Facts of the Case:

In this case, the petitioner challenged the constitutional validity of the definition of “Net ITC” under Rule 89(5) of the CGST Rules, 2017, contending that the retrospective exclusion of input services from the refund formula for accumulated Input Tax Credit (ITC) on account of an inverted duty structure was ultra vires Section 54(3) of the CGST Act. The petitioner also assailed the deficiency memos issued in Form GST RFD-03 rejecting its refund claims for FY 2017-18 and 2018-19 relating to unutilised ITC attributable to input services.

During the pendency of the petition, significant developments took place in law. The Supreme Court in Union of India v. VKC Footsteps India Pvt. Ltd. upheld the validity of Rule 89(5) while recommending that the GST Council revisit the refund formula. Pursuant thereto, Notification No. 14/2022-Central Tax dated 05.07.2022 amended Rule 89(5) by modifying the refund formula.

Thereafter, the Gujarat High Court in Ascent Meditech Ltd. v. Union of India held that the amendment introduced by Notification No. 14/2022 was curative and clarificatory in nature and therefore applicable retrospectively to pending refund claims. The Supreme Court subsequently dismissed the Special Leave Petition as well as the review petition filed against the said judgment.

Issue:

Whether refund claims relating to unutilised ITC attributable to input services for the period prior to 05.07.2022 are required to be reconsidered by applying the retrospective amendment introduced in Rule 89(5) through Notification No. 14/2022-Central Tax, despite the earlier rejection of such claims through deficiency memos.

Held That:

The Gujarat High Court held that the controversy raised by the petitioner no longer survived in view of the subsequent judicial and legislative developments concerning Rule 89(5) of the CGST Rules. The Court noted that although the Supreme Court in Union of India v. VKC Footsteps India Pvt. Ltd. upheld the constitutional validity of Rule 89(5) and reversed the earlier Gujarat High Court judgment declaring the provision ultra vires, it also acknowledged the practical anomalies in the refund formula and urged the GST Council to reconsider the issue. Acting upon these observations, the GST Council recommended amendments, which were implemented through Notification No. 14/2022-Central Tax dated 05.07.2022 by substituting the refund formula prescribed under Rule 89(5).

The Court further observed that the Gujarat High Court in Ascent Meditech Ltd. v. Union of India had already examined the effect of the amended Rule 89(5) and categorically held that the amendment introduced by Notification No. 14/2022 was curative and clarificatory in nature and, therefore, operated retrospectively. Consequently, the benefit of the amended refund formula was held to be available even in respect of refund claims pertaining to the period prior to 05.07.2022, subject to the statutory limitation prescribed under Section 54 of the CGST Act. The Court also took note of the fact that the Supreme Court had dismissed both the Special Leave Petition and the Review Petition filed by the Union of India against the decision in Ascent Meditech Ltd., thereby allowing the said legal position to attain finality.

In light of these settled legal principles, and since the Revenue did not dispute the applicability of the aforesaid decisions, the Court held that the deficiency memos issued in Form GST RFD-03 rejecting the petitioner’s refund claims for FY 2017-18 and FY 2018-19 could not be sustained. Accordingly, the deficiency memos were quashed and set aside. The respondents were directed to process and decide the petitioner’s refund claims afresh by applying the amended Rule 89(5), as introduced through Notification No. 14/2022-Central Tax, in accordance with the principles laid down by the Supreme Court in VKC Footsteps and the Gujarat High Court in Ascent Meditech Ltd.. 

Case Name: Pranav Overseas LLP Versus Union of India & Ors. dated 02.07.2026

To read the complete judgement 2026 Taxo.online 1875