2024 (1) TMI 1203 - HC - GST

LPG bottling supplies eligible for inverted duty refund; clause 3.2 circular read down as contrary to Section 54(3)(ii) CGST

HC held that the petitioner's LPG supplies to domestic consumers after bottling fall outside the exception in Section 54(3)(ii) of the CGST Act and ... Refund of unutilised input tax credit under Section 54(3)(ii) of the CGST Act - inverted duty structure / accumulation of ITC where rate on inputs is higher than rate on outputs - validity of administrative circular fettering statutory refund rights (Circular No. 135/05/2020 GST para 3.2) - prohibition on refund where input and output supplies are the same (as laid down in para 3.2 of the Circular)Refund of unutilised input tax credit under Section 54(3)(ii) of the CGST Act - inverted duty structure / accumulation of ITC where rate on inputs is higher than rate on outputs - prohibition on refund where input and output supplies are the same (as laid down in para 3.2 of the Circular) - validity of administrative circular fettering statutory refund rights (Circular No. 135/05/2020 GST para 3.2) - Entitlement to refund of accumulated ITC under clause (ii) of sub section (3) of Section 54 where credit accumulated because rate on inputs exceeds rate on output supplies, notwithstanding that input and output supplies are the same. - HELD THAT: - The court examined Section 54(3)(ii) and held that the statute authorises refund where credit has accumulated because the rate of tax on inputs is higher than the rate on output supplies. A plain reading of Section 54 shows that such entitlement is not negated by the fact that the input and output are the same. Circular No. 135/05/2020 GST para 3.2, which excludes cases where input and output supplies are the same, operates contrary to the statutory prescription and cannot deny the refund contemplated by Section 54(3)(ii). The court noted that other High Courts (Gauhati, Calcutta, Rajasthan and Delhi) have reached the same conclusion and, having regard to those ratios, allowed the writ petitions and set aside the impugned orders rejecting the petitioner's refund claims. [Paras 8, 10, 11]Circular No. 135/05/2020 GST para 3.2 cannot be applied to deny refund under Section 54(3)(ii); petitioner entitled to refund of accumulated ITC for the stated periods.Remand for computation of admissible refund - refund quantification and verification by assessing authority - Computation and determination of the quantum of accumulated ITC refundable to the petitioner is to be referred back to the assessing authority for calculation and verification. - HELD THAT: - Although the court declared the petitioner entitled to refund on the legal question, it did not quantify the refund. The impugned orders were set aside and the matter was remanded to the assessing authority to calculate the amount of accumulated ITC admissible for the specified tax periods taking into account the legal conclusion reached. The remand is for computation and appropriate verification consistent with the court's legal finding. [Paras 11]Matter remanded to the assessing authority to calculate and determine the refundable amount of accumulated ITC for the specified periods.Final Conclusion: Writ petitions allowed; Circular No. 135/05/2020 GST para 3.2 cannot deny refund under Section 54(3)(ii) where ITC has accumulated because input tax rate exceeds output tax rate, and the orders rejecting the petitioner's refund claims for the stated periods are set aside; matter remitted to the assessing authority for computation of the admissible refund. Issues Involved:1. Rejection of refund claims for accumulated input tax credit (ITC) under Section 54(3)(ii) of the CGST Act.2. Validity of Circular No. 135/05/2020-GST dated 31.3.2020.3. Appellate orders setting aside refund orders in favor of the petitioner.Summary:Issue 1: Rejection of Refund Claims for Accumulated ITCThe petitioner, engaged in bottling LPG, filed applications under Section 54 of the CGST Act for refund of accumulated ITC due to the higher tax rate on input supplies (18%) compared to the output supplies (5% for domestic LPG). The refund claims were rejected based on Circular No. 135/05/2020-GST dated 31.3.2020, which stated that no refund is allowed if the input and output supplies are the same, even if the tax rates differ.Issue 2: Validity of Circular No. 135/05/2020-GSTThe petitioner argued that the circular contradicts the statutory provisions of Section 54 of the CGST Act. Various High Courts, including Gauhati, Calcutta, Rajasthan, and Delhi, have held that the stipulation in paragraph 3.2 of the circular runs contrary to Section 54 and cannot deny the refund of higher duty paid on input commodities. The court reproduced Section 54, emphasizing that it permits a refund of accumulated ITC when the tax on inputs is higher than the tax on outputs, irrespective of whether the input and output supplies are the same.Issue 3: Appellate Orders Setting Aside Refund OrdersThe petitioner challenged the appellate orders that set aside the refund orders for different periods. The court noted that the petitioner's case does not fall within the exceptions provided in clause (ii) of sub-Section (3) of Section 54 of the CGST Act. The court concluded that the petitioner is entitled to a refund of the accumulated ITC due to the higher tax rate on input supplies.Judgment:The court allowed the writ petitions, holding that the petitioner is entitled to a refund of the accumulated ITC due to the higher tax rate on input supplies for bottling LPG for domestic supply. The impugned orders, including Ext. P13 appellate order in WP(C) No. 26112/2023, Ext.P8 appellate order and Exts. P4, P5 & P6 orders in WP(C) No. 20511/2023, and Ext. P17 order in WP(C) No. 36699/2023, were set aside. The matter was remanded back to the assessing authority to calculate the refund amount of accumulated ITC admissible to the petitioner. Pending interlocutory applications were dismissed.