CGST Act not empower Govt. to frame rule providing lapse of ITC. Notification/Circular declared ultra vires  

CGST Act not empower Govt. to frame rule providing lapse of ITC. Notification No. 20/2018 and Circular No.56/30/2018-GST quashed and declared ultra vires to that extent

ABCAUS Case Law Citation:
ABCAUS 3095 (2019) (08) HC

Important case law relied upon by the parties:
Dipak Vegetable Oil Industries Ltd. Vs. Union of India 1991 (52) ELT 222 (Gujarat)
Eicher Motors Ltd. Vs. Union of India 1999 (106) ELT 3 (SC)
Samtel India Ltd. V/s. Commissioner of Central Excise, Jaipur [2003 (155) ELT 14 SC]
Jayam and Co. V/s. Assistant Commissioner (2016) 96 VST 1(SC)
Collector of Central Excise V/s. Dai Ichi Karkaria Ltd. 1999 (112) ELT 353 (SC)
Jayaswal Neco Ltd. V/s. Commissioner of Central Excise 2015 (322) ELT 587(SC)
Commissioner of Central Excise Vs/ New Swadeshi Sugar Mills (2016) 1 SCC 614,
TATA Engineering & Locomotive Co. Ltd. V/s. Union of India [2003 (159) ELT 129 (Bom.)]
Grasim Industries Ltd. V/s. CBEC [2004 (163) ELT 10] &
Shree Rajastban Texchem Ltd. V/s. Union of India [2005 (182) ELT 311.
Kapil Mohan Vs. Commissioner of Income Tax 1999 (1) SCC 430

In the instant batch of Petitions, the Petitioners had urged the Hon’ble High Court to quash Notification No. 20/2018 and Circular No.56/30/2018-GST as contrary to Section 54(3) of the Central Goods and Service Tax Act, 2017 (CGST Act) as well as to Notification No.5/2017-Central Tax [Rate]. It had been alleged that the said Notification and Circular were violative of Articles 14 and 19(1)(g) of the Constitution of India.

In short, the Petitioners had challenged Notification No.20/2018-central Tax (Rate) dated 26.07.2018 by which it is resolved that, the accumulated input tax credit (ITC) lying unutilised in balance in respect of the specified goods after payment of tax for and upto the month of July, 2018, on the inward supplies received upto 31st day of July, 2018, shall lapse.

In other words, by way of the aforesaid Government Resolution, the inverted tax structure refund of excess duty was not granted.

According to the petitioners, Notification No.20/2018 extended the restriction on the utilization of unutilized input tax credit for and up to the month of July, 2018 and further states that on the inward supplies received upto 31.7.2018 shall lapse and further states that inward supplies received upto 31st day of July, 2018, shall lapse.

It was contended that the impugned notification was without application of mind inasmuch as the assessees were losing huge amount of money paid towards input tax credit. It was contended that a registered person’s right to claim input tax credit arises from section 16 of the CGST Act.

It was contended that there is no statutory provision under the CGST Act empowering the respondents to issue notifications providing for lapsing of input tax credit. It is contended that rule can be made or notification can be issued under the guise of section 164 for lapsing input tax credit.

It was also contended that power under section 54(3)(ii) of the CGST Act is limited to notify the supplies not entitled to refund of input tax credit accumulated on account of the inverted rate structure.

It was contended that the impugned notifications had exceeded powers delegated under section 54(3)(ii) of the CGST Act. It was contended that the impugned notification to the extend providing for the lapsing of input tax credit are discriminatory. It was vehemently contended that the input tax credit is as good as tax paid by the assessee and a valid claim of input tax credit under the GST Act creates an indefeasible right in favour of the taxable person.

The Hon’ble High Court opined that considering the provisions of section 54(3(ii), which empowers the Govt. to frame the rules, does not empower the Central Government to frame rule providing for lapsing of the input tax credit.

Further, it was noted that the CGST Act itself provides for the lapsing of the ITC at Sections 17(4) and 18(4) respectively of the CGST Act. Thus, where the legislature wanted the ITC to lapse, it has been expressly provided for in the Act itself. No such express provision has been made in Section 54(3) of the CGST Act.

No inherent power can be inferred from the provision of Section 54(3) of the CGST Act empowering the Central Government to provide for the lapsing of the unutilised ITC accumulated on account of the rate of tax on inputs being higher than the rate of tax on output supplies (inverted rate structure).

Also, the Hon’ble High Court opined that the members of the writ applicants had a vested right to unutilised ITC accumulated on account of rate of tax on inputs being higher than the rate of tax on the output supplies.

The Hon’ble High Court also stated that 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, had exceeded the power delegated under Section 54(3)(ii) of the CGST Act.

Their Lordships quashed and set aside and declared as ultra vires, the Notification No. 20/2018 and Circular No. 56/30/2018-GST, to the extent they provided that 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.

It was held that the said Notification/Circular were beyond the scope of section 54(3)(ii) of the CGST Act, as section 54(3)(ii) of the CGST Act does not empower to issue such notifications and consequently, it was held that the petitioners and members of the petitioners were entitled for the credit and it be granted to them.

His Lordship held that proviso (ii) of the opening paragraph of the Notification 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.

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