Circular Can’t Override Law: Gujarat HC Orders ₹21.7 Cr GST Refund to Tyre Maker

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Case Name

Balkrishna Industries Limited vs. The Union of India

Court Name: High Court of Gujarat at Ahmedabad

Case No.: R/Special Civil Application No.of 2020

Date of Judgment: 04th August 2022

Coram: Hon’ble Mr. Justice N.V. Anjaria and Hon’ble Mr. Justice Bhargav D. Karia

Key Takeaways

1. A Circular cannot override a Statute or Rules. An administrative circular issued under Section 168(1) of the CGST Act cannot substitute, amend, or curtail the operation of the CGST Rules, particularly Rule 89(3).

2. Compliance with the Law = Compliance with the Requirement. Since Balkrishna Industries debited the correct total amount from its electronic credit ledger as required by Rule 89(3), the legal requirement was fully met.

3. Sequence Substance. Not following the order of debit (IGST first, then CGST/SGST) as prescribed in the Circular is merely a procedural irregularity, not an illegality that can disentitle a taxpayer from their rightful refund.

4. Substantive rights cannot be defeated by procedural lapses. The court firmly held that procedural law is always subservient to substantive law.

5. No deficiency memo = No valid rejection. The authorities never issued a deficiency memo within 15 days as required under Rule 89(4), which further weakened their case for rejection.

6. Entitlement was never in dispute. Even the appellate authority had confirmed that Balkrishna Industries was entitled to the refund — the only issue was the sequence of debit.

Issue

Can the tax authorities reject a GST refund claim — which is otherwise legally valid and undisputed — solely because the taxpayer debited its electronic credit ledger in a different sequence than what is prescribed in an administrative Circular, even though the total amount debited was correct as per the Rules?

The short answer the court gave: No, they cannot.

Facts

Who is Balkrishna Industries?

They are a tyre manufacturer with a factory in Bhuj, Gujarat, registered under GST. They make zero-rated supplies (i.e., exports), which entitles them to claim refunds of unutilised Input Tax Credit.

The Refund Application (April 2019):

On 17.04.2019, the company filed a refund application for ₹31,58,80,475/- under Section 54(3)(i) of the CGST Act read with Rule 89(4) of the CGST Rules, on account of zero-rated supplies.

How they debited their credit ledger:

As required by the rules, they debited an amount equal to their refund claim from their electronic credit ledger. Here’s how they did it:

Tax HeadAmount DebitedIGST₹ Nil (Zero)CGST₹ 8,00,00,000/-SGST₹ 23,29,91,500/-Cess₹ 28,88,975/-Total₹ 31,58,80,475/-

But here’s the thing — they had ₹21,71,74,611/- of IGST balance available in their ledger at the time!

What the Circular said:

The Circular dated 04.09.2018 (paragraph 3.2) said that the debit should be made in this specific order:

1. First, debit IGST to the extent of balance available
2. Then, debit CGST and SGST equally

The Show-Cause Notice (May 2019):

The Assistant Commissioner issued a show-cause notice on 10.05.2019 proposing to reject the refund on two grounds:

• The zero-rated supply turnover figure was different from what the company stated
• The company didn’t follow the Circular’s sequence — they didn’t debit the IGST balance of ₹21,71,74,611/- first

Partial Sanction (June 2019):

Out of the total claim of ₹31,58,80,475/-, the Assistant Commissioner sanctioned only ₹9,72,10,984/- and rejected the balance of ₹21,86,69,491/- mainly for not following the Circular’s procedure.

The Appeal (June 2020):

Balkrishna Industries appealed. The appellate authority (Respondent No. 3) by order dated 30.06.2020 held that the company was eligible for refund of ₹21,71,74,611/-, BUT directed them to file a fresh claim after first debiting the IGST amount from their ledger.

The Fresh Application Drama (July 2020):

When the company filed a fresh application on 14.07.2020, they received yet another show-cause notice dated 20.07.2020 proposing to reject it again — because they still hadn’t reversed/debited the IGST credit first!

This is when they approached the Gujarat High Court.

Arguments

Balkrishna Industries (Petitioner) argued:

1. Entitlement was not disputed — even the appellate authority confirmed they were eligible for the refund.

2. Rule 89(3) was fully complied with — they debited the total amount equal to the refund claim from their electronic credit ledger, which is exactly what the rule requires.

3. A Circular cannot override the Rules — the authorities cannot reject a refund solely because the taxpayer didn’t follow the sequence mentioned in the Circular, when the actual law and rules were complied with.

4. No deficiency memo was issued — had a deficiency memo been issued (as required), the company could have corrected the sequence. The authorities skipped this step entirely.

5. No undue benefit was taken — by not following the Circular’s sequence, the company didn’t gain any unfair advantage.

6. Circulars are binding on officers, not on Courts — citing J.K. Lakshmi Cement Ltd. vs. Commercial Tax Officer, Pali [2018(14) GSTL 497 (SC)], they argued that when a High Court or Supreme Court lays down a principle, circulars need not be given effect to.

7. Circular contrary to statutory provisions has no legal existence — citing Commissioner of Central Excise, Bolpur vs. Ratan Melting and Wire Industries [(2008) 13 SCC 1].

Union of India / Tax Authorities (Respondents) argued:

1. The refund of unutilised ITC for zero-rated supplies is governed by sub-section (3) of Section 54 of the CGST Act, and the application must be made in the manner prescribed.

2. The manner is prescribed in Rule 89(4) of the CGST Rules and further elaborated in the Circular dated 04.09.2018, which was issued under Section 168(1) of the CGST Act.

3. The Circular is not in contravention of the law — it merely prescribes the manner of claiming refund, and since the petitioner didn’t comply with it, the rejection was justified.

Key Legal Precedents

1. J.K. Lakshmi Cement Ltd. vs. Commercial Tax Officer, Pali [2018(14) GSTL 497 (SC)]

This Supreme Court case established that while circulars and instructions issued by the Board are binding on departmental authorities, they are not binding on Courts. When a High Court or Supreme Court lays down a principle, the circular need not be given effect to.

2. Commissioner of Central Excise, Bolpur vs. Ratan Melting and Wire Industries [(2008) 13 SCC 1]

The Supreme Court held that a circular contrary to statutory provisions has no existence in law. This was used to argue that the Circular’s sequence requirement, being contrary to what the Rules prescribe, cannot be enforced.

3. Amit Cotton Industries vs. Principal Commissioner of Customs [2019(29) GSTL 200 (Guj)]

This Gujarat High Court Division Bench decision observed that circulars are merely instructions or guidance to departmental officers — they don’t have the force of law.

4. Babaji Kondaji Garad & Ors. vs. Nasik Merchants Coop. Bank Ltd. [AIR 1984 SC 192]

The Supreme Court considered Section 73B of the Maharashtra Cooperative Societies Act and Rule 61 of Cooperative Societies Rules, and held that what is contemplated in a bye-law (subordinate legislation) cannot displace the legislative mandate of a statutory provision. The court quoted: “if there is any conflict between a statute and the subordinate legislation, it does not require elaborate reasoning to firmly state that the statute prevails over subordinate legislation.”

5. Saiyad Mohammad Bakar El-Edroos vs. Abdulhabib Hasan Arab & Ors. [(1998) 4 SCC 343]

The Supreme Court reiterated the golden principle that procedural law is always subservient to substantive law. The court quoted: “A procedural law is always in aid of justice, not in contradiction or to defeat the very object which is sought to be achieved… Nothing can be given by a procedural law what is not sought to be given by a substantive law and nothing can be taken away by the procedural law what is given by the substantive law.”

6. Solanki Parvatikumari Rameshbhai vs. State of Gujarat (Special Civil Application No. 22981 of 2017)

A Single Judge of the Gujarat High Court explained the crucial distinction between illegality and irregularity:

• Illegality = substantial failure in compliance; a complete defect that disentitles a party from relief
• Irregularity = a minor procedural lapse; pardonable in law; does not adversely affect substantive rights

The court used this to hold that not following the Circular’s sequence was merely an irregularity, not an illegality.

Key Statutory Provisions Referenced:

Section 54(3)(i), CGST Act

Allows refund of unutilised ITC for zero-rated supplies

Section 54(1), CGST Act

Application for refund to be made in prescribed manner

Rule 89(3), CGST Rules, 2017

Electronic credit ledger shall be debited by an amount equal to refund claimed

Rule 89(4), CGST Rules, 2017

Application to be filed in prescribed form and manner

Section 2(89), CGST Act

Defines “prescribed” as prescribed by Rules made under CGST Act

Section 168(1), CGST Act

Power to issue circulars/instructions

Section 16, CGST Act

Allows registered persons to take ITC credit

Article 226, Constitution of India

Writ jurisdiction of High Courts

Judgment

The Gujarat High Court ruled entirely in favour of Balkrishna Industries.

Step 1: The court confirmed that Rule 89(3) of the CGST Rules only requires the taxpayer to debit an amount equal to the refund claim from the electronic credit ledger. The company did exactly that — the total amount was correct. ✅

Step 2: The Circular dated 04.09.2018 is an administrative instruction issued under Section 168(1) of the CGST Act. It cannot substitute, amend, or curtail the operation of the CGST Rules. Since the Rules were complied with, there was no breach of the “manner prescribed.”

Step 3: The company’s entitlement to refund was never in dispute — even the appellate authority confirmed it. The only issue was the sequence of debit, which is a procedural matter.

Step 4: Not following the Circular’s sequence is at most a procedural irregularity, not an illegality. Procedural law cannot take away what substantive law gives.

Step 5: No deficiency memo was issued within 15 days as required — which further invalidated the rejection.

Orders Passed by the Court:

(a) The Appeal Order dated 30.06.2020 (to the extent it required IGST debit before refund) — Quashed and Set Aside 

(b) The Communication dated 14.07.2020 from Respondent No. 3 — Set Aside 

(C) The Order in Original dated 14.07.2020 — Set Aside

(d) It is declared that non-compliance of the procedure in paragraph 3.2 of the Circular dated 04.09.2018 will NOT disentitle the petitioner from claiming the refund.

(e) The Respondents are directed to pay ₹21,71,74,611/- with statutory interest within 8 weeks from the date of receipt of the order.

FAQs

Q1: What is a “zero-rated supply” and why does it matter here?

A zero-rated supply means exports or supplies to Special Economic Zones (SEZs). Even though no GST is charged on such supplies, the supplier can claim a refund of the GST paid on inputs used to make those supplies. That’s exactly what Balkrishna Industries was claiming.

Q2: Why did the company not debit IGST first, as the Circular required?

The judgment doesn’t explicitly state the reason, but the court noted that the non-compliance was for “non-culpable reasons” — meaning it wasn’t done with any fraudulent intent or to gain an unfair advantage. The company simply debited CGST and SGST instead of IGST first.

Q3: Did the company gain any unfair benefit by not following the Circular’s sequence?

No. The court specifically noted that “no undue benefit was taken by the petitioner by not adhering to the order of refund.” The total amount debited was the same regardless of the sequence.

Q4: Can a GST Circular override the GST Rules?

Absolutely not, as this case makes clear. A Circular is an administrative instruction — it can guide officers on how to implement the law, but it cannot override or modify the actual Rules or the Act.

Q5: What is the significance of the “deficiency memo” that was never issued?

Under Rule 89(4) of the CGST Rules, if there’s a deficiency in a refund application, the officer must issue a deficiency memo within 15 days. Had this been done, the company could have corrected the sequence. By skipping this step and directly rejecting the claim, the authorities acted improperly.

Q6: What does this judgment mean for other GST taxpayers?

This is a very significant ruling! It means that if you’ve complied with the actual GST Act and Rules for a refund claim, tax authorities cannot reject your claim merely because you didn’t follow the exact procedure in a Circular. Substantive compliance with the law trumps procedural compliance with a Circular.

Q7: What is the difference between “illegality” and “irregularity” in this context?

Think of it this way: An illegality is like running a red light — it’s a serious violation that has consequences. An irregularity is like parking slightly outside the lines — it’s a minor lapse that doesn’t fundamentally change anything. The court held that not following the Circular’s sequence was just an irregularity (parking outside the lines), not an illegality.

Q8: Will the company get interest on the refund amount?

Yes! The court ordered the refund of ₹21,71,74,611/- along with statutory interest to be paid within 8 weeks. The company had also separately claimed interest on ₹14,94,881/- for the period beyond 60 days from 17.04.2019 (the date of filing the refund application).

Heard learned advocate Mr. Mihir Joshi with learned advocate Mr. Dhaval Shah for the petitioner, learned advocate Mr. Ankit Shah for respondents no.

1, 2 and 5 and learned advocate Mr. Dhaval Vyas for respondent no.4. Though served with notice of this court, none appeared on behalf of respondents no.3 and 5.

1.1 Rule returnable forthwith. Learned advocate Mr. Ankit Shah and learned advocate Mr. Dhaval Vyas waives service of Rule for the respective respondents.

2. By filing the present Special Civil Application under Article 226 of the Constitution of India, the petitioner has prayed to set aside order dated

30.06.2020 passed by the respondent no.3 appellate authority insofar as the said order allowed refund to the petitioner after debiting the Integrated Goods and Services Tax standing in the credit ledger account of the petitioner.

2.1 Also prayed is to set aside the communication

dated 14.07.2020 issued by respondent no.3 in that

regard. Order in original dated 14.07.2020 which was

carried in appeal and to the extent it is adverse to

the petitioner is also sought to be set aside.

2.2 The petitioner further wants to set aside

paragraph 3.2 of the Circular dated 04.09.2018.

2.3 The petitioner has prayed for direction to

refund of Rs. 21,71,74,611/-, which is unutilised

input tax credit to be refunded without any

Integrated Goods and Services Tax (IGST) debit with

interest.

2.4 The petitioner has claimed interest on the

amount of Rs. 14,94,881/- in respect of the period

beyond 60 days from 17.04.2019, which was the date of

filing of refund application, till actual payment.

3. The petitioner is engaged in the manufacture of

tyres and has factory at Bhuj. The petitioner is also

registered with the Goods & Services Tax Authorities.

The petitioner applied on 17.04.2019 seeking refund

of unutilised credit of Rs. 31,58,80,475/-,

comprising of the amounts towards CGST, SGST and the

cess under Section 54(3) (i) of the Act read with

Rule 89(4) of the CGST Rules on the ground that the

petitioner had made zero rated supplies.

3.1 Section 16 of the Act allows registered person

to take credit on input tax on the goods and services

tax paid by such person. It is the case of the

petitioner that in compliance of the relevant rules,

the petitioner debited the amount equal to the refund

claim in the electronic credit ledger from the

balance available in GST and SGST on the date of the

application.

3.2 The petitioner debited the amounts, the break-up

of which was as under,

1. IGST Balance - Nil

2. CGST Balance - Rs. 8,00,00,000/-

3. SGST Balance - Rs.23,29,91,500/-

4. Cess - Rs. 28,88,975/-

Total - Rs.31,58,80,475/-

3.3 At the relevant time, the petitioner had

following balances in the credit ledger, that is, on

the date when the refund claim was filed.

1. IGST Balance - Rs.21,71,74,611/-

2. CGST Balance - Rs.10,22,10,469/-

3. SGST Balance - Rs.27,38,45,864/-

4. Cess - Rs. 1,32,36,093/-

Total - Rs.60,64,67,037/-

3.4 Respondent no.4, Assistant Commissioner of

Goods and Services Tax acknowledged the application

of the petitioner. However, on 10.05.2019, he issued

show-cause notice proposing to reject the refund

claim on two grounds, namely, that the turnover of

the zero rated supplies required to be taken was of

particular amount, instead of the amount that was

stated by the petitioner. Secondly, it was stated

that the petitioner did not follow the procedure

mentioned in para 3.2 of the Circular dated

04.09.2018 by not debiting the amount of IGST of

Rs.21,71,74,611/-, which was available in the

balance.

3.5 The petitioner filed reply on 10.06.2019

contending that it was entitled to refund of

unutilised credit under section 54(3)(i) read with

Rule 89(4) of the Rules for the zero rated supplies

it effected under section 16 of the Act. Out of the

total refund claim of Rs. 31,58,80,475/-, respondent

no.4 passed order dated 20.06.2019 and sanctioned

only Rs. 9,72,10,984/-. Balance of Rs.

21,86,69,491/- was rejected on the aforesaid grounds,

mainly for the contravention of the procedure

mentioned in the said Circular dated 04.09.2018.

3.6 The petitioner preferred appeal against the

aforesaid order dated 20.06.2019. The respondent

no.3, appellate authority by order dated 30.06.2020

held that the petitioner was eligible for refund of

Rs. 21,71,74,611/-, but at the same time, allowed the

petitioner to file a fresh claim after deducting IGST

by following the procedure provided in the

aforementioned Circular. The petitioner requested

the appellant authority in vein to delete the words

"after deducting IGST of Rs. 21,71,74,611/- from the

electronic credit ledger".

3.7 When the petitioner filed fresh application

dated 14.07.2020 seeking refund, it was reponded by

the authority with another show-cause notice dated

20.07.2020 proposing to reject the claim of refund.

It was for the reason that the petitioner had not

reversed the credit of IGST of Rs. 21,71,74,611/-

3.8 The stand of respondent no.3 is thus that the

petitioner was first required to debit IGST of

Rs.21,71,74,611/- in terms of procedure contemplated

in paragraph 3.2 of the Circular dated 04.09.2018 in

order to be eligible to get refund. When the said

procedure was not observed, it was viewed that the

refund claim was liable to be rejected.

4. Learned senior advocate for the petitioner

raised following main submissions, (i) the

entitlement of refund to the petitioner was not

disputed as the appellate authority held in favour of

the petitioner. (ii) the petitioner had debited equal

to amount of refund of unutilized credit in

compliance of Rule 89(3) of the Rules. (iii) it was

submitted that the respondents could not have

rejected the refund on the sole ground that the

petitioner did not debit the amount in its credit

ledger in the sequence mentioned in paragraph 3.2 of

the Circular. (iv) that when the application was

filed in prescribed manner under the provisions and

the rules and when the petitioner was already held

entitled to refund, there was no good reason to deny

the claim. (v) Had the deficiency memo issued, the

petitioner could have earned opportunity to correct

the sequence of the debit in its credit ledger as per

the circular. (vi) No deficiency memo was issued, it

was submitted (vii) In any case, the circular could

not have overriding effect over the provisions of law

and Rules which were complied with.

4.1 Learned senior advocate for the petitioner

relied on the decision in J.K. Lakshmi Cement Ltd.

Vs. Commercial Tax Officer, Pali [2018(14) GSTL 497

(SC)] to submit the proposition that circulars and

instructions issued by the Board are binding on the

authorities under respective statute, but when the

Supreme Court or High Court lays down principle, it

would be appropriate for the Court to direct that the

circular should not be given effect to as they are

not binding on the Courts. Further, the decision of

Supreme Court in Commissioner of Central Excise,

Bolpur vs. Ratan Melting and Wire Industries [(2008)

13 SCC 1] to assert that circular contrary to

statutory provisions has no existence of law. The

decision of the Division Bench in Amit Cotton

Industries vs. Principal Commissioner of Customs

[2019(29) GSTL 200 (Guj)], observed that circulars

are instructions or guidance to the departmental

officers.

4.2 On the other hand, on the basis of the contents

and contentions therein, learned advocate for the

respondent submitted that the refund of unutilised

input credit on account of zero rated supplies made

without payment of tax is governed under sub-section

(3) of section 54 of the Act. It was submitted that

sub-section (1) of section 54 provides that an

application for such refund has to be preferred in

such manner as may be prescribed. It was submitted

that on the manner prescribed in Rule 89(4) of the

Rules and it was further prescribed in circular dated

04.09.2018. The Circular was issued, it was

submitted, under section 168(1) of the Central Goods

and Services Tax Act, 2017, which could not be said

to be in contravention with the provisions of section

and rule concerned and when the petitioner had not

complied with the provisions of the Circular, the

refund claim was rightly rejected.

5. The petitioner claimed refund of untilised

input tax credit on the ground that it had made zero

rated supplies. Section 16 of the Act permits

registered person to take credit of input tax credit

of GST paid on capital goods and input services

subject to such conditions and restrictions and in

the manner as prescribed in Section 49 of the Act.

5.1 Rule 89 of the CGST Rules, 2017, deals with

application for refund of tax, interest, penalty,

fees or any other amount. Sub-Rule (3) of Rule 89

says that "where the application relates to refund of

input tax credit, electronic credit ledger shall be

debited by the applicant by an amount equal to refund

so claimed." It is the uncontroverted fact that

petitioner debited the amount equal to the refund

claim out of credit of the tax amount lying in its

electronic ledger.

5.2 The circular dated 04.09.2018 of which the

breach is complained of and made basis to deny the

refund claim of the petitioner is issued under

Section 168 of the Act. Paragraph 3.2 of the said

Circular dated 04.09.2018, which is made the basis

for rejection of refund claim of the petitioner reads

as under,

"3.2 After calculating the least of the three

amounts, as detailed above, the equivalent amount is

to be debited from the electronic credit ledger of

the claimant in the following order:

1) Integrated tax, to the extent of balance

available.

2) Central tax and State tax/Union Territory

tax, equally to the extent of balance available

and in the event of a shortfall in the balance

available in a particular electronic credit

ledger (say, Central tax), the differential

amount is to be debited from the other

electronic credit ledger(i.e, State tax/Union

Territory tax, in this case).

5.2 The stance adopted by the authorities is that

the petitioner ought to have debited the amount in

the sequence and the order mentioned in the Circular,

that is, (i) Integrated tax to the extent of balance

available. (ii) Central Tax and State Tax/Union

Territory tax equal to the extent of balance

available and in the event of shortfall in the

balance in the particular head, the differential

amount is to be debited from the other head (for

instance if the central tax amount has no balance

then the amount may be debited from State Tax). Even

though the petitioner had debited the total amount

equal to the refund claim, as required, the debit

should have been in the said order, it was so stated.

5.3 It is not in dispute that the refund claim

application was in accordance with section 54 of the

Act and the amount equal to the refund claim was

debited from the electronic credit ledger in

compliance of Rule 89(4) of the CGST Rules.

Therefore, the provisions of law and Rules were

complied with by the petitioner. Admittedly, the

respondent did not issue any deficiency memo within

15 days as provided in Rule 89(4) of the Rules.

Furthermore, the appellate authority had accepted the

refund claim of the petitioner on merits and the

petitioner's entitlement to refund was not in

dispute.

5.4 While section 54 of the CGST Act provides that

an application shall be made in such form and in the

manner as prescribed, Rule 89(4) says that the

application should be filed in the prescribed form

and in the manner prescribed. Section 2(89) of the

Act defines the expression "prescribed" to mean

"prescribed by the Rules made under CGST Act on the

recommendation of the Council". Therefore, the

manner prescribed was to be one prescribed under Rule

89(3) of the Rules.

5.5 The Circular dated 04.09.2018 was the product of

exercise of the powers under section 168(1) of the

Act. It was an administrative instruction issued by

the authority. The Circular of such nature could not

substitute, amend or curtail the ambit or operation

of the CGST Rules, in particular Rule 89(3), which

was duly observed by the petitioner in respect of its

refund claim. There was no breach of the 'manner

prescribed' in the Rules in relation to lodging of

the refund claim.

5.6 As the petitioner had debited the total amount

of refund claim prescribed in the Rule in its

electronic credit ledger, the requirement was met

with. Merely because the debit was not made in the

sequence mentioned in the Circular, the refund claim

could not have been rejected. Even otherwise, no

undue benefit was taken by the petitioner by not

adhering to the order of refund.

6. When the entitlement of the petitioner for

refund is not in dispute and the appellate authority

has confirmed the claim of the petitioner and the

conditions of section 54(3) of the Act and Rule 89(4)

of the Rules are complied with, in such facts and

circumstances, even if the procedure laid down in the

circular for getting refund stands at variance or if

it was not observed by the petitioner for non-

culpable reasons, the providence and procedure in the

circular would not prevail over the statutory

prescription under which the right of the petitioner

to get refund is established.

6.1 In Babaji Kondaji Garad & Ors. vs. Nasik

Merchants Coop. Bank Ltd.[AIR 1984 SC 192], the

Supreme Court had an occasion to consider Section 73-

B of the Maharastra Cooperative Societies Act and

Rule 61 of Cooperative Societies Rules. Section 73-B

mandated to earmark the cities for reserved category

and Board of Directors of the specified. The Supreme

Court observed that what is contemplated in Rule 61

which was a bylaw, could not displace the legislative

mandate of statutory provision.

6.2 The Supreme court observed that in construing

the legislative measure or statutory provision,

opinion of the executive is not relevant. It was

observed,

"Now if there is any conflict between a statute

and the subordinate legislation, it does not

require elaborate reasoning to firmly state that

the statute prevails over subordinate

legislation and the bye-law if not in conformity

with the statute in order to give effect to the

statutory provision the rule or bye-law has to

be ignored. The statutory provision has

precedence and must be complied with."

6.3 What the Circular lays down is the procedure.

The Supreme Court in Saiyad Mohammad Bakar El-Edroos

Vs. Abdulhabib Hasan Arab & Ors.[(1998) 4 SCC 343],

reiterated the principle that the procedure of law is

always subservient to substantive law.

6.3.1 It was stated,

"A procedural law is always in aid of justice,

not in contradiction or to defeat the very

object which is sought to be achieved. A

procedural law is always subservient to the

substantive law. Nothing can be given by a

procedural law what is not sought to be given by

a substantive law and nothing can be taken away

be the procedural law what is given by the

substantive law."

(para 8)

6.4 Even if the procedure of claiming refund,

contemplated in paragraph 3.2 of the Circular could

not be adhered to, but on the other hand, there was a

substantive right of the petitioner created to claim

the refund in law, then non-compliance of the

procedure of Circular would only amount to

irregularity and not illegality.

6.4.1 In Solanki Parvatikumari Rameshbhai Vs.

State of Gujarat being Special Civil Application No.

22981 of 2017, Single Judge of this Court explained

the differentiation between illegality and

irregularity,

"5.2 Law conceives a clear differentiation

between illegality and irregularity. This nice

distinction brings home the case of the

petitioner. An illegality is something which

amounts to substantial failure in compliance of

requirement. It denotes such breach of rule or

requirement which alters the position of a party

in terms of his right or obligation. Illegality

denotes a complete defect in the jurisdiction or

proceedings. Illegality is properly predictable

in its radical defects. It is a situation

contrary to the principle of law. As against

this, an irregularity as defined

lexicographically, is want of adherence to some

prescribed rule or mode of proceedings.

6.4.2 It was further stated by the Court in same

para,

"It consist in omitting the rule something

that is necessary for due and orderly

conducting of a suit or doing it in an

unreasonable time or improper manner. In

Law Lexicon by R. Ramanatha Aiyar, 1997

Edition, irregularity is defined as “a

neglect of order or method; not according

to regulations; the doing of an act at an

unreasonable time, or in an improper

manner; the technical term for every defect

in practical proceedings or the mode of

conducting an action or defence, as

distinguished from defects in pleading.

Irregularity is failure to observe that

particular course of proceedings which,

conformable with the practice of the court,

ought to have been observed”.

6.4.3 It was further stated that irregular

conduct or procedure could not have debilitating

effect on the substantive rights of the party,

"5.3 A thing irregularly done is not regularly

done. It is not in conformity of rule or

principle. The concepts “illegal”, “irregular”

and “procedurally irregular”, are often

understood in terms of their degree which they

bear to be not in conformity with rule of

particular course of action. The illegality is a

highest kind of breach of law which will taint

and vitiate the action. One who commit

“illegality” has to be denied the assertion of

his right and he stands disentitled to relief in

law. Irregularity, as noticed, is breach of

procedure of rule or some orderly conduct but

not of such nature which could be said to be in

the nature of a debilitating defect. It is

pardonable in law. The concept of procedural

irregularity is indicative of lapse of minor

nature in procedure which could not affect

adversely rights of a party, nor would

exceptionally reverse the obligation of the

other side."

6.5 For all the aforesaid discussion and

reasons, petition deserves to be allowed. Rule is

made absolute. (a) Order in Appeal dated 30.06.2020

passed by respondent no.3 to the extent it allowed

only after debiting in the credit ledger account of

the petitioner is quashed and set aside. (b)

Communication dated 14.07.2020 from respondent no.3

in above regard is also set aside. (c) Order in

original dated 14.07.2020 stands set aside. (d) It

is declared that non-compliance of the procedure in

paragraph 3.2 of the circular dated 04.09.2018 will

not dis-entitle the petitioner from claiming the

refund amount. The respondent shall make the payment

of refund to the petitioner to the tune of

Rs.21,71,74,611/- with statutory interest within

eight weeks from the date of receipt of this order.

7. The petition stands allowed. Rule is made

absolute accordingly.

(N.V.ANJARIA, J)

(BHARGAV D. KARIA, J)