2024 (1) TMI 1203 - HC - GST

Refund of accumulated input tax credit - inverted duty (tax) structure - LPG supplies to domestic customers after bottling in cylinders - case of the petitioner does not fall within the exception as provided in clause (ii) of sub-Section (3) of Section 54 of the CGST Act - HELD THAT - On a bare reading of Section 54, it is clear that if the supplies are not coming within the exceptional clause and credit had accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies, a dealer shall be entitled for refund of the credit accumulated in such a situation, irrespective of the fact whether the input and output supplies are one and the same or not. All the four High Courts in BMG INFORMATICS PVT. LTD., VERSUS THE UNION OF INDIA AND 3 ORS., THE COMMISSIONER CENTRAL GOODS AND SERVICE TAX GUWAHATI, THE JOINT COMMISSIONER (APPEALS) CGST CENTRAL EXCISE AND CUSTOMS GUWAHATI, THE ASSISTANT COMMISSIONER CGST AND CENTRAL EXCISE DIVISION II 2021 (9) TMI 472 - GAUHATI HIGH COURT , M/S. SHIVACO ASSOCIATES ANR. VERSUS JOINT COMMISSIONER OF STATE TAX, DIRECTORATE OF COMMERCIAL TAXES ORS. 2022 (4) TMI 118 - CALCUTTA HIGH COURT , BAKER HUGHES ASIA PACIFIC LIMITED VERSUS UNION OF INDIA, THE STATE OF RAJASTHAN, THE DEPUTY COMMISSIONER, STATE TAX, CIRCLE BARMER, RAJASTHAN, CENTRAL BOARD OF INDIRECT TAXES AND CUSTOMS 2022 (7) TMI 73 - RAJASTHAN HIGH COURT and INDIAN OIL CORPORATION LIMITED VERSUS COMMISSIONER OF CENTRAL GOODS AND SERVICES TAX ORS. 2023 (12) TMI 361 - DELHI HIGH COURT have held that the condition laid down in clause 3.2 of the Circular, which denies refund of credit accumulated to a dealer as a result of higher tax on inputs than the output supplies, when the input and output supplies are one and the same, would have to be ignored. Considering the ratio laid down in the aforesaid four judgments by the four High Courts, the present writ petitions are allowed and the petitioner is held to be entitled for refund of the credit accumulated on account of payment of higher rate of tax, i.e. @ 18%, on input supplies received by him for bottling of LPG for domestic supply, when the rate of tax is only @ 5%. The matter is remanded back to the assessing authority to calculate the refund amount of accumulated ITC admissible to the petitioner for the aforesaid periods on account of higher rate of tax having been paid by the petitioner on input supplies of LPG for bottling and supplying in the domestic market.

Summary

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.