Circular 135/2020-GST u/s 168(1) cannot restrict refund right u/s 54(3)(ii) CGST for accumulated input tax credit

HC held that Circular No. 135/2020-GST issued under Section 168(1) CGST Act cannot curtail or override the substantive right to refund of unutilized ITC under Section 54(3)(ii). The statute permits refund where ITC accumulates due to a higher tax rate on inputs than on output supplies, without distinguishing cases where input and output supplies are identical. The circular's restriction that refund is unavailable if input and output supplies are the same was declared ultra vires the Act, as it impermissibly narrows the statutory benefit. The authority was directed not to rely on the circular and to grant the refund of accumulated ITC to the petitioner.

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Issues:
Refund claim rejection under Section 54(3) of CGST Act, 2017 based on circular; Interpretation of input and output supplies similarity; Validity of circular restricting refund; Applicability of Gujarat Authority for Advance Ruling; Relevance of judgments by Guwahati High Court and Delhi High Court; Comparison with Madhya Pradesh High Court judgment; Legality of circular under Section 168(1) of CGST Act, 2017.

Analysis:
The petitioners sought refund under Section 54(3) of the CGST Act, 2017 due to an inverted tax structure where the tax on inputs (LPG in bulk) at 18% exceeded the tax on output supplies (LPG in small containers for domestic consumers) at 5%. The refund claim was rejected citing a circular dated 31.03.2020, which stated that refund cannot be claimed when input and output supplies are the same. The circular was issued under Section 168(1) of the Act for uniform implementation.

The central issue revolved around whether a circular could restrict a refund claim permissible under the Act. The court emphasized that the Act clearly allowed refunds in cases of accumulated input tax credit due to higher tax on inputs than outputs. The circular's attempt to limit refunds to differing supplies was deemed impermissible as it went beyond the Act's provisions.

The court referenced precedents like M/s. Jindal Stainless Ltd. case, highlighting that circulars cannot override statutory provisions. It was noted that the Act did not exclude refund eligibility based on similar input and output supplies, making the circular's restriction invalid. The court emphasized that the legislature intended to grant refunds in all cases of inverted tax structure without creating distinctions based on supply types.

In conclusion, the court set aside the orders rejecting the refund claim, asserting the petitioners' entitlement to the refund as claimed. The judgment emphasized that the circular's attempt to limit refunds based on input-output similarity was not supported by the Act, and the petitioners' claim was valid under Section 54(3) of the CGST Act, 2017.

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