Landmark GST Refund Ruling: Challenging Inverted Duty Structure Rejection Under Circular No.135/05/2020-GST Overturned

HC allowed writ petition challenging GST refund rejection under Inverted Duty Structure. Department's reliance on Circular No.135/05/2020-GST was deemed inconsistent, given previous refund sanctions and contrary HC rulings. Court directed respondent to reevaluate refund claim within three months, setting aside the impugned order without imposing costs.

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Issues:
1. Rejection of GST refund claim under Inverted Duty Structure based on Circular No.135/05/2020-GST.
2. Applicability of Circular despite being struck down by other High Courts.
3. Contrary stand taken by the Department regarding refund claim.
4. Previous orders issued for refund application periods.

Analysis:

1. The petitioner, a manufacturer of cotton yarn, filed a refund claim under Section 54(3) of GST enactments due to an Inverted Duty Structure. The claim was rejected by the respondent citing Circular No.135/05/2020-GST, which states that refund is not applicable when input and output supplies are the same.

2. The respondent rejected the claim as the rate of tax on input raw cotton (used in production) and output goods (100% Cotton yarn) was the same. The Circular was applied despite being struck down by High Courts in Gauhati, Calcutta, Rajasthan, and Delhi. The decisions against the Circular have not been reversed.

3. The High Court emphasized that the Department cannot take a different stand on the Circular's applicability, as GST laws apply uniformly across India. Refunds were previously sanctioned to the petitioner for different periods, indicating inconsistency in the Department's approach towards refund claims.

4. Considering the previous sanctioned refund orders, the Court set aside the impugned order and directed the respondent to reevaluate the refund claim within three months. The Writ Petition was allowed with directions, and no costs were imposed. The case was remitted back to the respondent for a fresh order based on the previous refund orders issued to the petitioner.

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