Rule 89(5) which denies refund of unutilised ITC on services accumulated on account of inverted duty structure is ultra vires
The Relevant Text of the Order as follows :
26. In view of the above, Explanation (a) to the Rule 89(5) is read down to the extent that Explanation (a) which defines “Net Input Tax Credit’ means “input tax credit” only. The said explanation (a)of Rule 89(5) of the CGST Rules is held to be contrary to the provisions of Section 54(3) of the CGST Act. In fact the Net ITC should mean “input tax credit” availed on “inputs” and “input services” as defined under the Act.
27. The respondents are therefore, directed to allow the claim of the refund made by the petitioners considering the unutilised input tax credit of “input services” as part of the “net input tax credit”(Net ITC) for the purpose of calculation of the refund of the claim as per Rule 89(5) of the CGST Rules,2017 for claiming refund under Sub-section 3 of Section 54 CGST Act,2017.
28. In the result, for the forgoing reasons, the petitions are accordingly allowed. Rule is made absolute to the aforesaid extent. No order as to costs.
(J. B. PARDIWALA, J)
(BHARGAV D. KARIA, J)
FURTHER ORDER :
After the judgment is pronounced, Mr. Nirzar Desai learned Standing Counsel for the respondent made a request to stay the operation, implementation and execution of the judgment.
Having regard to what has been stated in the judgment and more, particularly, when Explanation(a) to Rule 89(5) of the CGST Rules, 2017 is held to be ultra vires the provisions of subsection(3) of section 54 of the CGST Act, 2017, request of the learned advocate is rejected.