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Refund for unused ITC cannot be claimed on input services: Supreme Court

The Supreme Court has held that refund for unutilized ITC cannot be claimed on input services.

The Supreme Court on Monday upheld the validity of a Central Goods and Services Tax rule that prescribes a formula for excluding refund of unutilized input tax paid on input services as part of input tax credit (ITC). Justice D.Y. Chandrachud and M.R. Shah upheld the validity of Rule 89(5). The bench reversed the Gujarat High Court judgment of 2020, which held that Rule 89(5) was ultra vires of Section 54(3) of the CGST Act, 2017.Also Read – Pegasus Case: Supreme Court reprimands the Center – why has not yet filed the affidavit, got this answer

Explain, Rule 89(5) of CGST rules provides for computation of refund of ITC on account of inverted fee structure. With effect from April 18, 2018, the rule was amended to ensure that refund of unutilized ITC can be availed only on input goods. Also Read – Pegasus Snooping Controversy: Supreme Court to hear Pegasus espionage case on Monday, know what the government said

“When there is neither a statutory guarantee nor a statutory right to refund, the request that goods and services should be treated equally in the matter of refund of unutilized ITC cannot be entertained,” the bench said. Also Read – Covid-19 New Guidelines: How death due to corona will be considered as Kovid death, government issued new guidelines

It states that such an interpretation, if reached to its logical conclusion, will lead to unforeseen consequences.

The bench said that in the field of taxation, the apex court has intervened only to read or interpret a single thread.

The apex court in its 140-page judgment said, “In the present case, though the formula is not vague or impractical in nature, nor is it against the intent of the legislature to grant limited refund on accumulation of unutilized ITC.

The bench noted that the purpose of the formula in rule 89(5) is to give effect to section 54(3)(2) which differentiates between input goods and input services for grant of refund.

That said, once the principle behind section 54(3)(2) of the CGST Act is upheld, the formula cannot be removed to give effect to the same.

However, in view of the discrepancies pointed out by the assessees, we strongly urge the GST Council to reconsider the formula and take a policy decision regarding the same.

It is observed that the formula assumes that the output tax payable on supplies is completely exempted from ITC accumulated on account of input goods and there is no utilization of ITC on input services.

(With IANS Inputs)

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