Whether a circular can overtake Law? Pitambra Books case

Case covered:

M/S PITAMBRA BOOKS PVT. LTD

VERSUS

UNION OF INDIA & ORS.

Facts of the case:

The petitioner – who is engaged in the business of manufacturing and trading of books, is registered under the Goods and Service Tax Act(hereinafter referred to as “the Act”). The business involves procuring raw materials and allied goods from the domestic market for the manufacture of final products through its in-house manufacturing facility, which is then exported to markets in Sudan, Russia, Ethiopia, Guinea, and other African/Asian countries, etc. The export activity of the petitioner is categorized as zero-rated supplies as defined under Section 16(1)(a) of the Integrated Goods and Services Tax Act, 2017 (hereinafter referred to as “the IGST Act”).

The present petition inter-alia impugns Circular No.37/11/2018-GST dated 15.03. 2018 and Circular No. 125/44/19-GST dated 18.11.2019. Mr. Puneet Agrawal, learned counsel for the petitioner submits that owing to the restrictions imposed in the aforenoted circulars, Petitioner has been deprived of the benefit of availing refund claim of the unutilized input tax credit for the period from April 2018 to June 2018. This is causing serious financial hardship as more than Rs.30 crores of the accrued and unutilized input tax credit, that is eligible for a refund is now lying stuck. The implementation of the aforesaid circulars on the GSTN portal has occasioned the disablement of the option for filing the refund of tax. He submits that the problem stems from paragraph 8 of impugned circular no. 125/44/2013/GST dated 18th November 2019, which inhibits refund claims for a period of two separate (not successive) financial years. He argues that this is in contravention of Section 44 as also Rule 89 of the IGST rules. The aforesaid paragraph reads as under:

“ The applicant, at his option, may file a refund claim for a tax period or by clubbing successive tax periods. The period for which refund claim has been filed, however, cannot spread across different financial years. Registered persons having an aggregate turnover of up to Rs. 1.5 crore in the preceding financial year or the current financial year opting to file FORM GSTR-1 on a quarterly basis, can only apply for a refund on a quarterly basis or clubbing successive quarters as aforesaid. However, refund claims under categories listed at (a), (c) and (e) in para 3 above must be filed by the applicant chronologically. This means that an applicant, after submitting a refund application under any of these categories for a certain period, shall not be subsequently allowed to file a refund claim under the same category for any previous period. This principle/limitation, however, shall not apply in cases where a fresh application is being filed pursuant to a deficiency memo having been issued earlier.”

Observations of the court:

The matter certainly requires our consideration and we have already called upon the respondents to file a detailed counter affidavit to meet the contentions of the petitioner. However, at this stage, we are of the prima facie view that by way of the impugned circulars, though the respondents recognize the difficulties faced by the exporters and have permitted them to file refund claim for one calendar month/quarter or by clubbing successive calendar months/quarters, yet the restriction pertaining to the spread of refund claim across different financial years is arbitrary. There is no rationale or justification for such a constraint. In the instant case, where exports are not made in the same financial year, the question arises as to whether Respondents can restrict the filing of the refund for tax periods spread across two financial years and deprive the petitioner of its valuable right accrued in his favor. In exports, the availability of the rotation of funds is essential for the business to thrive. Moreover, businesses do not run according to the whims of the executive authorities. The business world cannot be told when to place orders for exports; when to manufacture the goods for export; and; when to actually undertake the exports. Respondents’ impugned circulars have thus blocked the capital of the petitioner and the unutilized ITC and it has accumulated a huge amount of unutilized ITC to the tune of Rs.30 crores. Merely because the petitioner made exports in the month of June 2018, we do not see any justification to deny the refund of the ITC which has accumulated in the previous financial years. The entire concept of refund of ITC relating to zero-rated supply would be obliterated in case the respondents are permitted to put any limitation and condition that takes away the petitioner’s right to claim a refund of all the taxes paid on the domestic purchases used for the purpose of zero-rated supplies. The incentive given to the exporters would lose its meaning and this would cause grave hardship to the exporters who are earning valuable foreign exchange for the country. The Respondents cannot, artificially by acting contrary to the fundamental spirit and object of the law, contrive ways to deny the benefit, which the substantive provisions of the law confer on the taxpayers. Thus, in our considered opinion, the petitioner has a strong prima facie case, and we cannot deny the petitioner of its right to claim a refund which is visible from the mechanism provided under the Act. The impugned circulars take away the vested right of the taxpayer that has accrued in the relevant period. It would be profitable to refer to the judgment in this Court in Pioneer India Electronics (P) Ltd. vs. Union of India & Anr. ILR (2014) II DELHI 791 wherein impugned Circular stipulating that section 27 of the Customs Act had no application was quashed, holding that Circulars can supplant but not supplement the law. Circulars might mitigate rigours of law by granting administrative relief beyond relevant provisions of the statute, however, Central Government is not empowered to withdraw benefits or impose stricter conditions than postulated by the law. Further the Constitution Bench of the Supreme Court in the case of Commissioner of Central Excise, Bolpur vs. Ratan Melting & Wire Industries (2008) 13 SCC 1, it was held as under:

“7. Circulars and instructions issued by the Board are no doubt binding in law on the authorities under the respective statutes, but when the Supreme Court or the High Court declares the law on the question arising for consideration, it would not be appropriate for the court to direct that the circular should be given effect to and not the view expressed in a decision of this Court or the High Court. So far as the clarifications/circulars issued by the Central Government and of the State Government are concerned they represent merely their understanding of the statutory provisions. They are not binding upon the court. It is for the court to declare what the particular provision of the statute says and it is not for the executive. Looked at from another angle, a circular which is contrary to the statutory provisions has really no existence in law.

8. ………………….. To lay content with the circular would mean that the valuable right of challenge would be denied to him and there would be no scope for adjudication by the High Court or the Supreme Court. That would be against the very concept of majesty of law declared by this Court and the binding effect in terms of Article 141 of the Constitution.”

Order:

Having regard to the aforenoted circumstances, till the next date of hearing, we stay the rigour of paragraph 8 of Circular No. 125/44/2019-GST dated 18.11.2019 and also direct the Respondents to either open the online portal so as to enable the petitioner to file the tax refund electronically or to accept the same manually within 4 weeks from today.

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