2025 (2) TMI 302 - HC - GST

GST Circular restricting input tax credit refunds for pre-July 2022 periods declared invalid by High Court

M/s. Priyanka Refineries Private Limited and Gemini Edibles And Fats India Limited Versus Deputy Commissioner St and Others, The Assistant Commissioner Of Central Taxes and Others.

The AP HC held that Circular No. 181/13/2022-GST restricting input tax credit refunds for periods prior to 18.07.2022 was invalid. The court ruled that ... Refund of the input tax credit for the periods prior to 18.07.2022 - validity and applicability of Circular No. 181/13/2022-GST, dated 10.11.2022 - HELD THAT:- As per sub-section (3) of Section 54, any registered person who is supplying any kind of goods would be entitled for refund of input tax credit once the rate of tax on inputs is higher than the rate of tax on the output supply made by him. However, the very same provision also stipulates that the Government, on the recommendations of the council, can notify goods which would not be eligible for such refund. In the present case, the Government, by Notification No. 5/2017 dated 28.07.2017, had initially set out a list of goods which would not be eligible for claiming refund under Section 54 of the CGST Act. Subsequently, this list was increased by inclusion of various other goods, by Notification No. 9/2022 dated 13.07.2022. The goods, so included, were various kinds of edible oils and specialty fats apart from coal, lignite etc. This notification came into force on 18.07.2022. This Court would hold that once a stipulation is made that the notification, in question, operates from 18.07.2022, it would mean that any input tax credit which arose on account of the mismatch between the input tax and the output tax, prior to 18.07.2022, can always be recovered by the registered person, by making an application under Section 54 of the CGST Act. Circular No. 181/13/2022-GST, dated 10.11.2022, would have to be struck down, to the extent of the clarification that the restriction imposed by the Notification, dated 13.07.2022, would be applicable in respect of all refund applications filed on or after 18.07.2022. Conclusion - The impugned orders of rejection of refund are set aside and the said respondents are required to reconsider the said applications, in terms of Section 54 of the CGST Act and without relying upon the clarification issued in Circular No. 181/13/22-GST, dated 10.11.2022, for non-suiting the petitioners herein. These Writ Petitions are allowed. ISSUES PRESENTED and CONSIDEREDThe core legal issues considered in this judgment include:Whether the petitioners are entitled to claim a refund of input tax credit under Section 54 of the CGST Act for periods prior to 18.07.2022, despite the applications being filed after this date.The validity and applicability of Circular No. 181/13/2022-GST, dated 10.11.2022, which clarified that no refund applications under Section 54 would be permissible after 18.07.2022 for certain goods.The interpretation of Notification No. 9/22-Central Tax (Rate), dated 13.07.2022, and its effect on the eligibility of refund claims for input tax credit accumulated before 18.07.2022.ISSUE-WISE DETAILED ANALYSIS1. Entitlement to Refund for Periods Prior to 18.07.2022The legal framework involves Section 54 of the CGST Act, which allows registered persons to claim a refund of unutilized input tax credit when the tax on inputs exceeds the tax on outputs. The Court examined whether the petitioners could claim refunds for input tax credits accumulated before 18.07.2022, despite filing applications after this date.The Court found that the notification dated 13.07.2022, which included edible oils and specialty fats as ineligible for refund, came into effect on 18.07.2022. Thus, it did not retrospectively apply to input tax credits accumulated before this date. The Court reasoned that the restriction should apply only to input tax credits arising after 18.07.2022.2. Validity and Applicability of Circular No. 181/13/2022-GSTThe petitioners challenged the circular on the grounds that it imposed a restriction not present in the original notifications. The Court agreed, stating that neither Notification No. 5/2017 nor Notification No. 9/22 explicitly barred post-18.07.2022 applications for pre-18.07.2022 credits. The Court found the circular's interpretation illogical and inconsistent with the statutory framework.3. Interpretation of Notification No. 9/22-Central Tax (Rate)The Court analyzed the notification's prospective nature, which indicated that the ineligibility for refunds applied only to input tax credits arising after its effective date. The Court concluded that the notification did not preclude refund applications for credits accrued before 18.07.2022, even if filed afterward.SIGNIFICANT HOLDINGSThe Court held that Circular No. 181/13/2022-GST, dated 10.11.2022, was invalid to the extent it barred refund applications filed after 18.07.2022 for input tax credits accumulated before this date. The Court stated:'Once a stipulation is made that the notification, in question, operates from 18.07.2022, it would mean that any input tax credit which arose on account of the mismatch between the input tax and the output tax, prior to 18.07.2022, can always be recovered by the registered person, by making an application under Section 54 of the CGST Act.'The Court set aside the impugned orders rejecting the refund applications and directed the respondents to reconsider these applications under Section 54 of the CGST Act, without relying on the circular's clarification.Additionally, the Court allowed the petitioners to challenge Notification No. 9/22 in future proceedings, as they had not pressed this issue in the current petitions.