Refund of accumulated input tax credit allowed under inverted tax structure Section 54 CGST Act 2017

The Telangana HC allowed a petition regarding refund of accumulated input tax credit under inverted tax structure provisions of Section 54 CGST Act, 2017. The court held that a clarificatory circular dated 06.07.2022 substituting paragraph 3.2 of the 31.03.2020 circular would have retrospective effect from the original circular's date. The refund would be permitted where input tax credit accumulation results from output supply tax rates being lower than input tax rates for same goods under concessional notifications. The matter was remanded to the respondent for reconsideration based on the clarified circular provisions.

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Issues:
Refund claim rejection under inverted tax structure based on Circular dated 31.03.2020; Applicability of Circular dated 06.07.2022 for retrospective consideration.

Analysis:
The petitioner, engaged in the business of assembling computers, filed a refund claim under the CGST Act for Rs.77,91,857/- for the period from April 2019 to March 2020. The claim was based on selling goods under concessional/inverted tax rate to DRDO. However, the claim was rejected by respondent No.6 citing the Circular dated 31.03.2020, which stated that refund under Section 54(3)(ii) of the CGST Act is not applicable when input and output supplies are the same. This rejection was upheld in appeal by respondent No.5 on 09.04.2021.

Upon review, it was noted that the Board issued a clarificatory Circular dated 06.07.2022, stating that the intent of the Circular dated 31.03.2020 was not to cover cases where a supplier is making supply of goods under a concessional notification with lower output tax rate than input tax rate. The Circular clarified that in such cases, refund of accumulated input tax credit on account of an inverted structure would be allowed. Consequently, the Circular dated 06.07.2022 substituted the relevant portion of the Circular dated 31.03.2020.

The Court found that the Circular dated 06.07.2022 was clarificatory and should be applied from the date when the Circular dated 31.03.2020 came into effect. Therefore, the orders of rejection were set aside, and the matter was remanded back to respondent No.6 for reconsideration in light of the Circular dated 06.07.2022. The respondent was directed to re-examine the claim within eight weeks from the date of the Court's order. The writ petition was allowed, with no costs awarded.

This judgment highlights the importance of interpreting tax laws in line with the latest clarifications issued by the tax authorities. It emphasizes the need for consistency and uniformity in applying tax refund provisions, ensuring that legitimate claims are not unjustly denied based on outdated interpretations of the law.

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