Madhya Pradesh HC issues notice to Revenue in writ challenging Circular No. 37/11/2018- GST dated March 15, 2018, dealing with a refund of unutilized ITC arising on account of inverted duty structure. Petitioner’s challenge pertains to Para 8 of said Circular which clarifies the expression ‘net ITC’ in the computation formula only for the accumulation of GST post-July 1, 2017:
Facts: M/s. Proctor Gamble Home Products Pvt. Ltd. (“the Petitioner”) challenged the validity of para 8 of Circular No. 37/11/2018-GST dated March 15, 2018 (“the Circular”) dealing with a refund of unutilized ITC arising on account of inverted duty structure. The term ‘Inverted Tax Structure’ refers to a situation where the rate of tax on inputs purchased (i.e. GST Rate paid on inputs received) is more than the rate of tax (i.e. GST Rate Payable on outward supplies) on outward supplies. The Petitioner approached the High Court, among other grounds, one of them being that excise duty is eligible duty and there is no embargo in transitioning the surplus excise duty into GST regime as per section 140 of the CGST Act.
Petitioner’s Contention of Law: The petitioner contended that the expression ‘net ITC’ appearing in computation formula in Rule 89 of the CGST Rules, 2017 clarifies for accumulated Input tax credit post-July 01, 2017. The Circular further clarified that as the transitional credit pertains to duties and taxes paid under the existing laws viz., under Central Excise Act, 1944 and Chapter V of the Finance Act, 1994, the same cannot be said to have been availed during the relevant period and thus, cannot be treated as part of ‘Net ITC’.
However, it was further contended that Rule 89 does not exclude accumulated ITC carried forward from the earlier regime. Even assuming it does, both the said Rule as well as the Circular runs contrary to Section 140 and Section 54 (Refund of tax) of the CGST Act, 2017.
Held: The Madhya Pradesh High Court (Jabalpur Bench) in the case of M/s. Proctor & Gamble Home Products Pvt. Ltd. vs. State of Madhya Pradesh in W.P.-7688-2019 vide order dated May 03, 2019 admitted the matter and issued a notice to the Revenue. On the question of jurisdiction, it over-ruled the objections raised. Hence, the writ petition stood allowed.
Citation: [TS-298-HC-2019(MP)-NT]