2024(10)LCX0396

ASCENT MEDITECH LTD.

Versus

UNION OF INDIA

R/SPECIAL CIVIL APPLICATION NO. 18317 of 2023 decided on 17-10-2024

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

R/SPECIAL CIVIL APPLICATION NO. 18317 of 2023

FOR APPROVAL AND SIGNATURE:

HONOURABLE MR. JUSTICE BHARGAV D. KARIA
and
HONOURABLE MR.JUSTICE D.N.RAY

ASCENT MEDITECH LTD
Versus
UNION OF INDIA & ORS

Appearance:
UCHIT N SHETH(7336) for the Petitioner(s) No. 1
GOVERNMENT PLEADER for the Respondent(s) No. 2,5
MR CB GUPTA(1685) for the Respondent(s) No. 1,3,4

CORAM:HONOURABLE MR. JUSTICE BHARGAV D. KARIA
                and
                HONOURABLE MR.JUSTICE D.N.RAY

Date : 17/10/2024
ORAL JUDGMENT
(PER : HONOURABLE MR. JUSTICE BHARGAV D. KARIA)

1. Heard learned advocate Mr. Uchit Sheth for the petitioner and learned advocate Mr. Hirak Shah and C.B.Gupta for the respondents in the respective petitions.

2. Rule returnable forthwith. Learned advocates for the respective respondents waive service of notice of rule.

3. Having regard to the controversy in narrow compass, with the consent of the learned advocates for the parties, the matter is taken up for hearing.

4. The petitioner has prayed for quashing and setting aside the order dated 24.08.2023 rejecting the refund application of the petitioner on the basis of the circular dated 10.11.2022. The petitioner has therefore, also challenged the said circular.

5. The petitioner is engaged in the business of manufacturing orthopedic soft goods for upper extremity, lower extremity and spine as well as mobility assistive devices for home and hotel use.

6. The applicable rate of tax on output supplies of the products manufactured by the petitioner is 5% as its majority of goods are classifiable under HSN90211000 whereas, the applicable rate of tax on main inputs used by the petitioner to manufacture its product ranges from 12% to 18%.

7. The petitioner also availed input services which attracted GST rate of 18%. The petitioner had utilized input tax credit on account of such facts as the rate of tax on the input being more than the rate of tax on the output supply.

8. The petitioner therefore made an application under section 54(3) of the GST Act to get the refund of unutilized input tax credit as per the formula prescribed in Rule 89(5) of the Central/Gujarat Goods and Services Tax Rules, 2017 (for short ‘the Rules’).

9. The petitioner was granted refund computed as per the formula under the inverted duty structure for all the applications made prior to 05.07.2022 on the ground that prior to 05.07.2022, by unamended formula, the petitioner was not entitled to include the input services as part of the formula and as the petitioner has made the refund application prior to 05.07.2022, as per the Notification No. 14/2022 dated 05.07.2022 read with Circular dated 10.11.2022, the petitioner was not entitled to the refund as per the amended formula.

10. It is the case of the petitioner that the formula for calculating the refund under Rule 89(5) of the GST Rules was challenged before different High Courts on the ground that it was ultra vires to section 54(3) of the GST Act and as the refund in respect of unutilized input tax credit attributable to input services was not being granted and, in the alternative, it was urged that the formula was defective as the entire input tax credit pertaining to inputs was first adjusted towards output tax liability for computing refund under Rule 89(5) of the GST Rules.

11. It would be germane to refer to the amended and unamended Rule 89(5).

Unamended rules prior to 05.07.2022 was as under:

“89(5) In the case of refund on account of inverted duty structure, refund of input tax credit shall be granted as per the following formula:

Maximum Refund Amount = {(Turnover of inverted rated supply of goods and services) x Net ITC+ Adjusted Total Turnover} - tax payable on such inverted rated supply of goods and services.

Explanation:-For the purposes of this sub-rule, the expressions -

(a) “Net ITC” shall mean input tax credit availed on inputs during the relevant period other than the input tax credit availed for which refund is claimed under sub-rules (4A) or (4B) or both; and

(b) “Adjusted Total turnover” and “relevant period” shall have the same meaning as assigned to them in sub-rule (4)".

Amended Rule read as under:

Rule 89. Application for refund of tax, interest, penalty, fees or any other amount.-

[(5) In the case of refund on account of inverted duty structure, refund of input tax credit shall be granted as per the following formula:-

Maximum Refund Amount = {(Turnover of inverted rated supply of goods and services) x Net ITC Adjusted Total Turnover} - 21[{tax payable on such inverted rated supply of goods and services x (Net ITC ÷ITC availed on inputs and input services)}].

Explanation: - For the purposes of this sub-rule, the expressions -

(a) "Net ITC" shall mean input tax crdit availed on inputs during the relevant period other than the input tax credit availed for which refund is claimed under sub-rules (4A) or (4B) or both; and

(b) ["Adjusted Total turnover" and "relevant period" shall have the same meaning as assigned to them in sub-rule (4).]”

12. The Hon’ble Supreme Court while upholding the validity of Rule 89(5) of the Rules however directed the GST Council to remove the anomalies in the formula stated therein as under:

“132. In our view, the justification of the formula under Rule 89(5) given by the ASG to create a legal bifurcation is valid. In this context, it would be material to advert to the provisions of Rule 42. Rule 42(1) provides that the ITC in respect of input goods or input services which attract the provisions of sub-Section (1) or sub-Section (2) of Section 17 being partly used for the purpose of business and partly for other purposes or partly used for affecting taxable supplies including zero rated supplies and partly for effecting exempts supplies shall be attributed for the purposes of business or for effecting taxable supplies in the manner which is indicated in the Rule. Sub-Section (1) of Section 17 provides that where the goods and services or both are used by a registered person partly for the purposes of any business and partly for any other purpose, the amount of credit shall be restricted to so much of the input tax as is attributable to the purpose of its business. Sub-Section (2) of Section 17 provides that where the goods or services or both are used by a registered person partly for effecting taxable supplies including zero rated supplies under the CGST Act or under the IGST Act and partly for effecting exempt supplies the amount of credit shall be restricted to so much of the input tax as is attributable to the taxable supplies including zero rated supplies. Rule 42, in other words, provides for the manner in which the attributions of ITC in respect of the input or input services under sub-Sections (1) or (2) of Section 17 shall be carried out. Rule 43 similarly provides the manner in which ITC in respect of capital goods attracting the provisions of sub-Section (1) of Section 17, used partly for business and partly for other purposes or partly for effecting taxable supplies including zero rated supplies and partly for effecting exempt supplies would be attracted to the purpose of business or for effecting taxable supplies. Both Rules 42 and 43 provide for a formula for attribution. Rule 86 provides for the maintenance of an electronic credit ledger. Rule 89(5) provides for a refund. In both sets of rule clusters, Rules 42 and 43 on the one hand and Rule 89(5) on the other hand, a formula is used for the purpose of attribution in a post assimilated scenario. The use of such formulae is a familiar terrain in fiscal legislation including delegated legislation under parent norms and is neither untoward nor ultra vires.

133. We now turn to the submissions of the counsel for the assessees regarding the anomalies in the formula. In our view, the submission of Mr Sujit Ghosh, that the formula creates a distinction between suppliers having a higher component of input goods than those having a higher component of input services, and must be read down accordingly, must be rejected. The purpose of the formula in Rule 89(5) is to give effect to Section 54(3)(ii)which makes a distinction between input goods and input services for grant of refund. Once the principle behind Section 54(3)(ii)of the CGST Act is upheld, the formula cannot be struck down merely for giving effect to the same.”

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142. The above judicial precedents indicate that in the field of taxation, this Court has only intervened to read down or interpret a formula if the formula leads to absurd results or is unworkable. In the present case however, the formula is not ambiguous in nature or unworkable, nor is it opposed to the intent of the legislature in granting limited refund on accumulation of unutilised ITC. It is merely the case that the practical effect of the formula might result in certain inequities. The reading down of the formula as proposed by Mr Natarjan and Mr Sridharan by prescribing an order of utilisation would take this Court down the path of recrafting the formula and walk into the shoes of the executive or the legislature, which is impermissible. Accordingly, we shall refrain from replacing the wisdom of the legislature or its delegate with our own in such a case. However, given the anomalies pointed out by the assessees, we strongly urge the GST Council to reconsider the formula and take a policy decision regarding the same.”

13. Pursuant to the above directions issued by the Apex Court, the GST Council in its 47th Meeting held on 28/29.06.2022 considered the agenda item 3(ii) with regard to amendment in formula prescribed in Rule 89(5) of the Rules for calculation of the refund of unutilized input tax credit on account of inverted duty structure as under:

“7.2 The Principal Commissioner, GST Policy Wing informed that the Hon’ble Supreme Court of India in case of UOI vs. M/s. VKC Footsteps vide its order dated 13.09.2021 had upheld the vires of Rule 89(5) of the Central goods and Service Tax Rules, 2017 but had taken cognizance of the anomalies in the formula prescribed under Rule 89(5) of the CGST Rules, 2017. The Hon’ble Supreme Court had upheld the exclusion of ITC availed on input services from the computation of Net ITC. However, the Apex Court had noted that the formula prescribed in Rule 89(5) assumed that the tax payable on inverted rated supply of goods and services had been paid by utilizing input tax credit on inputs only and that there had been no utilization of the ITC on input services, such as assumption skewed the formula in favour of the revenue. The Apex Court had, therefore urged the GST Council to reconsider the formula.

7.3 The issue was deliberately by the Law Committee and in the absence of any empirical data, Law Committee had recommended to consider utilisation of ITC on account of inputs and input services for pyament of output tax in the same ratio in which the ITC has been availed on inputs and input services during the said tax period and to use this deduction to revise the formula prescribed in rule 89(5) as suggested by the Hon’ble Supreme Court. Accordingly, Law Committee recommended the following amendment in formula prescribed in Rule 89(5):

Maximum Refund Amount= {(Turnover of inverted rated supply of goods and services) x Net ITC ÷ Adjusted total Turnover}-{tax payable on such inverted rated supply of goods and services x(Net ITC ÷ ITC availed on inputs and input services)}.

The Council agreed with the recommendation of the Law Committee.”

14. The CBIC pursuant to the aforesaid decision of the GST Council issued the Notification No. 14/2022 dated 05.07.2022 being the Central Goods and Service Tax (Amendment) Rules, 2022. In Rule 8 of the aforesaid Rules, amendment is made in Rule 89 of the GST Rules as under:

“8. In the said rules, in rule 89, -

(a) in sub-rule (1), after the fourth proviso, the following Explanation shall be inserted, namely: - ‘Explanation. — For the purposes of this sub-rule, “specified officer” means a “specified officer” or an “authorised officer” as defined under rule 2 of the Special Economic Zone Rules, 2006.’;

(b) in sub-rule (2), -

(i) in clause (b), after the words “on account of export of goods”, the words *, other than electricity” shall be inserted;

(ii) after clause (b), the following clause shall be inserted, namely: -

“(ba) a statement containing the number and date of the export invoices, details of energy exported, tariff per unit for export of electricity as per agreement, along with the copy of statement of scheduled energy for exported electricity by Generation Plants issued by the Regional Power Committee Secretariat as a part of the Regional Energy Account (REA) under clause (nnn) of sub-regulation 1 of Regulation 2 of the Central Electricity Regulatory Commission (Indian Electricity Grid Code) Regulations, 2010 and the copy of agreement detailing the tariff per unit, in case where refund is on account of export of electricity;”;

(c) in sub-rule (4), the following Explanation shall be inserted, namely: -

“Explanation. — For the purposes of this sub-rule, the value of goods exported out of India shall be taken as —

(i) the Free on Board (FOB) value declared in the Shipping Bill or Bill of Export form, as the case may be, as per the Shipping Bill and Bill of Export (Forms) Regulations, 2017; or

(ii) the value declared in tax invoice or bill of supply, whichever is less.”;

(d) in sub-rule (5), for the words “tax payable on such inverted rated supply of goods and services”, the brackets, words and letters “{tax payable on such inverted rated supply of goods and

15. As per the aforesaid Rules, sub-rule (2) of the Rules provides as under:

“(2) Save as otherwise provided in these rules, they shall come into force on the date of their publication in the Official Gazette.”

16. Rule 8(d) of the Amended Rules, 2022 provides that in sub-rule (5) for the words “tax payable on such inverted rated supply of goods and services”, the brackets, words and letters “{tax payable on such inverted rated supply of goods and services, x (Net ITC ÷ ITC availed on inputs and input services)} has been substituted".

17. CBIC has thereafter, issued circular dated 10.11.2022 for clarification as under:

“Clarification:

Vide Notification No. 14/2022- Central Tax dated 05.07.2022, amendment has been made in subrule(5) of rule 89 of CGST Rules,2017 modifying the formula prescribed therein. The said amendment is not clarificatory in nature and is applicable prospectively with effect from 05.07.2022. Accordingly, it is clarified that the said amended formula under sub-rule (5) of rule 89 of the CGST Rules,2017 for calculation of refund of input tax credit on account of inverted duty structure would be applicable in respect of refund applications filed on or after 05.07.2022. The refund applications filed before 05.07.2022 will be dealt as per the formula as it existed before the amendment made vide Notification No. 14/2022-Central Tax dated 05.07.2022.”

18. After the amendment to the formula in Rule 89(5) was notified, the petitioner filed a rectification application for differential refund as per the new amended formula. A show-cause notice was issued proposing to reject the refund on the ground that the refund was not admissible since the refund as per the old formula was already granted to the petitioner.

19. The refund application filed by the petitioner was rejected by the impugned order dated 24.08.2023 relying upon Circular dated 10.11.2022 on the ground that new formula can apply only to refund applications filed after 05.07.2022.

20. Being aggrieved, the petitioner has preferred this petition challenging the impugned order of rejection of the refund application as well as the Circular No. 181/13/2022-GST dated 10.11.2022 issued by the Central Board of Indirect Taxes and Custom [‘CBIC’ for short].

21. Learned advocate Mr. Uchit Sheth for the petitioner submitted that the amendment in formula under Rule 89(5) of the GST Rules is only clarificatory in nature as the GST Council pursuant to the direction issued by the Hon’ble Apex Court in case of VKC Footsteps India Pvt. Ltd (supra) has amended the formula to remove the anomalies so as to enable grant of refund of the entire unutilized input tax credit attributable to inputs as is envisaged under section 54(3) of the GST Act. Reliance was also placed on the relevant observations made in paras 134 and 142 of the said decision.

22. It was further submitted that as directed by the Hon’ble Supreme Court, the GST Council reconsidered the formula in its 47th GST Council Meeting and proposed a new amended formula for calculation of the refund under the statutory provision for sanction of refund under Rule 89(5) of the Rules.

23. It was submitted that statutory provision for grant of refund under section 54(3) of the Act remained unchanged right since its inception of the GST Act. However, the change in formula has been made with a specific purpose of removing the anomaly and to align the same with the statutory provision and that too pursuant to the directions of the Hon’ble Supreme Court.

24. It was submitted that new formula which has come into effect w.e.f. 05.07.2022 as per the direction of the GST Council is curative in nature and Rule 89(5) of the GST Rules has been amended to cure the defects and anomalies of the old formula. It was submitted that the curative amendment is made in the Rules so as to synchronize the provisions of the section 54(3) of the Act is therefore applicable retrospectively and the petitioner would be entitled to the refund as claimed on the basis of the new amended formula for the period prior to 05.07.2022 also.

25. In support of his submissions, reliance was placed on the decision of the Hon’ble Supreme Court in case of Allied Motors (P.) Ltd. Vs Commissioner of Income Tax reported in (1997) 3 SCC 472 wherein, it is held that a curative or declaratory amendment would have retrospective operation.

26. It was further submitted that mere fact that the notification amending the Rules states that it would come into force from the date of publication would not mean that amendment brought on Rule 89(5) of the Rules would be prospective. It was submitted that the date of coming into force of the notification is irrelevant for determining whether the effect of amendment is prospective or retrospective as the amendment is curative,clarificatory or declaratory in nature then the same has retrospective effect irrespective of whether it is specifically introduced with retrospective effect or not. Reliance was placed on the decision of the Hon’ble Supreme Court in case of Commissioner of Income Tax vs. Alom Extrusions Ltd reported in (2010) 1 SCC 489.

27. It was further submitted that this Court has also held that a clarificatory amendment in GST Rules would have retrospective effect even though the amendment was incorporated prospectively. Reliance was also placed in case of Otsuka Pharmaceutical Pvt. Ltd vs. Union of India and ors in Special Civil Application No. 13209/2023 and allied matters decided on 27.03.2024.

28. Learned advocate Mr. Sheth for the petitioner submitted that observation in the impugned circular that the amendment is not clarificatory in nature is contrary to the legislative history of amendment which includes the directions of the Hon’ble Supreme Court in case of VKC Footsteps India Pvt. Ltd (supra). It was therefore, submitted that the impugned circular dated 10.11.2022 issued by the CBIC observing that the amendment is not clarificatory in nature is contrary and therefore, required to be quashed and set aside.

29. It was submitted that in fact, the circular does not state a new formula will for the subsequent period but it only states that the Circular will apply to new refund applications filed after 05.07.2022.

30. It was therefore pointed out by learned advocate Mr.Seth that even as per the impugned Circular No. 181/13/2022-GST dated 10.11.2022, new formula will be applicable to all refund applications filed after 05.07.2022. However, it is not stated that the formula will apply only for refunds arising for the period after the date of amendment i.e. 05.07.2022. It was pointed out that respondents in the affidavit have admitted that if the refund application is filed after 05.07.2022 even for the period prior to 05.07.2022, then refund as per the new formula would be granted.

31. It was therefore submitted that as per the contention of the respondent, the person who has filed the refund application prior to 05.07.2022 would be deprived of the refund for the period prior to 05.07.2022 and the person who has filed the application after 05.07.2022, then he would get refund as per the new formula even for period prior to 05.07.2022. It was therefore submitted that only sanctioning of refund to the petitioner pursuant to the formula existing prior to the amendment cannot deprive the petitioner from getting the benefit of the refund as per the new amended formula for the period prior to 05.7.2022 and the contention raised on behalf of the respondent that the benefit of the new formula can be given only to the applicants who have applied for the refund after 05.07.2022 is without any basis as it would create a discrimination between the assessee constituting the same class inasmuch as refund would differ for the same period for different assesses depending on the date of filing of the refund application.

32. Learned advocate Mr. Seth referred to the provision of section 54(1) of the GST Act which entitled the taxable person to file refund application at any time within two years from the relevant date and once the criteria of time limit prescribed in section 54(1) is adhered to by the assessee, then the refund application is required to be processed as per the Rules applicable on the date of sanctioning of the refund. It was therefore, submitted that the impugned circular dated 10.11.2022 is therefore, discriminatory and as it would give an advantage to the assessees who filed refund applications at fag end of the limitation period vis-a-vis applications filed prior in point of time. It was therefore, submitted that the impugned circular is in violation of Article 14 of the Constitution of India as well as contrary to the prescribed time limit for filing refund application as stipulated under section 54(1) of the Act.

33. It was further submitted that this Court has held that multiple refund applications can be filed for the same period within the statutory period of limitation. Reliance was placed on the decision of Shree Renuka Sugars Ltd vs. State of Gujarat reported in Special Civil Application No. 22339/2022 decided on 13.07.2023 and in case of Pee Gee Fabrics Pvt. Ltd vs. Union of India in Special Civil Application No. 5010/2021 decided on 15.09.2023.

34. It was therefore submitted that in the facts of the case, the period in question is December 2021, while refund as per existing formula was granted vide order dated 30.03.2022 and the rectification application for differential amount of refund as per the new amended formula was made on 13.06.2023. It was therefore, submitted that rectification application was filed within two years as per section 54(1) of the GST Act. It was further submitted that rectification application for refund was made after 05.07.2022 and therefore, respondent ought to have granted refund to the petitioner as per the amended formula even if the circular dated 10.11.2022 is made applicable. It was therefore, submitted that the petition deserves to be allowed quashing and setting aide the impugned order rejecting the refund as well as the Circular dated 10.11.2022.

35. On the other hand, learned advocate Mr. C.B.Gupta for the respondents submitted that the impugned notification dated 10.11.2022 was issued only to clarify issue relating to the refund in view of the amendment in Rule 89(5) of the Rules, for calculation of the refund of unutilized input tax credit on account of inward duty structure as amended vide Notification No. 14/2022 dated 05.07.2022.

36. It was submitted that as per the Circular No. 181/2022 dated 10.11.2022, it is specifically stipulated that the Notificaiton no. 14/2022 is not clarificatory in nature and is applicable prospectively w.e.f. 05.07.2022 and accordingly, clarification was made by the CBIC that for the purpose of calculation of the refund as per Rule 89(5) of the Rules, calculation of the input tax credit on account of inverted duty structure would be applicable in respect of the refund application filed on or after 05.07.2022.

37. It was submitted that the refund applications filed before 05.07.2022 is held to be not entitled to the benefit of amended formula as per Rule 89(5) and the same is required to be dealt with as per the formula which existed before the amendment.

38. It was submitted that in the Notification No. 14/2022 dated 05.07.2022 it has been categorically stated that the same would come into effect from the date of the notification and accordingly, the clarification is issued by the CBIC vide circular dated 10.11.2022.

39. In support of such submissions, reliance was placed on the decision in case of Tata Steel Ltd vs. Union of India reported in (2023) 10 Centrax 50 (Jhar). Referring to the said decision it was submitted that the Hon’ble Jharkhand High Court in similar facts has held as under:

“11.Having heard learned counsel for the parties and after going through the averments made in the respective affidavits and also documents available on record especially the Circular No. 26/26/2017-GST and the notification w.r.t. amendment in Rule 89(4) of CGST Rules, 2017, vide Notification No. 14 / 2022 – Central Tax dated 05.07.2022, we are of the opinion that since there is now an amendment in the Rule 89 (4) itself; as such we refrain ourself from deliberating upon prayer no. 1 and 2 i.e. for setting aside part of paragraph 47 of Circular No. 125/44/2019-GST dated 18.11.2019 and also the alternative contention for declaring the stipulation contained in paragraph 47 of the aforesaid circular as not applicable in these cases.

We are confining our interpretation on the question of retrospective effect of the amendment that came in the year 2022, so far as its applicability in the aforesaid writ applications for the sole reason that the vires of the said rule is not under challenge.

12. As far as the explanation inserted by way of amendment in Rule 89(4) of the CGST Rules, 2017, vide Notification No. 14 / 2022 – Central Tax dated 5.7.2022 is concerned; these rules were not in existence at the time of passing of the Order in Appeal dated 11.10.2021. Rule 1(2) of 2022 Amendment Rules, specifically provides that “save as otherwise provided in these rules, they shall come into force on the date of their publication in the Official Gazette”. Except for Rules 7, 9, 10, and 19 for which dates with retrospective operation have been provided, no other rules have been given any retrospective effect.

In order to decide the question as to whether the amendment in Rule 89(4) of the CGST Rules, 2017 which has introduced the explanation that came in the year 2022 has a retrospective effect; we will have to see the other parameters also. The 2022 Amendment Rules inserts a new stipulation for comparison between two values. Such an exercise was not contemplated prior to the amendment as what was taken into account was the actual transaction value. Therefore, by way of the amendment, a substantive change has been brought about in the law and therefore the amendment ought to operate prospectively. Further, mere use of the term “explanation” will not be indicative of the fact that the amendment is clarificatory / declaratory. While Paragraph 47 contemplates comparison of the value of export in the tax invoice and in the shipping bill, i.e., the export document (which can either be FOB or CIF value), the explanation requires comparison of the value in tax invoice with only the FOB value. Thus, the explanation cannot be said to be on similar lines as Paragraph 47. A policy can be changed only by way of an amendment under the parent Act and not by a circular and the policy change will be effective from the date of the amendment.”

40. Reliance was also placed on the following observations of the Hon’ble Jharkhand High Court to submit that the Notification No. 14/2022 would be applicable prospectively as the notification also pertains to Rules 7, 9, 10 and 19 for which dates with retrospective operation have been provided whereas no other rules have been given any retrospective effect. It was therefore submitted that when the legislature has expressly indicated the date of application of the respective rules and when no retrospective date has been indicated in the notification itself then the CBIC has rightly clarified that Notification No. 14/2022 so far as Rule 89(5) would be applicable from the date of notification i.e. 05.07.2022 and all the refund applications filed after 05.07.2022 would be considered as per the amended notification:

“14. At the cost of repetition, we may refer to the Notification No. 14/ 2022 – Central Tax dated 05.07.2022 itself. Rule 1 (2) of 2022 Amendment Rule specifically provides that save as otherwise provided in these Rules they shall come into force on their publication in the officials’ gazette. From the said notification it is also evident that except for Rule 7, 9, 10 and 19 for which dates with retrospective operation have been provided, no other rules have been given any retrospective effect. Actually, the legislature expressly indicated the date of application of respective rules and for Rule 89 (4), no retrospective date has been indicated in the notification itself; thus, from bare perusal of the notification itself the amendment made to Rule 89 (4) by Rule 8 of Amendment Rules will have a prospective effect.”

41. Having heard learned advocates for the respective parties and having considered the facts of the case and comparing the amendment with the unamended Rule 89(5), it is clear that for the inverted rated supply of goods and service instead of “the adjusted total turn over” the words “ITC availed on inputs and input services” has been substituted. Thus, the “adjusted total turn over” which is defined in subclause (b) as per the sub-rule (4) has been given a go-by. Therefore, numerator and denominator are made in harmony which was not there prior to the amendment which had resulted anomaly in the formula.

42. Thus, it is apparent that the amendment made by the Notification No. 14/2022 is clarificatory only as per the decision of the GST Council pursuant to the direction issued by the Hon’ble Apex Court.

43. Therefore, impugned Circular No. 181/2022 dated 10.01.2022 which provides the clarification is contrary to the purport of the amendment brought on statute pursuant to the recommendation of the GST Council as per the direction issued by the Hon’ble Apex Court to remove the anomaly in the formula in Rule 89(5).

44. Reliance placed by the petitioner on the decision in case of Allied Motors (P.) Ltd (supra) would be squarely applicable in the facts of the case wherein the Hon’ble Apex Court has held as under:

“9. Looking to the curative nature of the amendment made by the Finance Act of 1987 it has been submitted before us that the proviso which is inserted by the amending Finance Act of 1987 should be given retrospective effect and be read as forming a part of Section 43B from its inception. This submission has taken support from decisions of a number of High Courts before whom this question came up for consideration. The High Courts of Calcutta, Gujarat, Karnataka, Orissa, Gauhati, Rajasthan, Andhara Pradesh, Patna and Kerala appear to have taken the view that the proviso must be given retrospective effect. Some of these High courts have held that "sum payable" under Section 43B(a) refers only to the sum payable in the same accounting year thus excluding sales tax payable in the next accounting year from the ambit of Section 43B(a). The Delhi High Court has taken a contrary view holding that the first proviso to Section 43B operates only prospectively. We will refer only to some of these judgments.

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13. Therefore, in the well known words of Judge learned Hand, one cannot make a fortress out of the dictionary; and should remember that statutes have some purpose and object to accomplish whose sympathetic and imaginative discovery is the surest guide to their meaning. In the case of R.B. Jodha Mal Kuthiala v. Commissioner of Income-tax, Punjab, jammu & Kashmir and Himachal Pradesh (82 ITR 570), this Court said that one should apply the rule of reasonable interpretation. A proviso which is inserted to remedy unintended consequences and to made the provision workable, a proviso which supplies an obvious omission in the section and is required to be read into the section to give the section a reasonable interpretation, requires to be treated as retrospective in operation so that a reasonable interpretation can be given to the section as a whole.

14. This view has been accepted by a number of High Court. In the case of Commissioner of Income-Tax v. Chandulal Venichand ([1994] 209 ITR 7), the Gujarat High Court has held that he first proviso to section 43B is retrospective and sales-tax for the last quarter paid before the filing of the return for the assessment year is deductable. This decision deals with assessment year 1984-85. The Calcutta High Court in the case of Commissioner of Income-tax v. Sri Jagannath Steel Corporation ([1991] 191 ITR 676), has taken a similar view holding that the statutory liability for sales-tax actually discharge after the expiry of accounting year in compliance with the relevant stature is entitled to deduction under Section 43B. The High Court has held the amendment to be clarificatory and, therefore, retrospective. The Gujarat High Court in the above case held the amendment to be curative and explanatory and hence retrospective. The Patna High Court has also held the amendment inserting the first proviso to be explanatory in the case of Jamshedpur Motor Accessories Stores v. union of India and Ors. ([1991] 189 ITR 70.), It was held that amendment inserting first proviso to be retrospective. The special leave petition from this decision of the Patna High Court was dismissed. The view of the Delhi High Court, therefore, that the first proviso to section 43B will be available only prospectively does not appear to be correct. As observed by G.P. Singh in his Principles of statutory Interpretation, 4th Edn. Page 291, "It is well settled that if a statute curative or merely declaratory of the previous law retrospective operation is generally intended." In fact the amendment would not serve its object in such a situation unless it is construed as retrospective. The view, therefore, taken by the Delhi High Court cannot be sustained.”

45. In case of Collector of Central Excise, Shilong vs. Wood Craft Products Ltd reported in (1995) 3 SCC 454, the Hon’ble Apex Court has held that a clarificatory notification would take effect retrospectively and such a notification merely clarifies the position. Clarificatory notifications have been issued to end the disputes between the parties. Therefore, Notification No. 14/2022 dated 05.07.2022 cannot be applied prospectively for the refund claim which were made within two years as prescribed under section 54(1) of the GST Act. It is not in dispute that the petitioner has filed refund claims within two years as stipulated in section 54(1) of the Act.

46. It is also not disputed by the respondent that the petitioner is entitled to the refund as per sub-section 3(ii) of section 54 of the Act being difference in the GST rates due to inverted rated structure and accordingly, the petitioner was granted refund though petitioner has filed refund applications pursuant to the deficiency memo issued repeatedly.

47. Considering the above provisions of the GST Act, the same would be applicable in the facts of the case irrespective of the notification issued by the CBIC pursuant to the decision taken by the GST council as per the direction issued by the Hon’ble Supreme Court. The petitioner cannot be denied the refund as per the provision of 54(3) of the Act only because the petitioner has been granted the refund prior to 05.07.2022 as it would create a discrimination resulting into inequality between the assesses who have been granted refund prior to 05.07.2022 and the assesses who have applied for refund after 05.07.2022. The impugned circular is therefore contrary to the provisions of the Act as it cannot be said that the refund applications filed after 05.07.2022 would only be entitled to the benefit of the amended Rule 89(5) of the Act. As per the provisions of section 54(1) read with section 54(3) of the Act if the assessee has made refund application within the prescribed period of two years, then the assessee would be entitled to the refund as per the amended formula which has been notified w.e.f. 05.07.2022. In the facts of the case the petitioner has made rectification applications for refund as per new amended formula within two years. Moreover, as held by this Court in the decisions in case of Shree Renuka Sugars Ltd (supra) and in case of Pee Gee Fabrics Ltd (supra), there is no embargo on preferring second refund application if the petitioner is entitled to the same within the period of two years.

48. In view of the foregoing reasons, the impugned order dated 24.08.2023 is hereby quashed and set aside. The Circular No. 181/22 dated 10.11.2022 so far as it clarifies that the amendment is not clarificatory in nature is quashed and set aside and it is held that the Notification No. 14/2022 is applicable retrospectively as the amendment brought in Rule 89(5) of the Rules is curative and clarificatory in nature and the same would be applicable retrospectively to the refund or rectification applications filed within two years as per the time period prescribed under section 54(1) of the Act. Rule is made absolute to the aforesaid extent.

(BHARGAV D. KARIA, J)

(D.N.RAY,J)