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TMI Blog2023 (12) TMI 361X X X X Extracts X X X X X X X X Extracts X X X X ..... fund of unutilised ITC. It expressly provides that no refund of unutilised ITC would be allowed except in cases covered under Clauses (i) and (ii) of the proviso to Section 54(3) of the CGST Act. Under Clause (i) of the proviso to Section 54(3) of the CGST Act, refund of ITC is available in cases of zero rated supplies made without payment of tax. In terms of Clause (ii) of the proviso to Section 54(3) of the CGST Act, refund is admissible, where the credit is accumulated on account of rate of tax on inputs being higher than the rate of tax of output supplies. The Supreme Court had considered the proviso to sub-section (3) to Section 54 in UNION OF INDIA ORS. VERSUS VKC FOOTSTEPS INDIA PVT LTD. [ 2021 (9) TMI 626 - SUPREME COURT] had authoritatively held that the refund of unutilised ITC was confined to two categories as spelt out in Clauses (i) and (ii) of the proviso to Sub-section (3) of Section 54 of the CGST Act - petitioner s claim for refund is founded on Clause (ii) of the proviso to Section 54(3) of the CGST Act. According to the petitioner, the rate of tax on certain inputs is higher than the tax paid on outputs (bottled LPG). Resultantly, the petitioner has been unable t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of LPG is oil refineries processing crude oil. LPG vapour is produced in the oil refineries during the refining process. It is stated that LPG consists of various hydrocarbons such as propylene, butane and butylene. The said hydrocarbons are liquefied on compression. LPG is transported in bulk through road and rail to the petitioner's bottling plant. It is unloaded and compressed into liquid form and the same is refilled and bottled in cylinders. The cylinders are thereafter sealed and safety valves are fixed. The said cylinders are then distributed to customers. 6. Once the seals of the cylinder are opened, the LPG returns to the gaseous state, which is used by the end consumers. The Supreme Court had considered the said process in Commissioner of Income Tax-I, Mumbai v. Hindustan Petroleum Corporation Ltd. (2017) 15 SCC 254 in the context of whether the same amounts to manufacture or production for the purpose of Section 80-HH, 80-I and 80-IA of the Income Tax Act, 1961. The Court concluded that the LPG produced at the oil refineries is not in a state which can be supplied directly to the consumers for domestic use. LPG bottling is a highly technical and complex activity, which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... passed by the Adjudicating Authority before the Appellate Authority. However, the said appeals were rejected by a common Order-in-Appeal No. 19-23/2023-24 dated 21.04.2023 (hereafter the 'impugned order') which is assailed in the present petition. REASONS AND CONCLUSION 12. At the outset, it is material to note that in terms of Section 112 of the CGST Act, the petitioner has a remedy of appealing the impugned order before the Appellate Tribunal. However, the petitioner is unable to avail of the said remedy as the Tribunal is not constituted. Thus, we consider it apposite to entertain the present petition. 13. A perusal of the Orders-in-Original indicates that the petitioner's claim for refund was denied on the ground that the bulk LPG as well as bottled LPG is the same product chargeable to GST at the rate of 5%. The Adjudicating Authority held that in the circumstances, the petitioner's case is not one of inverted duty structure and therefore, the refund is proscribed in terms of Clause (ii) to Section 54(3) of the CGST Act. The Adjudicating Authority referred to the Circular No. 135/5/2020-GST dated 31.03.2020 (hereafter also referred to as 'Circular No. 135/5/2020') and note ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Government yet these clarifications applicable upon them which is evident from the last sentence of para 3.2 of the above Circular which clearly clarifies that refund of accumulated ITC under clause (ii) of subsection (3) of section 54 of the CGST Act would not be applicable in cases where the input and the output supplies are the same. In the appellant's case, the adjudicating authority observed that the major input used by the appellant in LPG (HSN 2711) which was procured in bulk quantity from refiners and taxable @5% GST. The said LPG is repacked in domestic cylinder and supplied / marketed also @5% GST. Hence, the observations of the adjudicating authority, in this context, are sustainable and the appellant's submissions are not acceptable." 15. It is apparent from the above that the Appellate Authority had accepted that Circular No. 135/05/2020 was applicable in cases where accumulation of ITC was due to reduction in tax. Nonetheless, the Appellate Authority was of the view that the petitioner was not entitled to refund by virtue of the last sentence of paragraph 3.2 of the Circular 135/5/2020, which provided that provisions of Clause (ii) of Subsection (3) of Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax period. However, the proviso to Sub-section (3) to Section 54 of the CGST Act restricts the entitlement to refund of unutilised ITC. It expressly provides that no refund of unutilised ITC would be allowed except in cases covered under Clauses (i) and (ii) of the proviso to Section 54(3) of the CGST Act. Under Clause (i) of the proviso to Section 54(3) of the CGST Act, refund of ITC is available in cases of zero rated supplies made without payment of tax. In terms of Clause (ii) of the proviso to Section 54(3) of the CGST Act, refund is admissible, where the credit is accumulated on account of rate of tax on inputs being higher than the rate of tax of output supplies. Sub-section (3) of Section 54 of the CGST Act is set out below: "Section 54. Refund of tax.- xxx xxx xxx (3) Subject to the provisions of sub-section (10), a registered person may claim refund of any unutilised input tax credit at the end of any tax period: Provided that no refund of unutilised input tax credit shall be allowed in cases other than- (i) zero rated supplies made without payment of tax; (ii) where the credit has accumulated on account of rate of tax on inputs being higher than the rate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... PG). Resultantly, the petitioner has been unable to fully utilise the ITC on its inputs. 21. There is no controversy or dispute that the petitioner uses various items in production of bottled LPG, which include accessories required for the purposes of safety. Undisputedly, the items and accessories as specified are essential for production of the bottled LPG and making it suitable for retailing. The said items are chargeable to varying rates of GST. A tabular statement setting out the input supplies, their classification, and the rate of tax chargeable on such supplies as set out in petition, is reproduced below: "Name of Input HSN Tax Rate (%) LPG bulk sourced from refineries (owned or third-party) 2711 5 SC Valves 8481 18 Safety Caps 3603 18 Nylon thread 8459 18 Stainless steel clips 8305 18 Plastic seals 3926 18 Lubricants 8413 18 Dry Chemical for DCP Extinguisher 3813 18 Nuts and Bolts 7318 18 Gasket, Water pump, Fuel Filter, Oil, Clamp, etc. 3804 18" 22. It is material to note that Clause (ii) of proviso to sub-section (3) of Section 54 of the CGST Act is applicable only where ITC has accumulated on account of "rate of tax on inputs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f unutilised ITC as the rate of bulk LPG and bottled LPG is the same, is unsustainable. It is impermissible to disregard the rate of tax on other inputs. 26. As stated at the outset, a taxpayer's claim for refund, which is admissible under Section 54 of the CGST Act, cannot be denied on account of a Circular issued by CBIC under Section 168(1) of the CGST Act. Plainly, if the Circular No. 135/05/2020 is read in the manner as contended by the Revenue, it would be in conflict with the provisions of Section 54(3) of the CGST Act and thus, would be liable to be set aside and disregarded. However, plain reading of the Circular 135/5/2020 indicates that it does not proscribe grant of refund in cases where the principal input and the output supply are similar. It is apparent from Article 3 of the said Circular that it relates to a clarification regarding refund of ITC, which has accumulated on account of reduction in the GST rate. It would be relevant to refer to Article 3 of the Circular 135/5/2020. The same is set out below: "3. Refund of accumulated input tax credit (ITC) on account of reduction in GST Rate 3.1 It has been brought to the notice of the Board that some of the appli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e words, the input and output being the same, is essentially in the context of the rate on input and output being the same. 28. Circular No. 135/05/2020 has no application where ITC, refund of which is sought, has accumulated on account of rate of taxes on certain inputs being higher than tax chargeable on the output supply, notwithstanding that the one of the main input and output is chargeable at the same rate of tax. 29. There may be myriad of circumstances where the ITC accumulates notwithstanding that the rate of tax on input and output supplies is the same. Mr Ganesh, learned senior counsel appearing for petitioner had referred to the decision of the Supreme Court in Union of India and Ors. v. VKC Footsteps India Pvt. Ltd. (supra) and mentioned the following illustrative cases, where claim for refund may arises on account of factors other than the duty structure: "i) High discount pricing (ii) Predatory pricing (iii) Shut down of business or industry (iv) Business loss (v) Economic compulsion to sell at below cost prices (vi) Stoppage of work" 30. Clearly, in such cases, refund of unutilised ITC would not be admissible by virtue of proviso to Sub-section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the Hon'ble Gauhati High Court held that Circular No. 135/05/2020 is unsustainable and is liable to be ignored. 34. Mr Tripathi, learned counsel appearing for Revenue had sought to distinguish the aforesaid decision on the ground that in the said cases, there was a difference in the rate of tax chargeable on input and output even though the input and output supplies were the same. He contended that therefore, in such circumstances, refund would be admissible under Clause (ii) to proviso to Sub-section (3) of Section 54 of the CGST Act. He argued that no refund would be admissible in the present case as the rate of tax on bulk LPG and bottled LPG was the same. 35. We do not find merit in the said contention. This is because it ignores the rate of tax chargeable on inputs other than LPG, which are admittedly higher than the rate of GST chargeable on the bottled LPG. More importantly, it disregards the fact that the ITC has accumulated on account of the rate on tax on such inputs being higher than the output supply - bottled LPG. 36. It is also relevant to note that the Appellate Authority had, inter alia, found that the petitioner's claim for refund would not be admissible by vi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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