Indian Oil Corporation Ltd. Vs Assistant Commissioner of Central Tax (Karnataka High Court)
Karnataka High Court in Indian Oil Corporation Ltd. vs Assistant Commissioner of Central Tax addressed whether refund of accumulated Input Tax Credit (ITC) under the inverted duty structure can be denied when the input and output goods are the same. The Court decisively held that such refund is permissible and directed the revenue authorities to grant refund with applicable interest to the petitioner.
Background
Indian Oil Corporation Ltd. (IOCL) filed refund claims under Section 54(3)(ii) of the Central Goods and Services Tax (CGST) Act, 2017, for accumulated ITC arising due to an inverted duty structure. The claims were rejected by the Assistant Commissioner of Central Tax on the ground that the input and output supplies were identical, relying on Para 3.2 of Circular No.135/05/2020-GST dated 31.03.2020, which restricted refunds in such situations. The appellate authority upheld the rejection, prompting IOCL to approach the High Court.
Petitioner’s Submissions
The petitioner, represented by senior counsel, argued that:
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Section 54(3)(ii) does not restrict refund where inputs and outputs are the same. The clause merely provides that refund of unutilised ITC is available when the rate of tax on inputs is higher than that on outputs, without any qualification regarding identical goods.
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The Delhi High Court in Indian Oil Corporation Ltd. vs Commissioner of CGST [2023 (13) Centax 228 (Del)] had already held that Section 54(3)(ii) does not contemplate comparison of tax rates only between “principal inputs and outputs.”
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The formula under Rule 89(5) of the CGST Rules refers to “Net ITC” on all inputs, not only principal inputs, thereby covering all eligible credits irrespective of tax rates.
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The Department’s reliance on Para 3.2 of Circular No.135/05/2020-GST was misplaced since that circular addressed situations where different rates applied at different times, not cases of same goods attracting different rates.
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Moreover, Circular No.173/05/2022-GST dated 06.07.2022 had deleted the restrictive language from the earlier circular, expressly allowing refunds where input and output are identical but attract different rates due to concessional notifications.
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Being beneficial and clarificatory, Circular No.173/05/2022-GST must apply retrospectively, as held by the Supreme Court in Suchitra Components Ltd. vs CCE, Guntur [(2006) 12 SCC 452] and K.P. Varghese vs ITO [(1981) 131 ITR 597 (SC)].
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Consequently, the denial of refund was contrary to law, and IOCL was entitled to interest under Section 56 of the CGST Act, as interest becomes automatically payable if refund is delayed beyond 60 days.
Respondent’s Stand
The revenue department contended that the refund was rightly denied as per the circular in force at the time, and that the input and output being the same goods disqualified the petitioner under Section 54(3)(ii).
Court’s Analysis
The Court began by reproducing the text of Section 54 and highlighting that sub-section (3) permits refund of unutilised ITC where the rate of tax on inputs is higher than that on outputs, without distinguishing between identical and distinct goods.
The Court then examined the evolution of circulars:
