST - CBEC-20/16/04/18-GST wherein, it has

been clarified that refund under Section 54(3)(ii) of the CGST Act

i.e. inverted duty structure, is to be allowed when the inputs are

being procured at the normal GST rate and the output supplies are

being made at a lower GST rate because of the lower rate

notification in place. The said para of the circular is reproduced

herein below for the sake of ready reference:

"59. Notification No. 40/2017 - Central Tax (Rate) and notification No. 41/2017 - Integrated Tax (Rate) both dated 23.10.2017 provide for supplies for exports at a concessional rate of 0.05% and 0.1% respectively, subject to certain conditions specified in the said notifications. It is clarified that the benefit of supplies at concessional rate is subject to certain conditions and the said benefit is optional. The option may or may not be availed by the supplier and/or the recipient and the goods may be procured at the normal applicable tax rate. It is also clarified that the exporter will be eligible to take credit of the tax @ 0.05%/0.1% paid by him. The supplier who supplies goods at the concessional rate is also eligible for refund on account of inverted tax structure as per the provisions of clause (ii) of the first proviso to sub- section (3) of section 54 of the CGST Act."

The petitioner filed a detailed reply to the show cause notice

dated 09.12.2020 claiming that there was no restriction on

claiming refund in such cases where the inputs and output

supplies are same as outward supplies were made at concessional

(7 of 12) [CW-5714/2021]

GST rates under the CGST notification dated 18.11.2019 which

approves refund in cases where input and output supplies are

same and where GST on output supply is fixed at a lower rate.

Pursuant to receiving the aforesaid reply, the respondent No.3

rejected the refund claim submitted by the petitioner with

reference to para 3 of the Circular dated 31.03.2020, vide

impugned order dated 05.01.2021 (Annexure-1). The petitioner

has thus, approached this Court through this writ petition

preferred under Article 226 of the Constitution of India for

assailing para 3 of the impugned circular dated 31.03.2020 and so

also the rejection order dated 05.01.2021.

6. Separate replies to the writ petition have been filed by the

respondents wherein, it has primarily been asserted that input and

output supplies made by the petitioner are same thereby, leading

to no value addition on the goods supplied by it and hence, the

petitioner's claim for refund is not compliant with the criteria of

inverted duty structure prescribed under Section 54(3) of CGST

Act, 2017 and therefore, the tax credit would not be available to

the petitioner. In this reference, reliance has been placed on Para

No.3.2 of the Circular dated 31.03.2020. The respondents have

emphatically disputed application of the circular dated 18.11.2019

(supra) to the petitioner's claim.

7. Shri Tushar Jarwal, Sr. Advocate assisted by Shri Sheetal

Kumbhat, Advocate representing the petitioner, relied upon the

Judgments rendered by the Guwahati High Court in the case of

B.M.G. Informatics Pvt. Ltd. Vs. Union of India & Ors,

reported in 2021-VIL-650-GAU and the Calcutta High Court in

(8 of 12) [CW-5714/2021]

the case of M/s. Shivaco Associates & Anr. vs. Joint

Commissioner of State Tax, Directorate of Commercial

Taxes & Ors, reported in 2022-VIL-209-CAL and urged that in

the case of B.M.G. Informatics Pvt. Ltd. (supra), Hon'ble

Guwahati High Court categorically disapproved the stipulation

made in the circular dated 31.03.2020 providing that even though

different tax rates may be attracted at different points of time but

the refund of accumulated unutilised tax credit will not be

available under Section 54(3)(ii) of the CGST Act where the input

and output supplies are same. It has been directed by the

Guwahati High Court that this Circular would have to be ignored in

situations akin to the case at hand.

While accepting the writ petition in the case of M/s.

Shivaco Associates (supra), Hon'ble Calcutta High Court went

on to hold that the respondent authority, ought not to have

rejected the claim of the petitioners by relying on the circular

dated 31.03.2020 as the same was contrary to the provisions of

the Act.

Shri Jarwal further urged that subordinate legislation in form

of a statutory circular cannot supersede or override the parent

statute and as such, the impugned circular, to the extent it

disallows Input Tax Credit under the Inverted Duty Structure

where input and output supplies are same, and so also the

impugned order dated 05.01.2021, are per se illegal and hence

deserve to be struck down while accepting the writ petition.

8. Per contra, Shri Mukesh Rajpurohit, learned ASG

representing the Union of India and CBIT, learned Senior Counsel

Shri Sandeep Shah, AAG representing the Department of Finance,

(9 of 12) [CW-5714/2021]

State of Rajasthan and, Shri Rajvendra Saraswat, Advocate

representing the GST Department, vehemently and fervently

opposed the submissions advanced by the petitioner's counsel.

They contended that the petitioner is not entitled to the refund

claim for ITC in face of the Circular dated 31.03.2020 and

implored the Court to affirm the impugned order and sought

dismissal of the writ petition.

9. We have heard and considered the submissions advanced by

learned counsel representing the parties and have gone through

the pleadings and the documents placed on record as well as the

circulars and statutory provisions referred by the parties.

10. At the outset, we may note here that Section 54(3)(ii) of the

CGST Act is absolutely unambiguous and does not carve out any

exception that Input Tax Credit under the Inverted Tax Structure

would not be applicable where the input and the output goods are

the same. For the purpose of clarification, the Government of

India, Ministry of Finance, Central Board of Indirect Taxes and

Customs issued a notification dated 18.11.2019 para No.59

whereof reproduced infra, which makes it clear that the supplier

who supplies goods at a concessional rate to companies involved

in specified projects is entitled to refund under the inverted tax

structure as per Clause (ii) of first proviso to Sub-section (3) of

Section 54 of the CGST Act. The circular dated 31.03.2020

(Annexure-2) on the strength whereof the petitioner's claim for

ITC refund has been rejected, clarifies that refund of accumulated

ITC under Clause (ii) of Sub-section (3) of Section 54 of the CGST

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Act would not be applicable in cases where the input and output

supplies are the same.

11. We may state here that this circular is in the nature of an

explanation and was issued on 31.03.2020 whereas the

petitioner's claim for refund was a prior period between

September, 2018 to September, 2019 on which date, the

clarification dated 18.11.2019 was in force which clearly stipulates

that a registered dealer who supplies goods at concessional rate is

eligible for refund under the Inverted Tax Structure. Clause (ii) of

Sub-Section (3) of Section 54 of the CGST Act does not indicate

that ITC would be admissible only if the goods supplied had been

subjected to some process. The provision allows refund of credit

accumulated on account of supplies and does not mention that the

credit could be claimed only if the supplier has made any value

addition/ enhancement to the goods supplied. The very purpose of

fixing the rate of GST at 2.5% each towards CGST/RGST on goods

supplied for execution of petroleum projects was introduced with

the object of promoting the oil and gas exploration activities. The

Central Government Notification dated 28.06.2017, in

unambiguous terms stipulates that upon being satisfied that it is

necessary in the public interest to do so, on the recommendations

of the council, intra State supply of goods, was being

exempted/taxed at lower tax rates.

12. The impugned circular dated 31.03.2020 issued by CBITC

was challenged before Hon'ble Guwahati High Court in the case of

B.M.G. Informatics Pvt. Ltd. (supra). The learned Single bench

of Guwahati High Court, vide judgment dated 02.09.2021, held

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that the supplying dealer would be entitled to claim refund of

accumulated unutilised tax credit under Section 54(3)(ii) of the

CGST Act irrespective of the fact the input and output supplies are

the same by ignoring the circular dated 31.03.2020. Similar view

was taken by Hon'ble Calcutta High Court in the case of M/s.

Shivaco Associates (supra).

13. During the course of arguments, this Court made a pertinent

query from learned counsel Shri Saraswat as to whether the

judgment of the Guwahati High Court in the case of B.M.G.

Informatics Pvt. Ltd. (supra) had been challenged any further

to which, he fairly conceded that to his information, the judgment

has not been challenged so far.

14. In wake of the discussion made herein above, we are of the

firm opinion that the circular dated 31.03.2020, being a

subordinate legislation, is repugnant and conflicting to the parent

legislation i.e. Section 54(3)(ii) of the CGST Act and hence, the

same cannot be applied to oust the legitimate claim for

accumulated ITC refund filed by the petitioner. Otherwise also, the

claim for refund of ITC filed by the petitioner was for a period prior

to issuance of the circular dated 31.03.2020. Consequently,

rejection of the petitioner's claim for accumulated input tax credit

by the respondent No.3 Deputy Commissioner, State Tax, Circle

Barmer with reference to para 3 of the Circular dated 31.03.2020,

is invalid on the face of the record and cannot be sustained.

15. Thus, the order dated 05.01.2021 is hereby quashed and set

aside. The respondents are directed to forthwith, refund the

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accumulated input tax credit to the petitioner as per its

entitlement.

16. The writ petition is allowed in these terms.

17. No order as to costs.

(VINOD KUMAR BHARWANI),J (SANDEEP MEHTA),J

94-Tikam Daiya/-

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