Taxpayer entitled to GST refund under Section 54(3)(ii) for excess input tax paid in inverted duty structure

The Madras HC dismissed a petition challenging a refund order under GST Act Section 54(3)(ii). The case involved wrongful payment of 18% IGST on inputs when the applicable rate was 5%, while the output product attracted 5% IGST. The court held that where input tax rate exceeds output tax rate, refund is permissible under the inverted duty structure provision. Since input duty was paid at 18% though chargeable at 5%, the taxpayer was entitled to refund with 9% per annum interest under Section 56 for the delay period. The court found no error in the authority's refund order.

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Issues involved:
The issues involved in this case are the challenge to impugned orders passed by the second respondent, specifically regarding the payment of IGST at different rates for input and final products, and the entitlement of the first respondent for refund under Section 54(3)(ii) of the Goods and Services Tax Act, 2017.

Challenge to Impugned Orders:
The petitioner challenged the impugned orders on the grounds that the first respondent procured materials from a supplier who paid IGST at 18% for inputs, while the final product was liable for IGST at 5%. The petitioner argued that since the supplier paid the higher rate, the first respondent should also pay IGST at 18%. However, the second respondent did not consider this aspect, leading to the challenge of the impugned order.

Contentions of the First Respondent:
The counsel for the first respondent argued that the vendor had indeed paid IGST at 18%, and the jurisdictional officer had no standing to challenge the assessment order. The first respondent maintained that the assessment year had concluded, and there was no illegality in the impugned order. Additionally, the first respondent contended that the petitioner was taking contradictory stands for their convenience, citing the issuance of a show cause notice and subsequent rejection of the refund application.

Analysis of Refund Entitlement:
The court analyzed Section 54(3)(ii) of the GST Act, which allows refund of excess input tax credit if the rate of tax on inputs is higher than that on output supplies. It was established that the duty paid on input by the vendor at 18%, though chargeable at 5%, qualified the first respondent for a refund under this provision. The court upheld the view that the first respondent was entitled to a refund as per the law.

Judicial Precedents and Conclusion:
Referring to judgments from the Hon'ble Apex Court and the Hon'ble Division Bench of the Court, the court rejected the petitioner's contention that the first respondent should pay duty at the higher rate paid by the supplier. The court emphasized that the petitioner cannot insist on paying an excess rate of duty than prescribed by law. Ultimately, the court dismissed the writ petitions, directing the petitioner to pass the refund order and deposit the refund amount with interest to the first respondent within 30 days.

Final Outcome:
The court dismissed the writ petitions, affirming the entitlement of the first respondent for a refund under Section 54(3)(ii) of the GST Act and awarding interest at 9% per annum on the refund amount. No costs were awarded, and the connected miscellaneous petitions were closed accordingly.

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