Accumulated ITC Refund on Inverted Duty May Not Attract Anti Profiteering Under Section 171
The GST council in their 56th meeting taken decisions to remove 12% and 28 % of tax on goods by adjusting those goods in two slabs 5% and 18%. So there is every possibility of excess input tax on stock purchased at higher rate than the rate now proposed by the Council. This accumulated input tax credit can be used for future business or should have to reverse this accumulated ITC is the question now.
In this regard the ministry of finance issued FAQ Dt 03 September 2025. According to this the effective date of new tax rates as well as their modalities on reduction in rate of tax after 22nd September 2025. At question No 6. It was clarified that Section 16(1) of CGST Act entitles a registered person to take credit of the input tax charged on his inward supplies, which he uses or intends to use in the course or furtherance of his business, subject to conditions and restrictions which may be prescribed and in the
manner provided under section 49 of the CGST Act 2017, which gets credited to his e- credit ledger. Accordingly, if a registered person receives an inward supply and tax has been duly charged on it, at a rate which is in consonance with the rate prevailing at the time of such supply, the said registered person is entitled to the credit of such tax paid, subject to the other conditions/ restrictions and manner specified in section 49 of the CGST Act 2017.
Therefore the tax payer is not to be worried about the changes in rate of tax in claim of Input tax credit as prescribed and in the manner provided under section 49 of the CGST Act 2017,with effect from 22/09/2025. The only question is that the benefit arising reduction in rate.
And at point No 10 of FAQ – Will I be allowed to take refund of accumulated credit arising out of inverted duty structure for supplies effected upto the date of effect of revised rate as notified ?
The said issue has been clarified vide circular No. 135/05/2020-GST dated 31.03.2020 (as amended), which states that refund of accumulated ITC in terms of clause (ii) of first proviso to section 54(3) of the CGST Act, is available where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies. However, the input and output being the same in such cases, though attracting different tax rates at different points in time, do not get covered under the provisions of clause (ii) of the first proviso to sub-section (3) of section 54 of the CGST Act.
REFUND OF EXCESS CREDIT ON INVERTED DUTY ON SAME COMMODITY
As per Section 54 (3) (ii) where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies (other than nil rated or fully exempt supplies), except supplies of goods or services or both as may be notified by the Government on the recommendations of the Council And as per the circular No. 173/05/2022 GST Dt 06/07/2022 – Clarification on issue of claiming refund under inverted duty structure where the supplier is supplying goods under some concessional notification – reg.
At Para No 4. Therefore, it is clarified that in such cases, refund of accumulated input tax credit on account of inverted structure as per clause (ii) of sub-section (3) of section 54 of the CGST Act, 2017 would be allowed in cases where accumulation of input tax credit is on account of rate of tax on outward supply being less than the rate of tax on inputs (same goods) at the same point of time, as per some concessional notification issued by the Government providing for lower rate of tax for some specified supplies subject to fulfilment of other conditions.
Para 3.3 of the circular No. 135/05/2020-GST dated 31.03.20200 stands substituted as under:
3.3 There may however, be cases where though inputs and output goods are same but the output supplies are made under a concessional notification due to which the rate of tax on output supplies is less than the rate of tax on inputs. In such cases, as the rate of tax of output supply is less than the rate of tax on inputs at the same point of time due to supply of goods by the supplier under such concessional notification, the credit accumulated on account of the same is admissible for refund under the provisions of clause (ii) of the first proviso to sub-section (3) of section 54 of the CGST Act, other than the cases where output supply is either Nil rated or fully exempted, and also provided that supply of such goods or services are not notified by the Government for their exclusion from refund of accumulated ITC under the said clause.”
CASE LAW ON REFUND OF ACCUMULATED ITC ON INVERTED DUTY
1) Indian Oil Corporation Ltd Vs CCE – High court of Kerala
2) Shivaco associates Vs Joint Commissioner – High Court of Calcutta
3) BGM Informatics P Ltd Vs Union of India – High Court of Guwahati
FINANCIAL OR COMMERCIAL CREDIT NOTE
The Finance Ministry issued a Circular No. 251/08/2025-GST Dated the 12th September, 2025 clarifying that vide circular No. 92/11/2019-GST dated 7th March 2019 that the supplier of goods can issue financial/ commercial credit notes and in such cases, he will not be eligible to reduce his original tax liability. As the transaction value is not allowed to be reduced on account of issuance of financial/ commercial credit note, accordingly the tax charged from the recipient would also not get reduced.
So, as per the circular 251/08/2025, if any trader wish to reduce the value of supply to the extent of reduction in rate on stocks, they can issue financial or commercial Credit note to their recipient to the extent of reduction in rate of tax without reversing the excess tax credit accumulated due to the change in rate of tax with effect from 22nd September 2025.
What is ANTI PROFITEERING UNDER SECTION 171
GOVERNMENT OF INDIA ANTI PROFITEERING ACT 1919 – ”
Anti-Profiteering Act, 1919″ was a British Act of Parliament designed to curb excessive price increases during the post-war period, establishing local committees to investigate complaints of profiteering and allowing for the disqualification of biased members and appeals against decisions. (You can find the full text in the WWI-era Hansard records, potentially through links in the archives of the UK Parliament Hansard).
What it was:
1. The Act aimed to prevent individuals and businesses from unfairly increasing prices in the aftermath of World War
2. It established local committees to investigate public complaints of profiteering.
3. Procedures included written complaints, preliminary investigations, and opportunities for both parties to be heard in public,
4. The Act included provisions for the disqualification of committee members with conflicts of interest and allowed for appeals to the Board of Trade.
So this antiprofiteering is not new to Indian citizens. But the circumstances are different in between Anti profiteering 1919 when compare to anti profiteering under Sections 171 of GST. The act anti profiteering in 1919 Act aimed to prevent individuals and businesses from unfairly increasing prices in the aftermath of World War, which is fair and for the welfare of common men. Where as Anri Profiteering under GST is to control the business and the industry by putting restrictions under Section 171 of GST Act with out any reasonable back up like something that results or follows from an event, especially one of a disastrous or unfortunate nature.
SLP ON ANTI PROFITEERING PENDING BEFORE SC
SUPREME COURT OF INDIA in the case of Inox Leisure Ltd. Vs Union of India
Assessee challenged constitutional validity of section 171 of CGST Act, 2017 as well as rules 122, 124, 126, 127, 129, 133 and 134of CGST Rules, 2017 before High Court – Passing common order for a number of cases, High Court in Reckitt Benckiser India (P.) Ltd. v. Union of India [2024] held that provisions of section 171of CGST Act are not price fixing mechanism; neither do they violate either article 19(1)(g) or 300A of Constitution of India – It was further held section 171 of CGST Act, 2017 as well as rules 122, 124, 126, 127, 129, 133 and 134 of CGST Rules, 2017 are constitutionally valid -Said order of High Court was challenged by way of instant SLP –
HELD : Notice was to be issued to Central Government [Section 171 of Central Goods and Services Tax Act,2017/Delhi Goods and Services Tax Act, 2017]
OPINION :: The registered person can claim refund of Excess Credit of input tax due to inverted duty structure under Section 54 (3) (ii). No anti profiteering can be enforced when the law allowed refund of excess ITC under Section 54 (3) (ii).
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Authors:
S.V.S. Raghavendra Rao, Advocate & Tax Consultant, Nellore, Andhra Pradesh, Phone: 9440275175, Email: raghuvatconsultancy@yahoo.com
S.V.S.N. Sasidhar Rao, Chartered Accountant, Nellore, Andhra Pradesh, Phone: 9490087873, Email: sasidharca1@gmail.com.
Disclaimer :: Disclaimer: Views and Opinions expressed in the article are my personal and do not construe any suggestion or a professional or legal advice.
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