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 therefore qualify for refund of accumulated ITC under the inverted duty structure. The court declared clause 3.2 of the relevant Circular, insofar as it denies refund where input and output supplies are the same, to be inconsistent with Section 54 and liable to be ignored. The writ petitions were allowed, and the petitioner was held entitled to refund of ITC accumulated due to payment of 18% GST on inputs against 5% on domestic LPG supplies. Matter was remanded to the assessing authority to compute the refundable ITC.

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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 ITC
The 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-GST
The 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 Orders
The 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.

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