Home >Companies >News >Supreme Court upholds CGST Act’s provisions on ITC refund

NEW DELHI : Fiscal policy of a government cannot be dictated through the judgments of constitutional courts, the Supreme Court (SC) said on Monday, while underscoring that any such order “would constitute an impermissible judicial encroachment on legislative power" of the State.

A bench of justices D.Y. Chandrachud and M.R. Shah highlighted that legislative choices and fiscal policy decisions are based on complex balances drawn between political, economic and social needs and aspirations and are a result of careful analysis of the data and information regarding the levy of taxes and their collection.

“Fiscal policy ought not to be dictated through the judgments of the high courts or this court. For it is not the function of the court in the fiscal arena to compel Parliament to go further and to do more by, for instance, expanding the coverage of the legislation (to liquor, stamp duty and petroleum) or to bring in uniformity of rates. This would constitute an impermissible judicial encroachment on legislative power," said the bench while deciding a clutch of cases relating to the Central Goods and Services Tax (CGST) Act 2017.

The SC was called upon to decide the validity of Section 54(3) of the Act, which contained a provision for refund of unutilized input tax credit where the rate of tax on inputs is higher than the rate of tax on output supplies. A slew of pleas stated that Section 54(3) must be rendered as unconstitutional if it is to be interpreted as confining the refund only to input goods and not to input services. Further, they contended that Rule 89(5) of the Act must also be declared ultra vires in so far as it excludes tax on input services from the purview of the refund formula. The petitions added that the entire basket of the unutilized input tax credit, whether traceable to goods or services, is eligible for a refund. The cases had reached the SC following divergent views taken by the high courts of Gujarat and Madras in interpreting the legal provisions.

The bench rejected challenges to the validity of both the provisions and upheld them, saying it was within the government’s legislative competence to provide for the differential regime for goods and services and confine the scope of the refund under the impugned provision only to goods.

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