The Delhi High Court has stayed the Paragraph 8 of Circular No. 125/44/2019-GST dated 18.11.2019 which restricted that Refund Period can’t be spread across Two Financial Years and to be filed in Chronological Order.
The Petitioner Pitambra Books, who is engaged in the business of manufacturing and trading of books The business involves procuring raw materials and allied goods from the domestic market for manufacture of final product through its in-house manufacturing facility, which is then exported to markets in Sudan, Russia, Ethiopia, Guinea and other African/Asian countries, etc. The export activity of the petitioner is categorized as zero-rated supplies as defined under Section 16(1)(a) of the Integrated Goods and Services Tax Act, 2017.
The Petition has challenged the Circular No.37/11/2018-GST dated 15.03. 2018 and Circular No. 125/44/19-GST dated 18.11.2019.
Mr. Puneet Agrawal learned counsel for the petitioner submitted that owing to the restrictions imposed in the aforenoted circulars, Petitioner has been deprived of the benefit of availing refund claim of the unutilized input tax credit (ITC) for the period from April 2018 to June 2018. This is causing serious financial hardship as more than Rs.30 crores of the accrued and unutilized input tax credit, that is eligible for a refund is now lying stuck. The implementation of the aforesaid circulars on the GSTN portal has occasioned the disablement of the option for filing the refund of tax.
The Petitioner also submitted that the problem stems from paragraph 8 of impugned circular no. 125/44/2013/GST dated 18th November 2019, which inhibits refund claims for a period of two separate (not successive) financial years. He argues that this is in contravention of Section 44 as also Rule 89 of the IGST rules.
The division bench comprising of Justice Vipin Sanghi and Justice Justice Sanjeev Narula observed that we are of the prima facie view that by way of the impugned circulars, though the respondents recognize the difficulties faced by the exporters and have permitted them to file refund claim for one calendar month/quarter or by clubbing successive calendar months/quarters, yet the restriction pertaining to the spread of refund claim across different financial years is arbitrary, there is no rationale or justification for such a constraint.
While staying the Circular, the Court also directed the department to either open the online portal so as to enable the petitioner to file the tax refund electronically or to accept the same manually.
The impact of the Hon’ble High Court’s verdict is that now the restriction that refund period cannot be spread across two financial years and that refund period has to be filed in chronological order is no more maintainable and therefore assessee can file refund claim which spread across two financial years and for any period.
The applicant, at his option, may file a refund claim for a tax period or by clubbing successive tax periods. The period for which refund claim has been filed, however, cannot spread across different financial years. Registered persons having an aggregate turnover of up to Rs. 1.5 crore in the preceding financial year or the current financial year opting to file FORM GSTR-1 on a quarterly basis, can only apply for a refund on a quarterly basis or clubbing successive quarters as aforesaid. However, refund claims under categories listed at (a), (c) and (e) in para 3 above must be filed by the applicant chronologically. This means that an applicant, after submitting a refund application under any of these categories for a certain period, shall not be subsequently allowed to file a refund claim under the same category for any previous period. This principle/limitation, however, shall not apply in cases where a fresh application is being filed pursuant to a deficiency memo having been issued earlier.
The petitioner – who is engaged in the business of manufacturing and trading of books, is registered under the Goods and Service Tax (GST) Act. The business involves procuring raw materials and allied goods from the domestic market for manufacture of final product through its in-house manufacturing facility, which is then exported to markets in Sudan, Russia, Ethiopia, Guinea and other African/Asian countries etc. The export activity of the petitioner is categorized as zero-rated supplies as defined under Section 16(1)(a) of IGST Act, 2017.
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