Refund of inverted duty ITC allowed; circular restricting Section 54(3)(ii) CGST refund held ultra vires, unenforceable

HC allowed the writ petition, holding that the petitioner, a registered dealer supplying goods at a concessional rate, is entitled to refund of accumulated ITC under the inverted tax structure in terms of Section 54(3)(ii) of the CGST Act. The court held that the circular dated 31.03.2020, which denied refund where input and output supplies are the same, is repugnant to and ultra vires the parent statute and cannot curtail the unambiguous statutory right to refund, particularly for the pre-circular period (September 2018 to September 2019). The earlier clarification dated 18.11.2019 was applied, and the revenue authorities were directed to grant the admissible ITC refund to the petitioner.

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Issues Involved:
1. Legality and propriety of the Impugned Refund rejection Order in Form RFD 06.
2. Validity of Para 3 of Circular No. 135/05/2020-GST dated 31.03.2020.
3. Entitlement of the petitioner to a refund of accumulated Input Tax Credit (ITC) under the inverted duty structure.

Detailed Analysis:

1. Legality and Propriety of the Impugned Refund rejection Order in Form RFD 06:
The petitioner filed a refund claim of Rs. 27,02,26,876 under the inverted duty structure as per Section 54(3)(ii) of the CGST Act. The respondent, Deputy Commissioner, State Tax, Circle Barmer, rejected this claim based on Para 3 of Circular No. 135/05/2020-GST dated 31.03.2020, which stipulates that refund of accumulated ITC is not available where input and output supplies are the same. The court found that Section 54(3)(ii) of the CGST Act does not carve out any exception for cases where input and output supplies are the same. The provision allows refund of credit accumulated on account of supplies and does not mention that the credit could be claimed only if the supplier has made any value addition to the goods supplied. Consequently, the rejection of the petitioner's claim for accumulated ITC by the respondent was deemed invalid and was quashed.

2. Validity of Para 3 of Circular No. 135/05/2020-GST dated 31.03.2020:
The petitioner challenged Para 3 of the Circular dated 31.03.2020, which denies refund in cases where input and output supplies are the same. The court noted that the circular is a subordinate legislation and cannot override the parent statute, Section 54(3)(ii) of the CGST Act. The court referred to judgments from the Guwahati High Court in B.M.G. Informatics Pvt. Ltd. and the Calcutta High Court in M/s. Shivaco Associates, which held that the circular dated 31.03.2020 is contrary to the provisions of the CGST Act. The court concluded that the circular dated 31.03.2020 is repugnant to the parent legislation and cannot be applied to deny the petitioner's legitimate claim for ITC refund.

3. Entitlement of the Petitioner to a Refund of Accumulated Input Tax Credit (ITC) under the Inverted Duty Structure:
The petitioner argued that they are entitled to a refund under the inverted duty structure as provided by the CGST and RGST Acts. The court found that the petitioner's claim for refund was for a period prior to the issuance of the circular dated 31.03.2020. The court emphasized that the provision under Section 54(3)(ii) of the CGST Act does not indicate that ITC would be admissible only if the goods supplied had been subjected to some process. The court held that the petitioner is entitled to the refund of accumulated ITC as per its entitlement under the inverted duty structure, and directed the respondents to refund the accumulated ITC forthwith.

Conclusion:
The court allowed the writ petition, quashing the order dated 05.01.2021 and directing the respondents to refund the accumulated input tax credit to the petitioner. The court held that the circular dated 31.03.2020 is repugnant to Section 54(3)(ii) of the CGST Act and cannot be applied to deny the petitioner's claim for ITC refund. No order as to costs was made.

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