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Restricting benefit of refund of “unutilised input tax” paid on “input services” under inverted duty structure is a valid exercise of legislative power, it does not infringe Article 14 of of the Constitution

Section 54 of the CGST Act, 2017 — Refund – The petitioner prayed a declaration be issued for that the amended Rule 89(5) of the CGST Rules is ultra vires Section 54 of the Act and the Constitution of India. The moot question is whether the Petitioners are entitled to a refund of the entire unutilised ITC that each of them has accumulated on account of being subjected to an inverted duty structure. The Petitioners engaged in businesses wherein the rate of tax on input goods and/or input services exceeds the rate of tax on output supplies. As a result, the registered person is unable to adjust the available ITC fully against the tax payable on output supplies and there is an accumulation of unutilised ITC. The Petitioners submitted that they are entitled to a refund of the entire unutilised ITC, irrespective of whether such credit accumulated on account of procurement of input goods and/or input services by paying tax at a higher rate than that paid on output supplies. The respondent submitted that the refund of unutilised ITC is permissible only in respect of the quantum of credit that has accumulated due to the procurement of input goods at a higher rate than that paid on output supplies, and that credit accumulation on account of procuring input services at a rate of tax higher than that paid on output supplies is liable to be disregarded for refund purposes. The petitioners submitted that Section 54 was designed for the purpose of enabling persons to obtain a refund of any unutilised ITC. The court observed that both the statutory definition and the context point states that the word "inputs" encompasses all input goods, other than capital goods, and excludes input services. Further, Refund is a statutory right and the extension of the benefit of refund 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 is a valid classification and a valid exercise of legislative power. Held that:- The Hon’ble High Court dismissed all the petitions challenging the constitutional validity of Section 54(3)(ii), constitutional validity of Rule 89(5) and all the petitions for a direction to process the refund claims.
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