Hon’ble Rajasthan High Court (‘HC’) in the case of M/s Nahar Industrial Enterprises Limited “the petitioner” has set aside the orders passed by adjudicating authority & Additional Commissioner (Appeals) “First Appellate Authority” wherein the ITC refund was denied holding that the claim does not fall under Inverted Duty Structure. Captioned judgement has been analyzed in this update.


  • The petitioner is engaged in manufacturing of textiles and its operation ranges from spinning, weaving and processing.
  • The petitioner uses various raw materials and packing materials for manufacturing process and the GST rates on them varies from 5% to 28% while the GST rate on output supply ranges from 0.10% to 12%.
  • The petitioner, filed an application seeking refund of accumulated ITC which was rejected by adjudicating authority and petitioner’s appeal was also rejected by First Appellate Authority.


  • That the rate of input supplies is more than output supplies, our case squarely falls under the Inverted Duty Structure as provided under Section 54(3)(ii) of CGST Act, 2017
  • That refund application has to be filed GSTIN-wise and not product-wise. Further the GST portal also does not permit filing of multiple refund applications based on various products.


  • That 80% of both inputs and output supplies are taxable @ 5% and hence the GST rate being “more or less the same”, this does not qualify for refund under Inverted Duty Structure.
  • That refund has arisen due to high input purchases and lesser output supplies during a particular period resulting in closing stock in hand.
  • That it needs to be established that ITC accumulation has actually occurred due to higher rate of tax on input purchases and lesser rate of tax on output supplies and only pointing out GST rates on input and output would not suffice.


Observations of HC

  • HC observed that though input and output rates on some goods were same, however on many products the input rates were higher as well.
  • There is no concept of “more or less the same”. Some inputs are having tax rate of 18% and 28% as well while no output supplies is attracting 18% and 28%. Even if the input rates are marginally higher, refund shall be eligible.
  • That refund would become applicable despite there being multiple input and output supplies provided the condition is satisfied that accumulation is on account rate of tax on inputs being higher than output.
  • That the formula for determining the refund is specified under Rule 89(5) of CGST Rules, 2017 which does not have any impact of closing stock in hand.

Decision of Hon’ble HC

  • Orders passed by adjudicating authority and First Appellate Authority are set aside with direction to adjudicating authority to consider refund application afresh based on our observations.

D. Our comments

This is a welcome ruling from Hon’ble Rajasthan High Court wherein the claim of ITC refund has been upheld despite their being multiple inputs and output supplies subject to fulfillment of precondition that accumulated ITC has arisen due to rate of GST on inputs being higher than the rate of GST on output supplies. Further, Hon’ble HC has held the ground of having closing stock for rejection of refund claim as legally unsustainable. This is very significant since departmental officers invariably raise this issue while processing the refund claim though the determination of refund claim is totally dependent upon the formula prescribed under Rule 89(5) which has no mention of closing stock.

Source: Nahar Industrial Enterprises Limited Vs Union of India (Rajasthan High Court); D. B. Civil Writ Petition No. 8476/2021; Dated: 31/10/2023


(Author can be reached at dinesh.singhal@snr.company or cadineshsinghal@gmail.com).

DISCLAIMER: The views expressed are strictly of the author. The contents of this article are solely for informational purpose and for the reader’s personal non-commercial use. It does not constitute professional advice or recommendation. Author do not accept any liabilities for any loss or damage of any kind arising out of any information in this article nor for any actions taken in reliance thereon. Further, no portion of our article or newsletter should be used for any purpose(s) unless authorized in writing.

Author Bio

Qualification: CA in Practice
Company: SNR and Company
Location: Delhi, Delhi, India
Member Since: 12 May 2017 | Total Posts: 43
He has been practicing in the field of Income Tax, Service Tax, VAT, GST, Corporate Laws, FEMA for past 19 years and have got vast exposure in these areas. He has advised a number of international and domestic companies on a range of tax and regulatory issues. He is Senior Partner of SNR and Comp View Full Profile

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