The Rajasthan High Court issued the to the State Government and the Central Government on plea challenging Restriction of Refund of Accumulated Input Tax Credit (ITC) of Input Service under Rule 89 (5) of CGST Rules.
Mr. Sanjay Jhawar and Mr. Rahul Lakhwani appeared on behalf of Petitioner, Rajasthan Patrika Pvt. Ltd. and argued that as per Section 54(3)(ii) of the CGST/RGST Act, in a case wherein there is an accumulation of ITC on account of rate of tax on inputs being higher than the rate of tax on output supplies (Inverted Duty Structure), the registered person can claim a refund of any unutilized ITC. Thus, if the person fulfills the qualification of said section i.e. rate of inputs is higher than the rate of output supply, he shall be eligible for a refund of ‘unutilized input tax credit’ and there is no restriction in relation to an input tax credit of input services.
However, the retrospective amendment has been made in Rule 89(5) of the CGST or RGST Rules vide which refund of Input Tax Credit accumulated on input services has been restricted. Therefore, said amendment in Rule 89(5) of CGST or RGST Rules is ultra-vires to Section 54(3)(ii) of CGST or RGST Act. Mr. Jhanwar apprised the Hon’ble Court that the Petitioner is engaged in the publication of one of the leading newspapers wherein it provides advertisement services on which 5% of GST is applicable. Against the said service, the Petitioner uses inputs that are taxed at the rate of 12% or 18%, due to which there is an accumulation of credit and refund of the said accumulated ITC has to be granted under section 54(3) of the CGST or RGST Act.
The division bench of Chief Justice Indrajit Mahanty and Justice Satish Kumar Sharma appreciated the arguments made by Adv. Sanjay Jhawar and Rahul Lakhwani and issued notice to the Central Government and Rajasthan Government.
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