Chennai: The Supreme Court has held that input tax refund is admissible only with respect to input goods, and not for input services. Hearing the appeals against the contradictory judgements by Gujarat and Madras high courts, the top court urged the GST Council to reconsider the formula and take a policy decision on this.
In its judgment dated 24 July 2020, in a case filed by VKC Footsteps India, the division bench of the Gujarat High Court had directed the Union Government to allow the claim for refund made by the petitioners before it, considering unutilised ITC on input services as part of “net ITC” for the purpose of calculating refund in terms of Rule 89(5), in furtherance of Section 54(3) of the CGST Act of 2017.
It also held that Rule 89(5) by restricting the refund only to input goods had acted ultra vires Section 54(3).
However, the division bench of the Madras High Court, while delivering its judgment on September 21, 2020 in the case filed by Tvl. Transtonnelstroy Afcons joint venture, declined to follow the view of the Gujarat HC.
It found that refund is a statutory right and the extension of the benefit of refund is only to the unutilised credit that accumulates on account of the rate of tax on input goods being higher than the rate of tax on output supplies by excluding unutilised input tax credit that accumulated on account of input services.
The Supreme Court concluded that the judgment of the Madras High Court needs to be affirmed and it dismissed the appeals challenging that verdict while the appeals against the judgment of the Gujarat High Court were allowed. The court said that the implications of Sec. 54(3) do not appear to have been taken into consideration by Gujarat High Court except for a brief reference.
It also asked the GST Council to enable it to take a considered view in accordance with law.
"The Apex Court has passed a landmark judgement to remove the doubts that arose after the contradictory views by the High Courts of Madras and Gujarat,” said Abhishek Jain, Tax Partner, EY.