Refund Cannot Be Denied On The Ground That The Payment Of Tax Is Made Through Electronic Credit Ledger – Gujarat High Court

gujarat-high-courtThe Hon’ble High Court of Gujarat vide its order dated 13th April 2022 in the matter of Bhagwati Construction Vs. Union of India in R/Speacial Civil Application No. 15114 of 2021, held that Input Tax Credit is as good as tax paid and the payment of tax by utilization of tax credit is a valid mode of payment.  Thus, the denial of refund/reimbursement on the ground that input tax credit from electronic credit ledger has been utilized for payment of GST, and the whole tax has not been paid through electronic cash ledger, is bad in law and liable to be set aside.

The writ-applicants preferred the writ-application praying for setting aside the impugned communication dated 13.05.2019, refusing to release refund/reimbursement of GST due to the petitioner as per Joint Procedure Order (J.P.O.) dated 21.01.2018 issued by the Western Railways in terms of order dated 27.10.2017 passed by Railway Board.  Further directions were sought to the Respondents to release the amount of refund/reimbursement of Rs. 1,23,02,620, paid by the petitioners under the GST Act towards contract dated 29.06.2017.


  • The writ-applicant no.1 is a partnership firm having its place of business at Ahmedabad. The writ applicant no.2 is the partner of the said firm. That for last 20 years the writ-applicants are Government approved railway contractors and awarded E-Tender No. Dy CE (C) P&D/ADI/ADI-HMT-16 by the Railways Board and an agreement was entered into on 29.6.2017.
  • The writ-applicants were registered under the Gujarat Value Added Tax Act, 2003 and opted for lump-sum tax scheme and their tax liability under the VAT Act was 0.6%. Further the activity of the writ-applicants with respect to service provided to the Railways was exempt vide Notification no. 25/2012.  However, after the introduction of GST regime (w.e.f. 01.07.2017) their activity became taxable @12%.
  • The contractors made representations with the Railways for granting reimbursement of the additional tax liability under GST Act for the contracts entered before the GST regime. That having heard the said representations, the Railways Board issued an order dated 27.10.2017 giving instructions to all the Railway Divisions to issue a Joint Procedure Order for neutralizing the impact of the GST on the existing works allotted prior to the implementation of the GST regime.
  • That following the instructions, the Western Railway issued a Joint Procedure order on 21.01.2018 specifying the procedure to claim reimbursement. Thereafter a supplementary agreement was entered between the writ-applicants and the Western Railways on 26.02.2018 for the contract pertaining to E-Tender No. Dy CE (C) P&D/ADI/ADIHMT-16 dated 29.6.2017 based on the Joint Procedure Order.
  • That in accordance with Joint Procedure Order the writ-applicants put up a claim on 26.02.2018 along with a Chartered Certificate showing input tax credit admissible, if any, for the contract. However, the final claim in respect of the contract in question was submitted by the writ-applicants through their Chartered Accountant on 30.11.2018.
  • The Deputy Chief Engineer of Railways after scrutinising the claim of the writ-applicants generated a pay order on 10.02.2019, with respect to refund/reimbursement of GST, amounting to Rs.1,23,02,620 after statutory deductions. Thereafter writ-applicants raised a tax invoice on 11.02.2019 for collection of the amount, however a letter dated 27.02.2019 was issued to the writ-applicants seeking some clarifications, which was responded by the writ-applicants on 01.03.2019.
  • That a letter dated 05.04.2019 was issued to the writ-applicants to clarify that why the input tax credit is showing as ‘Nil’ in the working sheet submitted by them for refund, when they are discharging the tax liability in the returns by utilizing the input tax credit. To which the writ-applicants responded vide letter dated 10.04.2019 clarifying that in the contract in question there is no use of goods for which the input tax credit was admissible, the input tax credit utilized pertains to other contracts.
  • That again the writ-applicants received a letter dated 07.05.2019 alleging that against their claim of Rs. 1,23,02,620/-, only Rs. 33,92,980/- has been paid through the electronic cash ledger. Thus, was asked to provide the details of other contracts with the input tax credit claimed in those contracts.
  • That the writ-applicants, thereafter, filed a complaint dated 10.05.2019 with the chief engineer complaining their refund/reimbursement has been withheld despite the fact all required details and information has been provided.
  • Thereafter, the writ-applicants received the impugned letter dated 13.05.2019 informing that the reimbursement would not be granted since only a part amount of tax was paid through the electronic cash ledger.
  • Several correspondences were exchanged between the writ-applicants and the respondents and through its submissions dated 05.09.2019, it was submitted by the writ-applicants that all the required documents as per Joint Procedure Order & supplementary agreement had already been submitted, and contract-wise ITC, as sought is beyond the Joint Procedure Order.
  • That a meeting was held of similar contractors with Railway Board on 13.01.2020. However, the issued could not be resolved.
  • The writ-applicants once again made a request on 26.05.2020. It was submitted that cumulative calculation of all the contracts as sought by the officers of Railway is impossible and beyond the requirement of Joint Procedure Order.
  • Thereafter, the writ-applicants gave several reminders to respondents but the refund/reimbursement was not released.

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