Parties: M/s Tonbo Imaging India Pvt Ltd Vs Union of India, Central Board of Indirect Taxes and Customs North Block, New Delhi, Deputy Commissioner of Central Tax, Commissioner of Central Tax 

Facts – 

• The Petitioner, M/s Tonbo Imaging India Pvt Ltd, is engaged in designing, developing, building, and developing various types of advanced imaging and sensor system to sense, understand and control complex environments.  
• The Petitioner imported various aforementioned product customized/unique products during the period from May 2018 to March 2019. They filed three refund application for unutilized input tax credit since the exports are made “zero rated”.
• Three show cause notices were issued on the ground that the petitioner had not given proof that the export turnover mentioned in the instant claim is 1.5 times the value of like goods domestically supplied as required to be given in terms of the amended Rule 89(4)(c) of the CGST Rules, therefore the refund claims could not be considered and rejected the same. 
• Petitioner submitted that when it is impossible for any exporter to show proof of value of “like goods” domestically supplied by the “same or, similarly placed, supplier” the refund itself cannot be denied to such exporter.

Issue – 

• Whether the amended Rule 89(4)(c) of the CGST Rules, is applicable to the refund of the petitioner? 

Order – 

• The Single Bench of Hon’ble High observed that the amendment to Rule 89(4)(C) of the CGST Rules is illegal, arbitrary, unreasonable, irrational, unfair, unjust and ultra vires Section 16 of the IGST Act and Section 54 of the CGST Act for the following reasons:
  • Rule 89(4)(C) of the CGST Rules is ultra vires Section 54 of the CGST Act read with Section 16 of the IGST Act. The rule in whittling down such refund is ultra vires in view of the well settled principle of law that Rules cannot override the parent legislation.
  • Cases where export of goods is made after payment of tax, there is a hostile discrimination between two class of person viz. (i) the class of exporters who opt to obtain refund without payment of duty under a bond/LUT (ii) the class of exporters who opt to obtain refund of tax after payment of duty; the guarantee of equal protection of the laws must extend even to taxing statutes.
  • Including domestic turnover in the definition of zero rated supply is meant to cover only exports is clearly arbitrary and unreasonable.
  • The incentive given to the exporter would lose its meaning and this would cause grave hardship to the exporter who are earning valuable foreign exchange for the country.
  • Rule 89(4)(C) of the CGST Rules also suffers from the vice of vagueness for the reason that the words like goods” and “similarly placed supplier” in the impugned Rule 89(4)(C) are completely open-ended and are not defined anywhere in the CGST Act/Rules or the IGST Act/Rules.
  • The impugned Rule also fails to clarify, as to what would be the consequence if there are no goods supplied in the domestic market and value of like goods provided by other suppliers is not available
• Hence, amended Rule 89(4)(c) is arbitrary and unreasonable and consequently liable to be quashed.
• The impugned offending words, “or the value which is 1.5 times the value of like goods domestically supplied by the same or, similarly placed supplier” appearing in Rule 89(4C) ofthe Central Goods and Services Tax Rules, 2017 as amended vide Para 8 of the Notification No.16/2020 -Central Tax (F.No.CBEC - 20/06/04/2020-GST) dated 23.03.2020 is declared ultra vires the provisions of the Central Goods and Services Tax Act, 2017 and the Integrated Goods and Services Tax Act. 2017 and resultantly, the same are hereby quashed;
• The revenue is directed to accept the refund claim of the petitioner and grant refund together with applicable interest. The writ petition is allowed.