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Rule 89(5) which denies refund of unutilised ITC of input services is not ultra vires; SC set aside decision of Gujarat HC

September 13, 2021[2021] 130 193 (SC)

GST : Explanation (a) to substituted rule 89(5) which denies refund of 'unutilised input tax' paid on 'input services' as part of 'input tax credit' accumulated on account of inverted duty structure is in conformity with section 54(3)

• Clause (ii) of the first proviso to Section 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. There is therefore no disharmony between Rule 89(5) on the one hand and Section 54(3) particularly Clause (ii) of its first proviso on the other hand. Explanation (a) to Rule 89(5) in defining 'Net ITC' to mean ITC availed on inputs (goods) is, as a matter of fact, entirely in line with the main provision, Section 54(3)

• [VKC Footsteps India (P.) Ltd. v. Union of India [2020] 118 81 (Gujarat) disapproved.

Tvl. Transtonnelstroy Afcons Joint Venture v. Union of India [2020] 119 324 / 43 GSTL 433 (Madras) affirmed.]

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