Registered persons can continue to claim refund of unutilised input tax credit (ITC) at the end of tax period as the Supreme Court has upheld the legal validity of Rule 89(5) of the CGST (Central Goods and Service Tax) Rules 2017, which mandate a formula to exclude the refund of unutilised input tax paid on input services as part of the input tax credit.

Setting aside the 2020 Gujarat High Court verdict which had held the rule as invalid as per GST Act provisions, the 2-judge bench of Justice DY Chandrachud and Justice MR Shah restored the provision on the Centre’s appeal.

Noting that mere flaws in a formula laid down by a Parliamentary law can’t necessitate negation of a fiscal rule, the apex court asked the GST Council to take a policy decision to rectify anomalies in interpretation of input tax credit rules.

Citing judicial precedents in the field of taxation, the top court held that it has only intervened to interpret a formula if it leads to absurd results or is unworkable, ruling that the current formula is not ambiguous in nature or unworkable, nor is it opposed to the intent of the legislature in granting limited refund on accumulation of unutilised ITC.

Taking note of a Madras High Court order which had upheld the rule in view of Section 54(3) of the GST Act, the court held that it would be impermissible for the judiciary to recraft the formula and “walk into the shoes of the executive or the legislature”