Formula amendment to Rule 89(5) for inverted duty structure refunds is clarificatory and applies retrospectively.

The Petitioner, a joint venture between China Harbour Engineering Company and Tata Projects Limited, provides metro rail construction works contract services to MMRDA. It pays GST at 12% on outward supplies but procures inputs/input services at higher rates (18% and 28%), resulting in accumulated Input Tax Credit (ITC) due to an inverted tax structure

Following the Supreme Court’s decision in Union of India v. VKC Footsteps India Pvt. Ltd., which upheld Rule 89(5) but urged the GST Council to fix formula anomalies, the Council recommended an amendment

The Petitioner resubmitted seven refund claims for the period May 2018 to March 2021 after Notification No. 14/2022 (dated 05.07.2022) amended the formula in Rule 89(5)

These claims were rejected by the Assistant Commissioner (Original Authority) and the Joint Commissioner (Appeals), who relied on Circular No. 181/13/2022-GST to hold that the amended formula applied only prospectively to applications filed on or after July 5, 2022

Section 54(3)(ii) of the CGST Act, 2017, regarding refunds for inverted duty structures

Rule 89(5) of the CGST Rules, 2017 (as amended by Notification No. 14/2022), which substituted the formula for "Maximum Refund Amount" to create harmony between the numerator and denominator

Principles from the Gujarat High Court in Ascent Meditech Limited v. Union of India, which held that curative or declaratory amendments intended to remedy unintended consequences are generally retrospective

Supreme Court’s observations in Allied Motors (P) Ltd. v. CIT regarding the retrospective nature of curative statutes and Collector of Central Excise v. Wood Craft Products Ltd. regarding clarificatory notifications

The court reasoned that the amendment to Rule 89(5) was specifically prompted by the Supreme Court’s observations in VKC Footsteps regarding formula anomalies that skewed results in favor of the Revenue

By replacing "adjusted total turnover" with a factor accounting for both "Net ITC" and "ITC availed on inputs and input services," the amendment was curative and intended to make the provision workable

The court noted that the Gujarat High Court’s ruling in Ascent Meditech—which declared the amendment retrospective—had attained finality following the dismissal of the Union’s Special Leave Petition and Review Petition by the Supreme Court

Consequently, the court found that Circular No. 181/13/2022-GST was contrary to the statute’s purpose insofar as it sought to apply the formula only prospectively

Since the Petitioner’s refund applications were within the two-year limitation period prescribed under Section 54(1), they were entitled to the benefit of the corrected formula

It held that Notification No. 14/2022 is clarificatory and curative in nature, and thus applies retrospectively to refund claims filed within the statutory limitation period

The Respondents were directed to grant the refund as per Section 54(3)(ii) of the CGST Act based on the amended formula for the inverted rate structure. Rule was made absolute