2019 Taxo.online 781

P.I.L. CIVIL No. – 31650 of 2019





Central Goods and Service Tax, 2017

Section 54

CGST Rules 2017

Rule No. 89

Pankaj Kumar Jaiswal, Justice & Alok Mathur, Justice

In favour of revenue

High Court


Represented by:-

Petitioner :- Ritesh Verma
Respondent:- A.S.G.


  1. Vakalatnamas filed by Sri Shubham Tripathi, Advocate on behalf of respondent Nos.4 and 5 are taken on record.
  2. Heard Sri Ritesh Verma, learned counsel for the petitioner, Sri S. B. Pandey, learned Senior Counsel assisted by Sri Varun Pandey, learned counsel for respondent Nos.1 to 3 and Sri Shubham Tripathi, learned Counsel for respondent Nos.4 and 5.
  3. The petitioner, who is an Advocate by profession, has filed this petition in the nature of Public Interest Litigation and prays for
    issuance of directions to the respondent No.2 to conduct an independent, free and fair enquiry against the concerned officers in respect of all refund claims of excess tax (compensation cess) paid prior to the Notification dated 30.9.2019 (Annexure – 1) and accumulated due to inverted tax structure in relation to “Tobacco and manufactured tobacco substitutes” including the Officer who passed the impugned orders dated 4.10.2019 (Annexure 2) and to prevent grant of any further refund claims. He is also seeking direction to the respondent No.3 to file a statutory appeal against the impugned orders dated 4.10.2019.
  4. Section – 54 of the Central Goods and Services Tax Act, 2017 [hereinafter referred to as ‘CGST Act’] which came into force w.e.f. 1.7.2017 provides that refund of excess tax, interest or any other amount paid can be claimed before expiry of two years from the relevant date. In CGST Act, the purchaser gets credit of the tax paid by it on its inputs. On removal of the goods as output, it can utilize the credit taken. If the tax on the output is at a lower rate, the credit gets accumulated. This accumulated input tax credit can be claimed as refund, provided the goods are not notified under Section 54 (3) (ii) of CGST Act read with Section 9 (2) Goods and Services Tax (Compensation to States) Act, 2017.
  5. On 20.9.2019, GST Council in the 37th meeting at Goa inter alia recommended restriction on refund of compensation cess on “Tobacco and manufactured tobacco substitutes” (in case of inverted duty structure).
  6. The Central Government in exercise of powers conferred by Clause (ii) of the proviso to sub-section (3) of Section 54 of the CGST Act read with sub-section (2) of Section 9 of the Goods and Services Tax (Compensation to States) Act, 2017 published Notification No.3/2019 – Compensation Cess (Rate) dated 30.9.2019, thereby restricting the refund of unutilized input tax credit of compensation cess, where the credit was accumulated on account of rate of compensation cess on inputs being higher than the rate of compensation cess on the output supplies of tobacco and manufactured tobacco substitutes.
  7. According to the petitioner, notwithstanding the date of excess tax payment and credit taken in respect of these goods, even if the payment and credit taken is prior to the date of issuance of the said Notification, no refund shall be granted in respect of
    unutilized input tax credit. The purpose behind the Notification was to prevent refund of tax paid to anybody involved in a business activity which is premised on the usage of tobacco, which are known to be a public health hazard. Since huge amount of public money is involved, the application of the Notification should be retrospective. The Notification, though published on 30.9.2019, as per the petitioner, the same shall be construed as applicable retrospectively, not only for the refund of accumulated credit of excess tax on inputs in the month of September, but even prior thereto.
  8. By both the impugned orders dated 4.10.2019, by which respondent No.3 sanctioned refund of unutilized input tax credit of compensation cess, admittedly paid prior to the date of Notification. According to the petitioner, respondent No.3 acted in an arbitrary manner while passing the impugned orders. To prevent the officers of respondent Nos.1 to 3 from acting in any manner, contrary to the said Notification by presuming the same to be applicable prospectively, this petition has been filed in public interest.
  9. It is well settled that personal injury or loss of the Advocate was not an essential requirement and only a person acting bona fide
    and having sufficient interest in the proceeding of PIL will alone have a locus standi and can approach the Court, but not a
    person for personal gain or private profit or political motive or any oblique consideration. The Apex Court has time and again
    said that the public interest litigation is a weapon which has to be used with great care and circumspection and the judiciary
    has to be extremely careful to see that behind the beautiful veil of public interest, an ugly private malice, vested interest and/or publicity seeking is not lurking. It is to be used as an effective weapon in the armoury of law for delivering social justice to the
  10. Learned Counsel for respondents, who are appearing in advance notice, submits that the instant P.I.L. petition is clear misuse of
    abuse of process of law and the same shall be liable to be dismissed with exemplary costs.
  11. In the case of CIT v. Vatika Township Private Ltd. [(2015) 1 SCC 1], the Hon’ble Supreme Court has clarified the position regarding general principles against retrospectivity as principle of ‘fairness’ while holding that legislations which modified accrued rights or which impose obligations or impose new duties or attach a new disability have to be treated as prospective.
  12. The Gujarat High Court in its recent judgment dated 17.7.2019 in R/Special Civil Application No.20626 of 2018, Shabnam
    Petrofils Pvt. Ltd. v. Union of India, which is also concerning notifications issued under Section 54 (3) (ii) of the CGST Act has taken similar view.
  13. The subject Notification No.3/2019 dated 30.9.2019 reads as under:-
    “In exercise of the powers conferred by clause (ii) of the proviso to sub-section (3) of section 54 of the Central Goods and Services Tax Act, 2017 (12 of 2017) read with sub-section (2) of Section 9 of the Goods and Services Tax (Compensation to States) Act, 2017, the Central Government, on the recommendations of the Council, hereby notifies the goods, the description of which is specified in column (3) of the Table below and falling under the tariff item, heading, sub-heading or Chapter, as the
    case may be, as specified in the corresponding entry in column (2) of the said Table, in respect of which no refund of unutilized input tax credit of compensation cess shall be allowed, where the credit has accumulated on account of rate of compensation cess on inputs being higher than the rate of compensation cess on the output supplies of such goods (other than nil rated or fully exempt supplies).
    5 TABLE S. No. Tariff item, heading, subheading or Chapter Description of Goods (1) (2) (3) 1. 24 Tobacco and manufactured
    tobacco substitutes Explanation — (1) In this Table, “tariff item”, “sub-heading”, “heading” and “Chapter” shall mean respectively a tariff item, sub-heading, heading or chapter, as specified in the First Schedule to the Customs Tariff Act, 1975 (51 of 1975). The rules for the interpretation of the First Schedule to the said Customs Tariff Act, 1975, including the Section and
    Chapter Notes and the General Explanatory Notes of the First Schedule shall, so far as may be, apply to the interpretation of
    this notification.”
  14. The goods specified have thus been notified with the publication of the said Notification in the official gazette on 30.9.2019. If any credit of Input Tax paid on the said specified inputs supplies is taken after this Notification, i.e. after 30.9.2019, no refund of such input tax credit of compensation cess shall be allowed, even if the credit has accumulated on account of rate of compensation cess on such input supplies being higher than the rate of compensation cess on the output supplies. Plain reading of the Notification thus shows a new disability attached to the eligibility for refund, but without any express intention to have retrospective application.
  15. The Constitution Bench of the Apex Court in Vatika Township Pvt. Ltd. (supra) has made it absolutely clear that there is a presumption against retrospectivity as a principle of fairness. Since the notification dated 30.9.2019 modified accrued rights
    and attaches a new disability, the same is necessarily prospective. Thus, if any excess tax is paid after issuance of this Notification and credit accumulated due to inverted tax structure, refund of such tax would not be available. However, when the excess tax is paid and credit taken before issuance of the notification dated 30.9.2019, the Notification cannot be applied retrospectively to deny the refund of such accumulated excess tax paid to the Notification.
  16. The judgment of the Gujarat High Court in Shabnam Petrofils Pvt. Ltd. (supra) also negates the contentions of the petitioner.
    While holding that when credit is taken it is indefeasible with its benefit available to the manufacturer without any limitation in time and that a right is accrued to the assessee on the date when they paid the tax on the raw materials or the inputs and
    that right would continue until the facility thereto gets worked out or until those goods existed, the Gujarat High Court relied upon Eicher Motors Ltd. v. Union of India [(1999) 106 ELT 3 (SC)] and Collector of Central Excise v. Dai Ichi Karkaria Ltd [(1999) 112 ELT 353 (SC)] and observed as follows:- “5.03 In the case of Dal Ichi Karkaria Ltd. (supra), the Apex Court in the context of rule 57A to 57J of the Central Excise Rules, 1944 has held that a manufacturer obtains credit for central excise duty on raw material to be used by him in the production of an excisable product immediately it make the requisite declaration and obtains an acknowledgement thereof. Therefore, it is entitled to use the credit at any time thereafter when making payment of excise duty on the excisable product. The Court held that the credit is indefeasible. “5.04.In the case of Eicher Motors Ltd. (supra), the Apex Court has observed and held as under:- We may look at the matter from another angle. If on the inputs, the
    assessee had already paid the taxes on the basis that when the goods are utilised in the manufacture of further products as inputs thereto then the tax on these goods gets adjusted which are finished subsequently. Thus a right accrued to the assessee on the date when they paid the tax on the raw materials or the inputs and that right would continue until the facility available thereto gets worked out or until those goods existed. Therefore, it becomes clear that Section 37 of the Act does not enable the authorities concerned to make a rule which 15 impugned herein and therefore we may have no hesitation to hold that the Rule cannot be applied to the goods manufactured prior to 16/3/1995 on which duty had been paid and credit facility thereto has been availed of for the purpose of manufacture of further goods.” “6.00 In view of the above, both these petitions succeed. The impugned Notification dated 26.07.2018 bearing No.20/2018 and Circular dated 24.08.2018 bearing Circular No.56/30/2018-GST to be extent it providesthat the input tax credit lying unutilized in balance, after payment of tax for and upto the month of July, 2018, on the inward supplies received upto the 31st day of July, 2018, shall lapse, are hereby quashed and set aside and are hereby declared as ultra vires and beyond the scope of section 54 (3) (ii) CGST Act, as section 54 (3)(ii) of the CGST Act does not
    empower to issue such notifications and consequently, it is held that the petitioners and members of the petitioners are entitled for the credit and it be granted to them.” “(x) The members of the writ applicants have a vested right to unutilized ITC, accumulated on account of rate of tax on inputs being higher than the rate of tax on the output supplies.
    (xi) It is a well settled principle that the delegated legislation has to be in conformity with the provisions of the parent statute. By
    prescribing for lapsing of ITC, the Notification No.05/2017-C.T. (Rate) dated 28.06.2017, as amended by Notification No. 20/2018-C.T. (Rate) dated 26.07.2018, has exceeded the power delegated under Section 54(3)(ii) of the CGST Act.
    (xii) In view of the above, poviso (ii) of the opening paragraph of the Notification 8 No.05/2017-C.T. (Rate) dated 28.06.2017,
    inserted vide Notification No.20/2018-C.T. (Rate) dated 26.07.2018, is ex-facie invalid and liable to be strike down as being without any authority of law.”
  17. In the case of Siddharth Enterprises v. Nodal Officer [2019 (29) G.S.T.L. 664 (Guj.)] a Division Bench of Gujarat High Court has held that the denial of carry forward of tax paid on stock on the appointed day may lead to cascading effect of tax because the GST will again have to be paid on the Central Excise duty already suffered on the stock. It is an established principle of law that it is necessary to look into the mischief against which the statute is directed, other statutes in pari materia and the state of the law at the time. Section 16 of the CGST Act allows the entitlement to take input tax credit in respect of the post-GST purchase of goods or services within return to be filed under Section 39 for the month of September following the end of financial year to such purchase or furnishing of the relevant annual return, whichever is earlier. Whereas, Rule 117 allows time-limit only up to 27th December 2017 to claim transitional credit on pre-GST purchases. Therefore, it is arbitrary and unreasonable to discriminate in terms of the time-limit to allow the availment of the input tax credit with respect to the purchase of goods and services made in pre-GST regime purchases. Therefore, it is arbitrary and unreasonable to discriminate in terms of the time-limit to allow the availment of the input tax credit with respect to the purchase of goods and services made in pre-GST regime and post-GST regime. This discrimination does not have any rationale and, therefore, it is violative of Article 14 of the Constitution. It is legitimate for a going concern to expect that it will be allowed to carry forward and utilise the CENVAT credit after satisfying all the conditions as mentioned in the Central Excise Law and, therefore, disallowing such vested right is offensive against Article 14 of the Constitution as it goes against the essence of doctrine of legitimate expectation. By not allowing the right to carry forward the CENVAT credit for not being able to file the form GST Tran-1 within the due date may severely dent the writ-applicants working capital and may diminish their ability to continue with the business. Such action violates the mandate of Article 19(1)(g) of the Constitution of India.
  18. For the above-mentioned reasons, we are of the view that in view of the doctrine of legitimate expectation, and the principle against retrospectivity, the Notification dated 30.9.2019, shall necessarily apply prospectivity in respect of the goods notified on 30.09.2019 to restrict only those refund claims which are in respect of accumulated credit of excess tax paid on such notified input supplies after 30.9.2019. Both the impugned orders dated 04.10.2019 are not in respect of any such accumulated credit of excess tax paid after 30.9.2019 on such notified input supplies. Therefore, there is no infirmity in these orders granting refund, warranting any interference.
  19. Looking to the nature of relief claimed by the writ petitioner, we are of view that an individual dispute should not be allowed to be converted into a PIL. It cannot be ruled that this writ petition may be sponsored by some interested persons who are having any grudge against the private respondents. Accordingly, the Public Interest Litigation petition is dismissed with Rs.5,000/- cost and the cost shall be deposited in the account of Secretary, High Court Legal Services Sub-Committee, Lucknow within a period of fifteen days from today, else the cost shall be recovered from the petitioner as arrears of land revenue.

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