Recent Judgment of Honorable Gujarat High Court in case of VKC Footsteps India Pvt. Ltd. vs. Union of India

Recent Judgment of Hon'ble Gujarat High Court in case of VKC Footsteps India Pvt. Ltd. vs. Union of India and PAN India Applicability of HC Order

Recent Judgment of Hon'ble Gujarat High Court in case of VKC Footsteps India Pvt. Ltd. vs. Union of India

High Court held that by prescribing the formula in Sub-rule 5 of Rule 89 of the CGGST Rules,2017 to exclude refund of tax paid on 'input service' as part of the refund of unutilised input tax credit is contrary to the provisions of Sub-section 3 of Section 54 of the CGST Act,2017 which provides for claim of refund of 'any unutilised input tax credit'.

The word "Input tax credit" is defined in Section 2(63) means the credit of input tax.

The word "input tax" is defined in Section 2(62) to mean in relation to a registered person, means the central tax, State tax, integrated tax or Union territory tax charged on any supply of goods or services or both made to him.

Whereas the word "input" is defined in Section 2(59) means any goods other than capital goods and "input service" as per Section 2(60) means any service used or intended to be used by a supplier.

Thus "input" and "input service" are both part of the "input tax" and "input tax credit".

Therefore, as per provision of sub-section 3 of Section 54 of the CGST Act,2017, the legislature has provided that registered person may claim refund of "any unutilised input tax", therefore, by way of Rule 89(5)of the CGST Rules,2017, such claim of the refund cannot be restricted only to "input" excluding the "input services" from the purview of "Input tax credit".

We are of the opinion that Explanation (a) to Rule 89(5) which denies the refund of "unutilised input tax" paid on "input services" as part of "input tax credit" accumulated on account of inverted duty structure is ultra vires the provision of Section 54(3) of the CGST Act, 2017.

In view of the above, Explanation (a) to 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.

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.

The first question that we are analysing is whether the High Court of Gujarat could issue order to Union of India

As per clause (1) of Article 226 of the constitution of India "Notwithstanding anything in article 32 every High Court shall have power, throughout the territories in relation to which it exercises jurisdiction, to issue to any person or authority, including in appropriate cases, any Government, within those territories directions, orders or writs, including writs in the nature of habeas corpus, mandamus, prohibition, quo warranto and certiorari, or any of them, for the enforcement of any of the rights conferred by Part III and for any other purpose."

Whereas as per clause (2) of the Article 226 of the constitution of India "The power conferred by clause (1) to issue directions, orders or writs to any Government, authority or person may also be exercised by any High Court exercising jurisdiction in relation to the territories within which the cause of action, wholly or in part, arises for the exercise of such power, notwithstanding that the seat of such Government or authority or the residence of such person is not within those territories."

In simpler words, High Court can issue orders to any Government, whether or not it is situated in High Court's jurisdictional territory, provided the "cause of action" is within its jurisdiction.

In the aforesaid case, of VKC Footsteps India Pvt. Ltd. vs. Union of India, the High Court of Gujarat has order Union of India (Central Government) 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". Here the "cause of action" is in Gujarat and thus High Court has taken up the appeal and order is given to the Union of India, although it is not situated in Gujarat.

The second question which we are discussing in this article is that who all can take the benefits of the aforesaid ruling of HC?

In order to determine the applicability of judgement, we will have to read the relevant extract of Honourable SC ruling in the case of "M/S. Kusum Ingots & Alloys Ltd vs Union Of India And Anr on 28 April, 2004", where it was stated that –

"The court must have the requisite territorial jurisdiction. An order passed on writ petition questioning the constitutionality of a Parliamentary Act whether interim or final keeping in view the provisions contained in Clause (2) of Article 226 of the Constitution of India, will have effect throughout the territory of India subject of course to the applicability of the Act."

Reading the relevant extract of the Judgment it can be concluded that RULING OF HIGH COURT IS APPLICABLE ON WHOLE OF INDIA and benefits of the order can be taken on PAN-India basis.