The Karnataka High Court upheld the validity of Section 54(3) of the CGST Act pertaining to the refund of unutilised Input Tax Credit (ITC).
As many as 10 petitions have been filed by the manufacturers of Tobacco and Tobacco Products and are registered in terms of Rule 9 of the Central Excise Registration Rules, 2002. Subsequent to coming into force of the Goods and Services Tax (“GST” for short) regime, the petitioners have registered themselves under Rule 10 (1) of the Central Goods and Services Tax Rules, 2017.
The levy of excise duty and levy of NCCD has elements of caprice, irrationality and lacks adequate termination principles rendering the levy bad as being manifestly arbitrary. The phrase “adequately determining principle” has been held to be “principle which is in consonance with the constitutional values. In the present case, the levy of excise duty by recourse Notification No.3/2019 dated 06.07.2019 to sustain excise duty is violative of the constitutional scheme and consequently illegal and ought to be set aside as being manifestly arbitrary. Once it is prima-facie shown in the classification. is arbitrary and violative of Article 14 there is a duty on the revenue to justify reasonableness of the said classification and there has been no attempt by the respondent to justify classification either by way of an affidavit or pleadings.
The single bench of Justice S.Sunil Dutta Yadav has relied on the Supreme Court’s judgment in the case of Union of India v. VKC Footsteps wherein it was held that Parliament engrafted a provision for refund Section 54(3). In enacting such a provision, Parliament is entitled to make policy choices and adopt appropriate classifications, given the latitude which our constitutional jurisprudence allows it in matters involving tax legislation and to provide for exemptions, concessions and benefits on terms, as it considers appropriate.
The court held that no case is made out for interference on the ground of the levy being hit by the law contained in Article 14.
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