Bombay High Court Allows GST Refund For Pre-July 5, 2022 Claims Under Revised Inverted Duty Formula

The Bombay High Court has granted a GST refund to a Joint Venture, which is executing Mumbai Metro works, holding that the revised refund formula for inverted tax structure applies even to claims filed before July 5, 2022, when the amended formula came into force.

“The Petitioner will be entitled to the refund as per Section 54(3) of the CGST Act being the difference in the GST rates, due to inverted rate structure.”, the court held.

Quashing rejection orders passed by GST authorities, a Division Bench of Justice G. S. Kulkarni and Justice Aarti Sathe directed the authorities to grant refunds on the petitioner's applications.

The court held that the appellate authority had failed to consider binding legal developments, particularly the Gujarat High Court's ruling in Ascent Meditech Ltd., which had already held that the amendment introduced by a 2022 notification is clarificatory and retrospective, a view the Court accepted.

“The impugned appellate order clearly shows that there was no application of mind to such legal issues including to the contentions which were raised on behalf of the Petitioner and more particularly when the impugned order was passed on 31st October 2023,when the legal position as laid down in Ascent Meditech Ltd. Vs.Union of India (supra) certainly was prevailing at the relevant point of time when the impugned order came to be passed.”

The bench noted that this legal position had attained finality after the Supreme Court declined to interfere with the Gujarat High Court's ruling, and therefore the petitioner's refund claims could not be rejected merely because they were filed prior to July 5, 2022.

The petitioner, an unincorporated joint venture between China Harbour Engineering Company and Tata Projects Limited, is engaged in metro rail construction for MMRDA. It was paying GST at 12% on works contract services, while inputs and input services attracted higher rates of 18% and 28%, leading to the accumulation of input tax credit.

It had filed seven refund applications amounting to over Rs 12 crore for the period between 2018 and 2021. These claims were rejected by the original authority on March 16, 2023, and the rejection was upheld in appeal on October 31, 2023.

Before the High Court, the petitioner argued that the amendment to the refund formula corrected an anomaly identified earlier and should apply to earlier claims filed within the limitation period.

Accepting this, the court held that refund claims could not be rejected on the reasoning adopted by the department.

“In light of the above discussion, we are certain that for the reasons as set out in the appellate order, the refund applications could not have been rejected.”

Accordingly, the court quashed the Orders-in-Original dated March 16, 2023 and the appellate order dated October 31, 2023, and held the petitioner entitled to a refund under the law governing inverted tax structures.

For Petitioner: Senior Advocate Prasad Paranjape with Advocate Kevin Gogri and Advocate Dhruvi Shah, instructed by Lumiere Law Partners

For Respondents: Advocate Shehnaz V. Bharucha and Advocate Niyati Mankad with Advocate Priyanka Singh