Since the inception of good and services tax, provisions relating to inverted duty refund (i.e. in cases where the taxes charged on inputs are higher than that payable on the output) have been contentious and subject matter of challenge in various fora.
The constitutional validity, of the original scheme of ID refund under GST, has been examined by the Honrable Supreme Court in UOI vs VKC Footsteps.
The Apex Court observed anomalies in ID refund formula and urged the GST Council to reconsider and take a policy decision regarding the same.
Basis such observation, the Central Board of Indirect Taxes and Customs presumptuously corrected the refund formula. Although such correction was widespread expected to have a retrospective effect, the notification did not contain any stipulation to that effect; resultant the operation of the amendment is purportedly prospective.
Separately, w.e.f. July 18, 2022, the benefit of ID refund was also curtailed on products falling under Chapter 15 to Chapter 27.
The clarification provided in the circular has, thus, provoked a new round of interpretation dispute. Foremost, the circular does not lend any clarification on tax period to which such amendment applies. Rather it merely implies that legal provisions, to adjudicate the claim, must be read with reference to those in force on the date of filing of the claim.
Illustratively, in a scenario wherein refund is filed post July 5, 2022 for tax period prior to such date (say April 2022), a question arises as to whether old formula should apply or revised formula.
To address the said issues and uncertainty, the GST Policy Wing of the CBIC has issued certain clarifications.
The circular bats for application of the revised formula in such cases. Although this, such interpretation would violate principles of equity, in so far as it purports to treat refund application for same period differently, merely on basis date of filing.