Indian Oil Corporation Limited Vs Commissioner of Central Goods And Services Tax & Ors. (Delhi High Court)
Introduction: The Delhi High Court recently addressed the denial of Input Tax Credit (ITC) refund to Indian Oil Corporation Limited (IOCL) in a notable case against the Commissioner of Central Goods and Services Tax. The dispute centered around the denial of claims based on the perceived similarity in the tax rates on input and output supplies.
Background: IOCL, a public sector undertaking engaged in bottling and distributing Liquid Petroleum Gas (LPG), sought a refund for accumulated ITC. The denial was grounded in the argument that the tax rates on input supply and output supply were the same, invoking Clause (ii) of the proviso to Section 54(3) of the Central Goods & Service Tax Act, 2017 (CGST Act).
Key Arguments: IOCL contended that it accumulates unutilized ITC due to the higher tax rate on certain inputs compared to the tax rate on bottled LPG, its output supply. The primary question was whether the refund of accumulated ITC was prohibited by Clause (ii) of the proviso to Section 54(3) of the CGST Act.
Factual Overview: IOCL’s LPG production involves a complex process, including bottling and distribution. The rate of tax on bulk LPG and bottled LPG was 5%, but various inputs, such as safety accessories, attracted varying GST rates. IOCL applied for ITC refunds for specific tax periods, leading to show cause notices and subsequent rejection by the Adjudicating Authority.
Court’s Analysis: The principal consideration before the court was whether the denial of ITC refund based on the perceived similarity of tax rates on input and output supplies was valid. The court examined the applicability of Circular No.135/5/2020, emphasizing that the circular cannot override the statutory provisions of the CGST Act.
The court clarified that Clause (ii) of the proviso to Section 54(3) does not restrict the refund in cases where the input and output supplies are the same. It highlighted that the crucial factor for refund eligibility is the accumulation of unutilized ITC due to the higher tax rate on inputs compared to the rate on output supplies.
The court also distinguished cases where ITC accumulation arises from factors other than the duty structure, emphasizing that the legislature consciously did not restrict refund eligibility based on the similarity of input and output supplies.
Conclusion: The Delhi High Court allowed the petition, directing the concerned authority to process IOCL’s refund applications with applicable interest expeditiously. The ruling underscores the statutory framework’s primacy over circulars and reaffirms the eligibility of ITC refund under an inverted duty structure, even if the tax rates on input and output supplies are the same.
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
1. The petitioner (hereafter ‘IOCL’) has filed the present petition being aggrieved by denial of claims for the refund of accumulated Input Tax Credit (hereafter ‘ITC’). The same was denied to the petitioner on the ground that the rate of tax on input supply and output supply are the According to the Revenue, the refund is not permissible in view of Clause (ii) of the proviso to Section 54(3) of the Central Goods & Service Tax Act, 2017 (hereafter ‘the CGST Act’).
2. The petitioner states that it accumulates unutilized ITC on account of rate of tax on certain inputs being higher than the rate of tax, chargeable on bottled Liquid Petroleum Gas (hereafter ‘LPG’) – the petitioner’s output supply. Thus, according to the petitioner, refund of unutilized ITC is not proscribed in terms of the proviso to Section 54(3) of the CGST
QUESTION TO BE ADDRESSED
3. The principal question that arises for consideration is whether in the given facts refund of accumulated ITC is proscribed by virtue of Clause (ii) of the proviso to Section 54(3) of the CGST Act.
BRIEF FACTS
4. The petitioner, is a public sector undertaking and is, inter alia, engaged in the business of bottling and distributing LPG for domestic as well as industrial
5. The principal source of LPG is oil refineries processing crude 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 The Supreme Court had considered the said process in Commissioner of Income Tax-I, Mumbai v. Hindustan Petroleum Corporation Ltd.1in 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 requires precise functions of machines operated by technical experts. And, bottling LPG in cylinders effectively renders the product marketable for domestic use. In view of the aforesaid findings, the Supreme Court held that the same amounts to production.
7. The petitioner has two bottling plants in Delhi for supply of One is located at Tikri Kalan and the other at Madanpur Khadar.
8. The bulk LPG used as the principal input, as well as bottled LPG supplied by the petitioner, are chargeable to Goods and Service Tax (hereafter ‘GST’) at the rate of 5% in terms of Entry 165 and 165A of Schedule I appended to CGST Notification No. 1/2017 – CT (Rate) dated 28.06.2017. However, the petitioner also uses various other items in the production of bottled LPG, which includes accessories required for the purpose of safety. The said items are chargeable to varying rates of GST.
9. The petitioner applied for refund of accumulated ITC for various tax A summary of the applications filed in Form GST RFD-01 and the period for which the said applications were filed are set out below:
