UNION OF INDIA & ORS. versus VKC FOOTSTEPS INDIA PVT LTD.

Citation: [2021] 15 S.C.R. 169 · Decided: 13-09-2021 · Supreme Court of India · Bench: D.Y. CHANDRACHUD · Disposal: Disposed off

Cited by 4 judgment(s) · cites 16 · see the full citation network in Lexace

Judgment (excerpt)

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UNION OF INDIA & ORS.
v.
VKC FOOTSTEPS INDIA PVT LTD.
(Civil Appeal No. 4810 of 2021)
SEPTEMBER 13, 2021
[DR DHANANJAYA Y. CHANDRACHUD AND
M. R. SHAH, JJ.]
Central Goods and Services Tax Act, 2017 – ss. 54(3) and
s.164 – Central Goods and Services Tax Rules, 2017 – r.89(5) –
Writ petitions were filed in the High Court of Gujarat and High
Court of Madras, challenging the validity of r.89(5) on the ground
that it is ultra vires s.54(3) – The High Court of Gujarat in VKC
Footsteps India Pvt. Ltd. v. Union of India (R/Special Civil
Application No.2792 of 2019) having examined the provisions of
s.54(3) and r.89(5) held that latter was ultra vires – However, the
Madras High Court in Tvl. Transtonnelstroy Afcons Joint Venture v.
Union of India (Writ Petition Nos. 8596-97, 8602 etc. of 2019) came
to a contrary conclusion – On appeal, held: Clause (ii) of the first
proviso to s.54(3) is not merely a condition of eligibility for availing
of a refund but a substantive restriction under which a refund of
unutilized ITC can be availed of only when the accumulation is
relatable to an inverted duty structure, namely the tax on input goods
being higher than the rate of tax on output supplies – Therefore,
there is no disharmony between r.89(5) on one hand and s.54(3)
particularly clause (ii) of its first proviso on the other hand – The
decision passed by the Madras High Court is affirmed.
Central Goods and Services Tax Act, 2017 – s.54(3) – Central
Goods and Services Tax Rules, 2017 –  r.89(5) – Claim of refund –
Constitutional right or not – Held: Refund is a matter of a statutory
prescription – Parliament was within its legislative authority in
determining whether refunds should be allowed of unutilised ITC
tracing its origin both to input goods and input services or, as it has
legislated, input goods alone – By its clear stipulation that a refund
would be admissible only where the unutilised ITC has accumulated
on account of the rate of tax on inputs being higher than the rate of
tax on output supplies, Parliament has confined the refund – While
[2021] 15 S.C.R. 169
169
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SUPREME COURT REPORTS
[2021] 15 S.C.R.
recognising an entitlement to refund, it is open to the legislature to
define the circumstances in which a refund can be claimed – The
proviso to s.54(3) is not a condition of eligibility but a restriction
which must govern the grant of refund u/s. 54(3).
Central Goods and Services Tax Rules, 2017 –  r.89(5) –
Validity of formula prescribed in r.89(5) – Held: The formula is not
ambiguous in nature or unworkable, nor it is opposed to the intent
of the legislature in granting limited refund on accumulation of
unutilized ITC – It is merely the case that the practical effect of the
formula might result in certain inequities – Given the anomalies
pointed out by the assesses, GST Council to reconsider the formula
and take policy decision regarding the same.
Disposing of the appeals, the Court
HELD: Construing the Proviso
1. Sub-Section (3) of Section 54 begins, in its main part,
with the stipulation that a registered person may claim refund of
any ‘unutilised ITC at the end of any tax period’. Whether we
construe the first proviso as an exception or in the nature of a
fresh enactment, the clear intent of Parliament was to confine
the grant of refund to the two categories spelt out in clauses (i)
and (ii) of the first proviso. That clauses (i) and (ii) are the only
two situations in which a refund can be granted is evident from
the opening words of the first proviso which stipulates that “no
refund of unutilised input tax credit shall be allowed in cases other
than”. What follows is clauses (i) and (ii). The intent of Parliament
is evident by the use of a double – negative format by employing
the expression “no refund” as well as the expression “in cases
other than”. In other words, a refund is contemplated in the
situations provided in clauses (i) and (ii) and no other. To put it
differently, the first proviso can be recast, without altering its
meaning to read that a refund of unutilised ITC shall be allowed
only in the cases governed by clauses (i) and (ii). Clause (i) deals
with zero rated supplies without payment of tax. Explanation-1 to
Section 54 clarifies that the expression ‘refund’ includes refund
of tax paid on zero rated supplies on goods or services or both,
or on inputs or input services used in making such zero-rated
supplies. On the other hand, in the case of deemed exports,
Exp

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