A Statutory Refund Entitlement Cannot Be Defeated Merely by a Subsequent Filing Date

A Prospective Refund Restriction Cannot Defeat ITC Accumulated Before Its Commencement

Section 54(3) of the CGST Act, 2017 permits a refund of unutilised input tax credit accumulated under an inverted duty structure, where the tax rate on inputs exceeds that on outward supplies, subject to prescribed conditions and restrictions. A key controversy arises when a subsequent notification restricts such refunds prospectively, but the taxpayer files an application after the notification's commencement for ITC accumulated during an earlier period. Can the subsequent filing date alone extinguish an otherwise eligible refund claim?

The Hyderabad Bench of the GST Appellate Tribunal examined this question in Kedia Agro Versus Principal Commissioner Hyderabad GST Commissionerate, & Ors. - 2026 (10) TMI 1925 - GSTAT HYDERABAD. The dispute concerned ITC accumulated before 18.07.2022 and a refund application filed after that date. The Tribunal held that the prospective restriction could not be extended to earlier accumulated credit merely because the application was filed subsequently, even by an administrative circular. It accordingly set aside the rejection orders and directed fresh consideration of the refund claim in accordance with law and applicable judicial precedents.

Section 54(3) Permits Refund of Unutilised ITC Subject to Statutory Restrictions

Section 54(3) of the CGST Act permits a refund of unutilised ITC at the end of a tax period, subject to statutory conditions. The first proviso restricts such refunds to zero-rated supplies made without payment of tax and to cases involving an inverted duty structure, where the tax rate on inputs exceeds that on outward supplies, excluding nil-rated or fully exempt supplies. Clause (ii) of the first proviso further empowers the Government, on the recommendations of the GST Council, to notify supplies for which a refund under an inverted duty structure is unavailable.

However, this power remains subject to the governing statute and the effective date of the relevant notification. A restriction introduced prospectively cannot ordinarily be extended to ITC accumulated during earlier periods merely because the refund application is filed subsequently. The distinction between statutory refund eligibility and the temporal operation of a later notification is therefore central to the present dispute.

Refund Eligibility and Limitation Must Be Examined Separately

Section 54(1) of the CGST Act generally prescribes a two-year limitation period from the relevant date for filing refund applications, while Section 54(3), read with Rule 89 of the CGST Rules, governs the refund of unutilised ITC arising from an inverted duty structure. The period of credit accumulation determines whether a subsequent refund restriction applies, whereas the statutory relevant date governs limitation. Actual refund entitlement remains subject to the prescribed eligibility and procedural requirements.

In the present case, the Tribunal found that the fresh application filed on 25.03.2023 for ITC accumulated during May 2020 to March 2021 was within limitation. The Department, however, rejected it by applying the restriction effective from 18.07.2022 solely because the application was filed subsequently. The Tribunal held that the prospective restriction could not be extended to earlier accumulated credit merely by reference to the filing date. Thus, a timely application does not automatically establish refund entitlement, but a later restriction cannot retrospectively defeat an otherwise eligible claim.

Notification No. 09/2022 Introduced a Prospective Restriction Affecting the Appellant

Notification No. 09/2022-Central Tax (Rate), dated 13.07.2022, amended Notification No. 05/2017-Central Tax (Rate), dated 28.06.2017, by extending the restriction on refund of accumulated ITC under an inverted duty structure to specified goods under Chapters 15 and 27, including various edible oils. The amendment took effect from 18.07.2022.

The appellant, engaged in the edible oil business, had accumulated ITC from May 2020 to March 2021, well before the amendment. Its original refund application, dated 18.06.2022, was also filed before the restriction took effect. However, after withdrawing that application, the appellant filed a fresh claim on 25.03.2023. The Department rejected the claim by applying the subsequent restriction based on the fresh filing date, even though the notification did not expressly render earlier accumulated credit ineligible for refund. The central issue was whether an administrative circular could lawfully extend the prospective restriction to such credit.

An Administrative Circular Cannot Extend the Scope of a Prospective Notification

CBIC Circular No. 181/13/2022-GST, dated 10.11.2022, issued under Section 168(1) of the CGST Act, clarified that the restriction introduced by Notification No. 09/2022-Central Tax (Rate) would apply to all refund applications filed on or after 18.07.2022, irrespective of when the ITC had accumulated. Consequently, refund eligibility depended on the filing date rather than the period of credit accumulation, potentially treating taxpayers with identical accumulated credit differently.

The Tribunal, relying on relevant judicial precedents, found this approach legally unsustainable. An administrative circular cannot enlarge the scope of a prospective notification or impose retrospective consequences unsupported by the statute. Circulars may clarify the law for uniform administration, but cannot introduce additional restrictions or extinguish refund entitlements otherwise available under the applicable statutory framework.

The Filing Date Cannot Alter the Legal Position Governing Earlier Accumulated ITC

The appellant's ITC accumulated between May 2020 and March 2021, before the refund restriction took effect on 18.07.2022. However, the Department rejected the claim because the appellant filed the fresh application on 25.03.2023. The Tribunal distinguished between the period of credit accumulation, which governed the applicability of the subsequent restriction, and the filing date, which governed compliance with the prescribed limitation period. Relying on several High Court decisions, it held that a later administrative circular could not deny a refund of earlier accumulated credit merely because the application was filed after the restriction commenced.

Importantly, entitlement to ITC does not automatically confer entitlement to its refund. While availment of ITC is subject to statutory conditions, refund of unutilised credit is separately governed by Section 54(3) and the applicable rules. The decision protects an otherwise eligible refund claim from the retrospective application of a subsequent restriction, without dispensing with the statutory requirements for sanctioning the refund.

Withdrawal of an Earlier Application Does Not Automatically Extinguish the Underlying Claim

The Department placed considerable emphasis on the fact that the taxpayer had initially filed its refund application before 18.07.2022 but withdrew it on 25.07.2022. According to the Department, the subsequent application filed on 25.03.2023 was a fresh application and therefore had to be examined under the restrictions applicable on its filing date. The earlier application, having been withdrawn, could not be relied upon to preserve the benefit of the previous legal position.

The taxpayer, however, maintained that the refund related to ITC accumulated during May 2020 to March 2021 and that the fresh application was filed within the prescribed limitation period. The relevant issue was not whether the withdrawn application continued to exist, but whether the later notification could govern the underlying credit accumulated before its commencement.

The Tribunal accepted the taxpayer's position on whether the restriction applied. The subsequent filing date did not alter the period during which the ITC had accumulated. Since the fresh application was found to be within limitation, its rejection solely on the basis of the later filing date was unsustainable. The decision does not establish that withdrawal is immaterial for every procedural purpose; rather, it holds that withdrawal and refiling did not justify applying the prospective restriction to credit accumulated in an earlier period.

The Jurisdictional High Court Rejected Retrospective Application Through a Circular

In 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. - 2025 (2) TMI 302 - ANDHRA PRADESH HIGH COURT, the Andhra Pradesh High Court held that the restriction effective from 18.07.2022 could not deny refund of ITC accumulated before that date merely because the application was filed subsequently. It accordingly struck down the relevant clarification in Circular No. 181/13/2022-GST to the extent that it extended the restriction retrospectively.

The Supreme Court dismissed the Revenue's Special Leave Petitions on 09.05.2025, reported as ASSISTANT COMMISSIONER OF CENTRAL TAXES & ORS. Versus M/s. GEMINI EDIBLES AND FATS INDIA LIMITED & ANR. - 2025 (5) TMI 998 - SC Order, leaving the High Court's decision undisturbed, though it did not necessarily constitute a declaration of law under Article 141. Relying upon this judgment, the Tribunal recognised that refund claims involving ITC accumulated before 18.07.2022 cannot be rejected solely because they were filed subsequently, provided the statutory conditions relating to eligibility, limitation and verification are satisfied.

Several High Courts Have Rejected Filing Date-Based Refund Restrictions

In PATANJALI FOODS LTD. Versus UNION OF INDIA & ORS. - 2025 (3) TMI 367 - GUJARAT HIGH COURT, the Gujarat High Court held that the circular's filing-date distinction was arbitrary, discriminatory, ultra vires Section 54 of the CGST Act and contrary to Article 14 of the Constitution. The Rajasthan High Court expressed similar views in Shree Arihant Oil and General Mills Versus Union Of India, The Joint Commissioner, State Tax Circle Ganganagar, Goods and Service Tax Council-2025 (9) TMI 968 - RAJASTHAN HIGH COURT.; the Allahabad High Court in M/s Vaibhav Edibles Private Limited, M/s Garg Edible Oil, M/s Kanpur Edibles Private Limited, M/s Hari Om Oil Mills Versus State of U.P. And 2 Others - 2025 (11) TMI 1265 - ALLAHABAD HIGH COURT; and the Calcutta High Court in M/s. Adani Wilmer Limited & Anr. Versus Assistant Commissioner of State Tax & Ors. - 2026 (3) TMI 81 - CALCUTTA HIGH COURT. These decisions consistently recognised that a prospective refund restriction effective from 18.07.2022 could not be extended to earlier accumulated ITC merely because the refund application was filed subsequently. The Tribunal relied upon this consistent judicial approach in rejecting the Department's interpretation

A Proposed Review Petition Cannot Justify Disregarding Existing Judicial Decisions

The Department submitted that it contemplated a review petition against the Supreme Court's dismissal of the Special Leave Petitions in Gemini Edibles. However, the Tribunal found that no documentary evidence of any review proceedings had been produced.

The Tribunal therefore declined to accept this unsubstantiated submission as a ground for departing from the existing High Court judgments. A mere proposal to seek review could not justify sustaining the rejection of the appellant's refund claim in disregard of the applicable judicial precedents.

A Refund Rejection Cannot Survive When Its Sole Legal Foundation Is Unsustainable

The Tribunal examined the reasons recorded by the Original Adjudicating Authority and the First Appellate Authority. It found that the refund claim had been rejected solely because the fresh application was filed after 18.07.2022 and the authorities considered the restriction explained in Circular No. 181/13/2022-GST applicable. The authorities had thereby extended the effect of the notification to ITC accumulated during an earlier period.

The Tribunal noted that the notification itself did not contain any stipulation extinguishing refund eligibility for earlier accumulated credit on account of a subsequent filing date. The circular, however, had introduced precisely such a restriction. Since several High Courts had struck down the relevant clarification, orders founded exclusively on that interpretation could not be sustained.

Setting Aside the Rejection Does Not Amount to Automatic Sanction of Refund

The Tribunal allowed the appeal and set aside the orders passed by the Original Adjudicating Authority and the First Appellate Authority. However, it did not direct unconditional payment of Rs. 61,47,671. Instead, it directed the Original Adjudicating Authority to reconsider and decide the refund claim afresh in accordance with law and the applicable judicial precedents.

This distinction is important. The Tribunal conclusively rejected the proposition that the claim could be denied solely because it was filed after 18.07.2022. Nevertheless, the competent authority remained responsible for examining the claim under the statutory refund provisions, including the eligibility and quantum of accumulated ITC and other applicable requirements. The Tribunal also directed that the taxpayer's interest claim be examined under the relevant legal provisions during the fresh refund proceedings.

The operative relief was therefore the removal of an unlawful ground of rejection and restoration of the refund claim for lawful reconsideration, not an unconditional declaration that the entire claimed amount was immediately payable. This distinction preserves the statutory verification process while ensuring that the taxpayer is not deprived of consideration of its claim through retrospective application of a subsequent restriction.

Prospective Refund Restrictions Cannot Defeat Earlier Eligible Claims

The judgment reinforces that a prospective refund restriction cannot be applied to ITC accumulated before its commencement merely because the refund application was filed subsequently. The period of credit accumulation, the notification's effective date and the statutory conditions governing refund eligibility must be examined separately. An administrative circular issued under Section 168 of the CGST Act cannot extend a restriction beyond its lawful scope.

The decision provides important guidance for taxpayers, GST professionals and adjudicating authorities. The accrual of ITC, entitlement to refund, statutory limitation and commencement of a subsequent restriction are distinct legal considerations. Failure to distinguish them may result in an unsustainable refund rejection. However, the actual sanction of refund remains subject to verification and compliance with the applicable statutory requirements.

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