The Goods and Services Tax Appellate Tribunal (GSTAT), Ernakulam Bench, has upheld an appellate order reducing an exporter’s refund of accumulated input tax credit, holding that the calculation under Rule 89(4) of the CGST/KGST Rules must follow the Net ITC reflected in the taxpayer’s GSTR-3B returns for the relevant period.
The Bench of Subramanya Rayaprol (Vice-President) and Ramamoorthi Sriram (Technical Member) rejected the exporter’s appeal and sustained the finding that an excess refund of ₹67,993 had been sanctioned.
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The bench rejected the contention that excluding credit reversed in February 2018 amounted to a duplicate adjustment of credit relating to September 2017.
The appellant/assessee is engaged in the manufacture, supply and export of candles, claimed a refund of ₹6,24,536 for February and March 2018. The claim concerned unutilised ITC on exports made without payment of tax under a Letter of Undertaking, under Section 54(3) of the CGST Act read with Rule 89(4).
The Assistant Commissioner sanctioned ₹6,16,479 through an order dated January 24, 2019, after rejecting ₹8,057 as ineligible credit.
On review, the Commissioner of CGST considered that the taxpayer was eligible for only ₹5,48,486. The department consequently challenged the sanction before the Joint Commissioner (Appeals), alleging an excess refund of ₹67,993.
The Joint Commissioner (Appeals) accepted the department’s case and modified the refund sanction to that extent. Aggrieved, the exporter approached GSTAT.
The exporter argued that ₹1,58,760 had already been excluded while determining its refund for September 2017. According to the taxpayer, deducting the same amount from the Net ITC for February 2018 resulted in duplication.
Its explanation was that the February 2018 reversal concerned duplicate availment of credit in the earlier period and should not result in another reduction of the subsequent refund.
The order also records objections that no show cause notice under Section 73 had been issued for recovery of the alleged excess refund, and that the appellate hearing was conducted by the Additional Commissioner (Appeals), whereas the order was issued by the Joint Commissioner (Appeals).
The Tribunal’s substantive reasoning, however, addressed the refund calculation, the returns and the claimed duplication. It did not give separate findings on those two procedural objections.
The department maintained that the taxpayer had reversed ₹1,58,760 through its February 2018 GSTR-3B but nevertheless included that amount in the Net ITC used for the refund application.
It argued that excluding ineligible credit from an earlier refund calculation and actually reversing credit from the electronic credit ledger were separate activities.
Consequently, an adjustment to the September 2017 refund did not establish that using the Net ITC reported for February 2018 involved a duplicate reversal.
The Tribunal identified the issue as whether the Joint Commissioner (Appeals) had correctly calculated the refund under Rule 89(4), which prescribes the following formula: Refund amount = (Turnover of zero-rated supply of goods + Turnover of zero-rated supply of services) × Net ITC ÷ Adjusted total turnover.
The zero-rated goods turnover of ₹76,66,267, zero-rated services turnover of nil and adjusted total turnover of ₹1,68,16,223 were undisputed. The dispute concerned the Net ITC adopted in the calculation.
The original sanction calculation used Net ITC of ₹13,69,941. The appellate authority instead took ₹12,11,181, reduced it by the undisputed ineligible credit of ₹8,057, and used ₹12,03,124 in the formula.
After examining Table 4(C) of the taxpayer’s GSTR-3B returns, the Tribunal recorded the following figures:
| Tax period | Net ITC reflected in GSTR-3B |
| February 2018 | ₹9,06,072.96 |
| March 2018 | ₹3,05,108.75 |
| Total | ₹12,11,181.71 |
The order adopted ₹12,11,181 for the computation. The Tribunal held that the figures came from the taxpayer’s own returns and supported the appellate authority’s calculation.
The Bench held that the claimed reversal relating to September 2017 did not alter the actual refund computation for February–March 2018.
It also found that the exporter had not produced documentary proof substantiating its reversal explanation before either the Joint Commissioner (Appeals) or the Tribunal. The order referred to the absence of DRC-03, DRC-03A or other supporting documents.
Accepting the department’s distinction, the Tribunal held that reducing an earlier refund by ineligible credit and subsequently debiting the electronic credit ledger were different events. It therefore rejected the allegation of duplicate reversal.
The Bench made adverse observations about the taxpayer’s disclosure of Net ITC in the refund application.
It noted that the figures used in the refund claim differed from those reflected in Table 4(C) of the GSTR-3B returns for the same period. The Tribunal stated that the exporter had not approached it with “clean hands” and found that the correct Net ITC available for February and March 2018 had not been disclosed in the refund claim.
The Bench rejected reliance on oral and written assertions of reversal without supporting evidence.
The Tribunal also referred to the GSTAT Ranchi Bench’s decision in Shivam Iron & Steel Co. Ltd.. That decision discussed the primacy of the statutory refund provisions and Rule 89(4) over a conflicting circular-based procedure or clarification.
The Bench concluded that the Joint Commissioner (Appeals) had correctly and strictly applied the prescribed formula.
The eligible refund was ₹5,48,486, against ₹6,16,479 originally sanctioned, resulting in an excess refund of ₹67,993.
Finding no infirmity in the appellate order, GSTAT upheld it and rejected the exporter’s appeal.
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