HC: Quashes Circular deeming Rule 89(5) amendment as prospective; Benefit available to refund made within 2 years

Ascent Meditech Ltd. Vs UOI [TS-750-HC(GUJ)-2024-GST]

Facts of the Case:

•Ascent Meditech Ltd (“the petitioner”), faced inverted duty structure challenges due to an output GST rate of 5%, while inputs and services attracted higher rates (12%-18%). The petitioner claimed a refund for unutilized ITC under Rule 89(5) of the CGST Rules. Initially, refunds were granted based on the unamended formula, which excluded ITC on input services.

•The petitioner filed rectification applications for differential refund after the formula was amended by Notification No. 14/2022 (effective from July 5, 2022), allowing ITC on input services.

•However, the refund application was rejected based on CBIC Circular No. 181/2022, which deemed the amended formula prospective and applicable only to refund claims filed after July 5, 2022.
Issue:

•Whether the amendment to Rule 89(5) by Notification No. 14/2022 is retrospective in nature

Ruling:

•The Gujarat HC quashed the rejection order and Circular No. 181/2022, holding that the amendment to Rule 89(5) was clarificatory and curative, designed to rectify anomalies in the refund formula that excluded ITC on input services.
•The Court emphasised that curative amendments, even if not explicitly stated as retrospective, must be applied retrospectively to achieve their intended purpose. It relied on the principle established by the SC in Allied Motors (P.) Ltd. vs. CIT, which held that remedial provisions aimed at addressing inequities or anomalies are to be applied retrospectively.
•The HC observed that the amended formula harmonized the treatment of ITC by considering both inputs and input services, ensuring parity in refund claims.

My GST Refund Comments

This is a positive judgment as it ensures fairness for taxpayers by holding the amendment to Rule 89(5) as retrospective, enabling refunds for earlier periods and invalidating a CBIC circular that sought to impose discriminatory restrictions.

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