ORDER

This appeal has been filed before the appellate authority under Section 107 of the Central Goods and Service Tax Act, 2017 by M/s. Sanganeriya Spinning Mills Limited, 15-A, RIICO Industrial ‘Area, Neemrana, District-Alwar-301705 (Rajasthap) (hereinafter also referred to as “the appellant”) against the Order-in-Original No. DRC-07 issued vide C.No.V(GST)/400/Sanganeriya/Dem/2018/140 dated 23.01.2019 (hereinafter called as the “impugned order”) passed by the Assistant Commissioner, Central Goods & Service Tax Division-E, RIICO Colony, Behror, Alwar(hereinafter called as the “adjudication authority”).

2. BRIEF FACTS OF THE CASE:

2.1 The appellant having GSTIN No.08AABC54797C1Z7 is engaged in manufacturing and supply of Acrylic Yarn falling under Chapter Heading No.5509 of the GST Tariff appeared to have wrongly claimed GST refund of ₹ 47,28,635/-(₹ 23,66,567/-(CGST) + ₹ 23,62,068/-(SGST) which was further sanctioned erroneously by the adjudicating authority as per the facts enumerated below:

2.2 The appellant has filed application for refund claim of GST amounting to ₹ 64,11,146/- (₹ 32,05,573/- CGST +₹ 32,05,573/- SGST) in respect of Inverted Duty Tax Structure for the Tax period of May-2018 on 10.08.2018 and after preliminary scrutiny of the claim,, 90% refund claim amounting to ₹ 57,65,530/- (₹ 28,85,015/- CGST + ₹ 28,80,515/- SGST) had been sanctioned on provisional basis vide RFD-04 No. Refund GST/BEH-E/18/P-059 dated 31.08.2018.

2.3 Further, during the course of detailed scrutiny of documents submitted by the appellant, the adjudicating authority had noticed that the appellant had wrongly taken Net ITC in RFD-01 which included ineligible ITC of Capital Goods (₹ 51,97,848/- and ineligible ITC of Input Services ₹ 1,76,403/-).

2.4 Thus the appellant had shown Net ITC of ₹ 1,20,82,033/- in the RFD-01A for the month of May-2018 which included of ITC availed or Capital Goods and Input Services.

Thus, the appellant appeared to have wrongly mentioned the Net ITC in RFD-01A as ₹ 1,20,82,033/-instead of ₹ 67,07,782/- (₹ 1,20,82,33/- – ₹ 53,74,251/-) resulting in excess claim of refund, as mentioned in the Table-2 below:-

Refund filed by the appellant

Table -1

	Turnover of inverted rated supply of goods	Tax payable on such inverted supply of goods	Adjusted total turnover	Net Input tax credit	Maximum refund amount to be claimed [{1*4/3}-2]
	1	2	3	4	5
Integrate Tax	52819610	5670887	52819610	12082033	6411146 {3205573+3205573}
Central Tax
State/UT Tax
Cess		0
Total	0	0			641116

2.5 The appellant while filing the refund claim has mentioned the wrong Net ITC in the column (4) as shown in the above table whereas, instead of it, the appellant was having the Net ITC of ₹ 67,07,782/-(₹ 1,20,82,033 – ₹ 53,74,251/-) as per Rule 89 (5) of the CGST Rules, 2017. Hence, after taking the Net ITC of ₹ 67,07,782/- in the formula of refund calculation of the inverted duty structure the maximum refund comes as mentioned in following table :-

Table -2

	Turnover of inverted rated supply of goods	Tax payable on such inverted supply of goods	Adjusted total turnover	Net Input tax credit	Maximum refund amount to be claimed [{1*4/3}-2]
	1	2	3	4	5
Integrate Tax	52819610	5670887	52819610	6707782	1036895 {518448+518447}
Central Tax
State/UT Tax
Cess		0
Total	0	0			1036895

Thus it appeared that the appellant has suppressed/mis-declared value of Net ITC resulting in excess claim of refund. As per above, the appellant was eligible for refund of ₹ 10,36,895/- {₹ 518448/- CGST +₹ 518447/- SGST} whereas, by mis-declaring the Net ITC, the appellant had claimed the refund of ₹ 64,11,146/- and an amount of ₹ 57,65,530/-[₹ 28,85,015/- CGST ₹ 28,80,515/- SGST] had been sanctioned provisionally vide RFD-04 No. Refund GST/BEH/E/18/P-059 dated 31.08.2018. In view of the above, the appellant appeared to have wrongly filed the refund claim of ₹ 47,28,635/-[₹ 23,66,567/- CGST ₹ 23,62,068/- SGST] by mis-declaring/ suppressing correct value of Net ITC with intent to claim inadmissible refund and the same appeared recoverable along with interest under Section 74 (1) & Section 50 respectively of the CGST/RGST Act, 2017.

The appellant had wrongly mentioned the excess ITC of ₹ 53,74,251/- in the RFD-01A with intent to claiming the excess refund by suppressing/mis-declaring the value of Net ITC in respect of the inverted duty structure and appeared to have contravened the provisions of Rule 89 (5) of CGST Rules, 2018 for which the appellant is liable to penalty under Section 122 of the CGST Act, 2017/ Section 122 (1) bf the RGST Act, 2017.

Further, the adjudicating authority found that the appellant has suppressed/mis-declared the value of Net ITC in the refund application resulting in taking excess refund and this act attracts penalty under Section 122 (2) (b) of the CGST/RGST Act, 2017.

Further, the adjudicating authority has passed the order as under:-

i) Confirmed the demand of ₹ 47,28,635/- [₹ 23,66,567/- CGST ₹ 23,62,068/- SGST] and appropriate the amount of ₹ 27,80,433/-[₹ 13,90,216/- CGST + ₹ 13,90,217/- SGST] already adjusted against the refund for the month of June-2018 sanctioned vide RFD-06 No. Refund GST/BEH-E/18/F-088 dated 06.12.2018 issued vide C.No. V(GST) Sanga/Inverted/73/18/418 against the order and order to recover the remaining amount from the appellant under Section 74 (9) of the CGST /RGST Act, 2017.

ii) Ordered for recovery of interest from the appellant on amount of ₹ 47,28,635/- [₹ 23,66,567/- CGST ₹ 23,62,068/- SGST] at appropriate rates under Section 50 of the CGST/RGST Act, 2017.

iii) Imposed a penalty, of ₹ 47,28,635/- [₹ 23,66,567/- CGST ₹ 23,62,068/- SGST] equal to the demand upon the appellant for erroneous refund by reason of suppression of facts by mis-declaring the Net ITC availed during the tax period resulting in the excess refund and also ordered to recover the same under Section 122 (2) (b) of the CGST/RGST Act, 2017 read with Section 74 (1) of the CGST/RGST Act, 2017. The appellant shall be eligible for the benefit of reduced penalty as determined under sub section (2) (b) of Section 122 and the interest payable thereon under Section 50 is paid within thirty days of the date of communication of the order, the amount of penalty liable to be paid by such person shall be fifty percent of the penalty imposed, subject to the condition that such reduced penalty is also paid within the period so specified.

3. Being aggrieved with the impugned order dated 23.01.2019, the appellant has filed the appeal an the following grounds which are summarized as under:-

-that however due to lack of proper understanding of the procedural provisions and rules as applicable for filing of refund under the receipt deemed exports for procurement of capital goods under EPCG, the appellant in a bona-fide belief filed the refund under the inverted duty scheme only as mentioned above.

-that against said arbitrary SCN, a crisp reply was submitted wherein it was explained that appellant was eligible for refund under inverted duty structure along with refund under receipt of deemed exports. The only procedural error incurred by the appellant was that two separate refund claims were not filed by them. Hence the same should be considered as principally the appellant is eligible for refund. It was explained that GST is a new law with complicated provisions and thus the allegation of suppression is not correct. The request for dropping penalty along with interest was also made. The said reply is already part and parcel of the OIO and hence is not reproduced for the sake of brevity.

-that however, in a cursory manner, by flouting the principles of natural Justice completely and without understanding the facts of the case, with an intention to garner the revenue without authority of law, a non-speaking, illegal OIO was passed bad in law and has failed to appreciate the facts of the case wherein demand of tax for erroneous refund has been confirmed along with interest and penalty under Section 122 (2) of the CGST Act 2017 which is beyond the scope of SCN. The observation that refund claim is not in accordance with the provisions of Rule 89 (5) of the CGST Rules 2017 is inconsistent with the principles of Section 54 of the CGST Act 2017 and hence is ultra-virus.

-that appellant also purchased capital goods under Export Promotion Scheme Capital Goods Scheme and thus was entitled for claim of refund under “receipt of Deemed Export” provisions of the CGST Act 2017 for the period from February 2018 to May 2018.

-that in the para 11 of the impugned 0I0 it has been held that “I find that the claimant has wrongly claimed the NET ITC in their RFD-01A as ₹ 1,20,82,033/- instead of ₹ 67,07,782/- resulting in excess claim of refund as mentioned in Table 2 below.”

-that on perusal of the said table it is understood that while filing the refund under Section 54 (3) (ii) read with Rule 89 (5), the appellant has taken the whole amount of ITC as claimed by him in the month of May 2018, in GSTR-3B (i.e. period under dispute) for the purpose of claiming the refund. The said ITC included the Input Tax Credit taken in capital goads and input services. The amount of said ITC was ₹ 5374251/-.

-that however, while filing the refund claim, the invoice wise details of Total ITC for which refund has been clairrieZ1 was submitted as annexure to the refund application form RFD-01A which is enclosed and marked as Annexure-5. That on perusal of said form along with statement it is evident that each and every invoice details along with type of inward i.e. Input, Input Services and Capital Goods was mentioned and copies of invoices was also submitted.

-that reference has been made to the language of Rule 89(5) of the CGST Rules 2017 by the learned adjudicating authority wherein under Rule 89 (5) (a) the term “Net ITC” has been defined for the purpose of Rule as

(a) Net ITC shall mean input tax credit availed on inputs during the relevant period other than the input tax credit availed for which refund is claimed under sub-rules (4A) or (4B) or both; and

-that the SCN had alleged that inclusion of amount of ITC claimed in capital goods and input services was incorrect in the “Net ITC”. However, no reason for said observation has been given either in the SCN or in the OIO.

-that the claim of refund filed by the appellant in accordance with the provisions of Section 54 of the CGST Act 2017 was correct. To explain the context, the provisions of Section 54 (3) of the CGST Act 2017 are reproduced

3) Subject to the provisions of sub-section (10), a registered person may claim refund of any unutilised input tax credit at the end of any tax period:

Provided that no refund of unutilised input tax credit shall be allowed in cases other than–

(i) zero rated supplies made without payment of tax;

(ii) where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies (other than nil rated or fully exempt supplies), except supplies of goods or services or hnth as may be notified by the Government on the recommendations of the Council:

-that on reading of aforesaid bare provisions it is evident that refund under Section 54 (3) (ii) is allowed when rate of tax on inputs is higher than rate of tax on output supplies. In reality, since refund under given clause of the sub-section is allowed when rate of tax on inputs is higher than rate of tax on output supplies, hence the meaning of words inputs and outputs needs to be interpreted. The term “input” should not be interpreted in isolation without analysing the term output.

-that the term “output supply” has not been defined under the law. –that the term outward supply has been defined under Section 2 (83) of the CGST Act 2017. However, since the term “output” has been used instead of “outward” by the law in its own wisdom, hence same has to be treated differently from the term “outward”.

-that the dictionary meaning of the word “output” means result of a process undertaken on input. It is a synonym of term “outcome” which means result of an action or activity performed on a subject popularly known as input or intake. Hence output is a result of final outcome. The opposite of term output is input.

-that since throughout the law, the term output has only been used under Section 54 (3)(ii) alongside the word input, hence the definition of inputs given under Section 54 (3) (ii) cannot be applied here. The force in given interpretation comes from language of Section 2 of the Act which is read as under

In this Act, unless the context otherwise requires,–

……..

-that thus, the section 2 is applicable only in cases where the law specifically requires a separate context. In the given case, under Section 54 (3) (ii), as the words input and output have been used in one stroke and since the word output has not been used in the Act anywhere else, hence it is evident that general definition of input given under Section 2 (59) cannot be referred here.

-that once definition of term “input” given under Section 2 cannot be used here, then the principles of interpretation of law needs to be followed. In such a case, as per the principle of harmonious construction and reading, the term input needs to be understood in the context and reference of the word output. Since inputs is opposite of term output, it means that Section 54 (3) (ii) allows refund of all those intakes (be it in whatever form i.e. goods of services) which are either used or on which some activity is done to produce the output which is further supplied. The given section has direct nexus with the manufacturing process. Hence it means that where the intake (goods or services) have higher rale of tax than the outward (resulted goods of services), the refund can be claimed under given Section.

-that since in the manufacturing process undertaken by, both capital goods and input services are used for manufacturing and supply of output product which has not been questioned that contextually the word inputs used in the Rule 89 (5), has to be understood in context of same and capital goods along with input services should also be included for the purpose of determination of Net ITC.

-that since it has been explained above that Section allows the refund of inputs, input services and capital goods under Section 54 (3 (ii) of the Act. However, under the Rule 89 (5), the learned adjudicating authority has wrongly interpreted the word inputs in given case. Hence same needs to be correctly interpreted by way of a circular in this regard. The Rule is in line with Section 54 (3) (ii) but the interpretation of same through circular is contrary to the provisions of the law.

-that without prejudice to above also, the word defined under Section 2 (59) is input whereas the word used under Rule 89 (5) (a) is “inputs”. The plural version of the word input cannot be read as being defined under Rule 2 since it has a different context.

-that in fact on close perusal of definition of Net ITC”, it excludes the ITC taken in context of Rule 89(4.A) and (4B) from the ITC taken on inputs. In such case, on perusal of Rule 89 (4A) and 89 (4B), the ITC of inputs and input services both has been mentioned. Thus, the interpretation of the learned adjudicating authority shall fail in the given case that Net ITC shall not include the ITC on input services and capital goods since by a specific exclusion the ITC claim on certain input services have been reduced.

-that without prejudice to above, even if the interpretation of the learned adjudicating authority is followed then in that case, the provision in the Rule shall in effect go beyond the mandate given under Rule 54 (3) (ii) of the Act and hence shall render the Rules as ultra-virus.

-that without prejudice to above, the refund claim of the earlier periods was also sanctioned to the appellant in which information in same format was given by them. Thus when same has been sanctioned for months prior to the given month of the dispute, then in same manner, the impugned OIO rejecting the refund is bad in law. The appellant has also placed various reliance in their defence which are as follows:-

M/s Willowood Chemicals Pvt Ltd vs UOI reported in 2018 (19) GSTL 228 (Guj) = 2018 (10) TMI 261 – GUJARAT HIGH COURT it was held by Hon’ble Gujrat High Court that

Subordinate legislations – Wes of – They are presumed to be constitutional – They can be questioned on ground of being ultra vires main statute, beyond rule making powers of authority or wholly arbitrary and unreasonable – Law made by Parliament and State Legislature can be struck down only on two grounds viz., lack of legislative competence, or violation of fundamental rights or any other constitutional provisions. [para 8]

-that in case of UOI v/s Intercontinental Consultants and Technocrats Pvt Ltd reported in 2018 (10) GSTL 401 (SC) = 2018 (3) TMI 357 – SUPREME COURT it was held by Hon’ble CESTAT that Interpretation of statutes – Statutory rules – They cannot go beyond statute – In case of conflict with main enactment, rule has to give way. [paras 26, 27]

-that further recently in case of M/s. Voylla fashion Pvt. Ltd. vs. Union of India (Rajasthan High Court); D.B. Civil Writ Petition No. 24375/2018; 31/10/2018 the legal sanctity of Rule 89 (5) has been challenged and notices have been issued to the department. Thus in light of above since matter is sub-judice no order should be passed which shall be prejudicial to the interest of the appellant till the said writ is disposed off.

Because without prejudice to above, even if it is assumed that amount of NET ITC for Rule 89(5) under CGST Rules 2017 was incorrect, in such a case, the appellant as eligible for refund for receipts under deemed exports and thus on substantive basis, the refund should be allowed to them.

-that during the course of proceedings the appellant has explained that it received the capital goods under EPCG Scheme on which it was entitled to claim the refund under the provisions of “receipt under deemed exports”. The provisions for same are contained under Notification No. 48/2017-CT.

-that however, since it is well known that GST is a new Act all together which has changed the complete dynamics of indirect taxes in India. In such a case, more than 500 notifications, circulars and orders were issued till the time the refund was filed. The appellant did not have a full time GST consultant to advise them on the procedures. Thus on the basis of the limited understanding of the provisions of the procedure, a common refund claim can be treated.to have been filed under Rule 89(5) instead following the two separate applications.

-that the claim of refund of the appellant under the deemed export is not incorrect and nor it has been discussed to be void. The only problem which has surfaced is that the appellant should not have filed the refund claim for same under the procedure of inverted duty structure. However, all other legal substantive compliances have been done.

-that necessary documents for procurement of capital goods under the EPCG Scheme along with other details of output supplies are already available with the adjudicating authority. Hence for procedural non-compliance the refund should not have been rejected. The given refund claim was requested to Ile, treated as refund claim under inverted duty structure and also under the receipts under the deemed exports. Any other document as required could have been asked for. But the appellant should not have been slapped with a hefty demand which has no legal basis at all.

-that in case of M/s Coromandel Stampings Stones Limited vs CCEx& ST Hyderabad-II reported in 2016 (43) STR 221 (Tri-Hyd) = 2016 (7) TMI 780 – CESTAT HYDERABAD it was held that

Refund – Exemption by way of refund – Export of goods – Non-compliance of conditions of notification – Undisputedly goods exported and Service Tax paid on commission to foreign agents under Business Auxiliary Services (BAS) – Failure to notify Asstt./Deputy Commissioner by filing Form EXP-1 and non-submission of return in Form EXP-2 as required under Exemption Notification No. 18/2009-S.T., only procedural lapses -Settled law that substantive benefits not deniable on technical ground – Refund under impugned notification not deniable on merely technical interpretation of procedures as it would result in unduly restricting scope of beneficial provisions under export oriented schemes – Said procedural lapse condonable and refund admissible – Section 93 of Finance Act, 1994. [para 5]

-that the allegation of suppression/mis declaration levelled against the appellant is incorrect. All the documents were submitted during course of refund filing and the given demand has been raised on the basis of documents submitted by the appellant. Thus the SCN should not have been issued under Section 74 (1) of the CGST Act 2017 and thus should be dropped.

Because the penalty confirmed under Section 122 (2) (b) of the Act is beyond the scope of SCN and hence should be dropped immediately. Since the penalty was proposed under Section 122 (1) of the Act only which has not been confirmed, hence levying a penalty under Section 122 (2) (b) is illegal and should be dropped. In this context, the appellant has also placed various reliance in their defence are as under:

-that in case of CCE & ST, Belgum vs Swarnagriri Wire Insulation Pvt Ltd reported in 2014 (301) ELT 46 (Kar) = 2014 (5) TMI 640 – KARNATAKA HIGH COURT it was held that

Penalty – Imposition of – Permissibility, when no proposal made in the show cause notice –

HELD : Adjudication order to be confined to the proposal made in the show cause notice and without mentioning the amount proposed to be recovered as penalty, no order could be passed – Any order passed by the adjudicating authority beyond the scope of the show cause notice is wholly without jurisdiction – In the instant case, the adjudicating authority demanded duty for loss of 2.04% copper in the process of enamelling the copper wire, which was not at all proposed in the show cause notice – Same not being justified, order of CESTAT setting aside the order of the adjudicating authority, proper – Section 35G of Central Excise Act, 1944. [para 8]

-that in case of Diary Tech Enterprises vs C CEx, Ludhiana reported in 2017 (47) STR 347 (Tri-Chandi.) = 2017 (4) TMI 435 – CESTAT CHANDIGARH it was held by Hon’ble CESTAT, Chandigarh that

Order – Revision order beyond scope of shoe cause notice – Imposition of penalty under Section 78 of Finance Act, 1994 in absence of proposal for same in initially issued show cause notice – Impugned show cause notice never reviewed, therefore, no authority empowered to go beyond said show cause notice – Revisionary Authority gone beyond allegation of show cause notice – Impugned order illegal, therefore, set aside – Section 84 of Finance Act, 1994. [para 6]

-that in case of M/s J.K. Steels Ltd vs UOI reported in 1978 (2) ELT J355 (SC) = 1968 (10) TMI 45 – SUPREME COURT and others is out of context because in all these cases the reliance was placed on wrong sections which was not applicable on said cases. In given cases, the Section 122 (1) could have been applicable but the learned adjudicating authority chose to change their opinion after issuance of SCN to confirm penalty under Section 122 (2) (b) of the Act. Said change in the provisions of the Act is allowed and hence the given penalty proceedings should be quashed.

Because without prejudice to above, penalty should not be levied under 1140 Section 122 (2) (b) when there is no act of deliberate violation of law.

-that Section 122 (2) (b) of Central Goods and Services Tax Act, 2017 provides as under with respect to General disciplines related to penalty:

(2) Any registered person who supplies any goods or services or both on which any tax has not been paid or short-paid or erroneously refunded, or where the input tax credit has been wrongly availed or utilised,-.

b) for reason of fraud or any wilful misstatement or suppression of facts to evade tax, shall be liable to a penalty equal to ten thousand rupees or the tax due from such person, whichever is higher.

4. Personal hearing in the matter was held on 12.02.2020. Shri Yash Dhadda, Chartered Accountant, on behalf of the appellant has appeared and explained the case in detail. He reiterated the submission already made in their grounds of appeal and also submitted a copy of Annexure-5 in Statement 1A (Rule 89 (2) (h) and requested to decide the case at the earlist.

5. I have carefully gone through the case records and submissions made in the appeal memorandum as well as additional written submission submitted in the Form of Annexure-5 in Statement 1A under Rule 89 (2) (h) of the CGST Rules, 2017 at the time of personal hearing held on 12.02.2020. I find that the adjudicating authority has rejected the refund claim on the ground that the appellant has wrongly taken Net ITC of ₹ 1,20,82,033/- in column 4 of table instead of ITC of ₹ 67,07,782/- ((₹ 1,20,82,033/- ₹ 67,07,782/-) resulting excess claim of refund as mentioned in the table below in RFD-01A for the month of May-2018, which is inclusive of ITC availed on Capital Goods (₹ 51,97,848/- and Input Services(₹ 1,76,403/-) Total ₹ 53,74,251/-.

Table:-1

	Turnover of inverted rated supply of goods	Tax payable on such inverted supply of goods	Adjusted total turnover	Net Input tax credit	Maximum refund amount to be claimed [{1*4/3}-2]
	1	2	3	4	5
Integrate Tax	52819610	5670887	52819610	12082033	6411146 {3205573+3205573}
Central Tax
State/UT Tax
Cess		0
Total	0	0			641116

Table:-2

	Turnover of inverted rated supply of goods	Tax payable on such inverted supply of goods	Adjusted total turnover	Net Input tax credit	Maximum refund amount to be claimed [{1*4/3}-2]
	1	2	3	4	5
Integrate Tax	52819610	5670887	52819610	6707782	1036895 {518448+518447}
Central Tax
State/UT Tax
Cess		0
Total	0	0			1036895

As per Rule 89 (5) of CGST Rules, 2017 in the case of refund on account of inverted duty structure, refund of input tax credit shall be granted as per the following formula:-

Maximum Refund Amount={(Turnover of inverted rated supply of goods and services) x Net ITC / Adjusted Total Turnover} – tax payable on such Inverted rated supply of goods and services.

Explanation:- For the purposes of this sub-rule, the expressions-

(a) Net ITC shall mean input tax credit availed on inputs during the relevant period other than the input tax credit availed for which refund is claimed under sub-rules (4A) or (48) or both; and

(b) [“Adjusted Total turnover” and “relevant period” shall have the same meaning as assigned to them in sub-rule (4).]

Refund of unutilized ITC in case of inverted tax structure, as provided in Section 54 (3) of the CGST Act, 2017 is available where ITC remains unutilized even after setting off of available ITC for the payment of output tax liability. Where there are multiple inputs attracting different rate of tax, in the formula provided in Rule 89 (5) of the CGST Rules, the term ‘Net ITC’ cover the ITC availed on all inputs in the relevant period, irrespective of their rate of tax.

Further, as per Para -14 of Circular No.79/53/2018-GST dated 31.12.2019 Section 54 (3) of the CGST Act provides that refund of any unutilized ITC may be claimed where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies (other than nil rated or fully exempt supplies). Further, Section 2 (59) of the CGST Act defines inputs as any goods other than capital goods used or intended to be used by a supplier in the course or furtherance of business. Thus, inputs do not include services or capital goods. Therefore, clearly, the intent of the law is not to allow refund of tax paid on input services or capital goods as part of refund of unutilized input tax credit. Accordingly, in order to align the CGST Rules with the CGST Act, notification No.26/2018-Central Tax, dated 13.06.2018 was issued wherein it was stated that the term Net ITC, as used in the formula for calculating the maximum refund amount under rule 89 (5) of the CGST Rules, shall mean input tax credit availed on inputs during the relevant period other than the input tax credit availed for which refund is claimed under sub-rules (4A) or (4B) or both.

6. In view of the above, it is clear that both the law and the related rules clearly prevent the refund of tax paid on Input Services and Capital Goods as part of refund or Input Tax Credit accumulated on account of Inverted Duty Structure.

Therefore, appellant’s contention that credit of Capital Goods along with Input Services also be included for the purpose of determination of Net ITC is not correct and rightly rejected by the adjudicating authority.

7. As far as the appellant’s contention that he was entitled to claim the refund under the provisions of “receipt under deemed export” is concerned, the appellant was at his liberty to claim the refund under relevant provision of the law and he should have filed the claim under relevant provisions related to deemed export scheme. It can not be allowed at this stage, as there is no such provision under the rules, therefore appellant’s demand can not be acceded and rightly rejected by the adjudicating authority.

Therefore, I do not find force in the contention of the appellant and are not acceptable. I find that the adjudicating authority has rightly confirmed the demand under Section 74 (1) & interest under Section 50 respectively of the CGST/RGST Act, 2017. The appeal is rejected to that extent.

8. As far as penal action is concerned, Appellant has contested that penalty confirmed under Section 122 (2) (b.) is beyond the scope of show cause notice, as the penalty was proposed under Section 122 (1) of the Act. The appellant has also relied on various case laws in their defence, which are squarely applicable in the present case. I find force in the appellant’s contention. Adjudicating Authority can not travel beyond the scope of show cause notice. Any order passed by the adjudicating authority beyond the scope of show cause notice is not legal and liable to be set aside. Therefore, the penalty imposed under Section 122 (2) (b) is beyond the scope of show cause notice and is set aside.

9. Thus, the appeal is disposed off in above manner.