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of <h1>Delhi HC orders refund of accumulated Input Tax Credit under inverted duty structure for bottled LPG under Section 54(3)</h1> <h3>Indian Oil Corporation Limited Versus Commissioner of Central Goods And Services Tax & Ors.</h3> Indian Oil Corporation Limited Versus Commissioner of Central Goods And Services Tax & Ors. - 2024 (81) G.S.T.L. 252 (Del.) Issues Involved:1. Whether the refund of accumulated Input Tax Credit (ITC) is proscribed by Clause (ii) of the proviso to Section 54(3) of the Central Goods & Service Tax Act, 2017 (CGST Act).2. The applicability of Circular No. 135/5/2020-GST dated 31.03.2020 in denying the refund.3. The interpretation of Section 54(3) of the CGST Act regarding the rate of tax on inputs and outputs.Summary:Issue 1: Proscription of Refund of Accumulated ITCThe petitioner, a public sector undertaking engaged in bottling and distributing LPG, claimed that it accumulates unutilized ITC due to the higher tax rate on certain inputs compared to the tax rate on bottled LPG (output supply). The principal question was whether the refund of accumulated ITC is proscribed by Clause (ii) of the proviso to Section 54(3) of the CGST Act. The court noted that Clause (ii) allows refund where the credit accumulates due to the rate of tax on inputs being higher than the rate of tax on output supplies. The court concluded that the refund of accumulated ITC is not confined to cases where the rate on the main input is higher than the rate on the principal output and must consider all inputs and outputs.Issue 2: Applicability of Circular No. 135/5/2020-GSTThe Adjudicating Authority and the Appellate Authority denied the refund based on Circular No. 135/5/2020-GST, which stated that refund is not applicable where input and output supplies are the same. The court held that the Circular, issued under Section 168(1) of the CGST Act, cannot override the provisions of the Act. The Circular's intent was to address cases where ITC accumulates due to changes in tax rates over time, not where the input and output supplies are the same but the tax rates differ. The court found that the Circular does not apply to the petitioner's case as the ITC accumulated due to higher tax rates on various inputs used in producing bottled LPG.Issue 3: Interpretation of Section 54(3) of the CGST ActThe court examined the legislative intent behind Section 54(3), which aims to address the cascading effect of taxes and ensure that tax on output supplies is confined to the fixed rate. The court emphasized that the refund of unutilized ITC is admissible if the accumulation is due to the rate of tax on inputs being higher than the rate of tax on output supplies. The court rejected the Revenue's contention that the refund is not permissible because the rate of tax on bulk LPG and bottled LPG is the same, stating that it is impermissible to disregard the rate of tax on other inputs.Conclusion:The court allowed the petition, directing the concerned authority to process the petitioner's refund applications along with applicable interest within six weeks. The court clarified that Circular No. 135/5/2020-GST cannot restrict the statutory provisions of the CGST Act, and the refund of accumulated ITC is permissible where the rate of tax on inputs exceeds the rate of tax on output supplies.
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