Introduction: The recent judgment by the Hon’ble Delhi High Court in the case of Indian Oil Corporation Limited v. Commissioner of Central Goods and Services Tax & Ors. has significant implications for GST refunds. The court ruled in favor of the petitioner, emphasizing the admissibility of GST refund for Input Tax Credit (ITC) accumulation attributed to different tax rates on inward supplies. This article delves into the details of the case, examining the facts, issues, and the court’s crucial observations.
Detailed Analysis
The Hon’ble Delhi High Court in the case of Indian Oil Corporation Limited v. Commissioner of Central Goods and Services Tax & Ors. [W.P.(C) 10222/2023 & CM No. 39561/2023] held that the Petitioner is entitled to the refund of accumulated ITC on account of the different tax rates on inward supplies, the same cannot be denied by virtue of Circular No. 135/5/2020-GST dated March 31, 2020, issued under Section 168(1) of the Central Goods and Service Tax Act, 2017 (CGST Act). Referring to paragraph 3.2 of the said Circular, a refund of accumulated ITC was not available, where the input and output supplies were the same, however, this ground stands virtually abandoned in the present case as the Petitioner seeks to be distinguished on the basis that though tax rates on the principle input supply and output supply is the same, the rate chargeable on other input supplies are different. Hence, the present petition is allowed.
Facts:
Indian Oil Corporation Limited (“the Petitioner”) is engaged in the business of bottling and distributing LPG for domestic as well as industrial use. The bulk LPG is used as the principal input as well as bottled LPG supplied by the Petitioner is chargeable to GST @ 5% in terms of Entry No. 65 and 165A of Schedule I appended to Notification No. 01/2017-Central Tax (Rate) dated June 28, 2017 (“the Goods Rate Notification”).
The Petitioner applied for refunds of accumulated Input Tax Credit (“ITC”) for various tax periods. The said applications were acknowledged but were not processed. The concerned officer issued the Show Cause Notices (“the SCN”) in Form GST RFD-08 pursuant to the respective refund applications filed by the Petitioner. The Petitioner responded to the said SCN. However, the Petitioner’s claims were not accepted. The Revenue Department (“the Respondent”) rejected the applications filed by the Petitioner for various tax periods by respective Orders-in-Original. The Petitioner filed separate appeals against the respective Orders-in-Original passed by the Respondent before the Appellate Authority. However, the said appeals were rejected by a common Order-in-Appeal dated April 21, 2023 (“Impugned Order”).
Thus, the Petitioner has filed the writ petition in the Hon’ble Delhi High Court, being aggrieved by denial of claims for the refund of accumulated ITC. The same was denied to the Petitioner on the ground that the rate of tax on input supply and output supply are the same. According to the Respondent, the refund is not permissible in view of Clause (ii) of the proviso to Section 54(3) of the CGST Act.
Issue:
Whether the Refund of accumulated ITC is admissible on account of different tax rates on inward supplies charged at different point of time?
Held:
The Hon’ble Delhi High Court in the W.P.(C) 10222/2023 & CM No. 39561/2023 held as under:
- Observed that, Section 54(3)(ii) of the CGST Act, is applicable only where ITC is accumulated on account of “rate of tax of inputs being higher than the rate of tax on output supplies”. Here, plural inputs and outputs indicate that refund claim of ITC is not confined to single supply. In such cases, it is crucial to determine whether the accumulation of any ITC is in account of the rate of tax on inputs exceeding the rate of output for any reason. If the case is attributable solely to the rate of tax on inputs exceeding the rate of tax on output, the taxpayer’s claim would fall under Section 54(3)(ii) of the CGST Act.
- Opined that, Section 54(3)(ii) of the CGST Act, permit refund of unutilised ITC to cases where there is accumulation of unutilised ITC on account of rate of tax on input higher than the rate of tax on output supplies. However, the said section does not compare the rate of tax on the principal input with the rate of tax chargeable on the principal output supply.
- Held that, taxpayer’s claim for refund cannot be denied based on Circular No. 135/5/2020-GST dated March 31, 2020, issued by the CBIC under Section 168(1) of CGST Act. Referring to paragraph 3.2 of the said Circular, a refund of accumulated ITC was not available, where the input and output supplies were the same, however, this ground stands virtually abandoned in the present case as the Petitioner seeks to be distinguished on the basis that though tax rates on the principle input supply and output supply is the same, the rate chargeable on other input supplies are different.
- Directed that, the Respondent to process the application for refund long with applicable interest within a period of six weeks from date the order is passed. Hence, the petition was allowed, and all the pending application was disposed of.
Conclusion: The Delhi High Court’s ruling sets a crucial precedent in the realm of GST refunds, particularly concerning the accumulation of ITC due to varied tax rates on inward supplies. By providing a nuanced interpretation of Section 54(3)(ii) and recognizing the factual distinctions in the petitioner’s case, the court reinforces the importance of a case-specific analysis. This decision not only has immediate implications for the petitioner but also serves as a guiding principle for similar cases, emphasizing the need for a comprehensive understanding of the legal nuances surrounding GST refund claims.
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