Circular Restricting ITC Refund Claims filed after July 18, 2022, IDS violative of Article 14 of the Constitution
The Rajasthan High Court, in the case of Shree Arihant Oil and General Mills v. Union of India & Ors., has deemed a GST circular restricting certain ITC refunds to be illegal. The petitioner, a manufacturer of mustard oil, had filed for a refund of accumulated Input Tax Credit (ITC) under the inverted duty structure (IDS) for periods before July 18, 2022. However, the tax authorities refused to process the claim, citing Circular No. 181/13/2022-GST dated November 10, 2022. This circular, issued on November 10, 2022, stated that no ITC refund would be allowed for IDS claims filed on or after July 18, 2022, for goods like mustard oil. The court found this circular arbitrary and inconsistent with the provisions of the CGST Act, 2017. The High Court observed that the circular created an unreasonable and discriminatory distinction between refund applications filed before and after a specific date, despite the statutory two-year limitation period under Section 54. The court clarified that the underlying law, Notification No. 09/2022-Central Tax (Rate), was prospective in its application and did not bar refunds for periods prior to July 18, 2022. It reaffirmed that the right to claim ITC is a fundamental right and cannot be restricted by an administrative circular that contradicts the statute. Consequently, the court quashed the relevant part of the circular and directed the tax authorities to process the petitioner’s refund application within three months, without being bound by the illegal circular.
Facts:
Shree Arihant Oil and General Mills (“the Petitioner”) is engaged in the manufacture of edible oils including mustard oil, which falls under HSN Code 1514.
The Union of India, through the Department of Revenue, the Joint Commissioner of State Tax, and the GST Council (“the Respondents”) issued Circular No. 181/13/2022-GST, restricting refund claims of accumulated ITC under inverted duty structure (“IDS”) for refund applications filed on or after July 18, 2022.
The Petitioner filed refund applications under Section 54 of the CGST Act, 2017 for the period prior to July 18, 2022, but the refund claim was neither accepted nor rejected by the revenue authorities, allegedly due to reliance on the impugned Circular.
The Petitioner contended that the Circular unlawfully restricts the right to claim refunds for applications filed within the two-year limitation period prescribed under Section 54, beyond July 18, 2022, and that the Circular conflicts with the Notification No. 09/2022-Central Tax (Rate) which is prospective in operation from July 18, 2022.
The Respondents contended that the Circular clarifies the restriction applies prospectively to refund applications filed on or after July 18, 2022, and that the Petitioner is not entitled to refund accordingly.
Issue:
Whether Circular No. 181/13/2022-GST unreasonably restricts refund claims for ITC under inverted duty structure to applications filed only on or before July 18, 2022, thereby violating Article 14 and Section 54 of the CGST Act, 2017?
Held:
The Hon’ble Rajasthan High Court in Civil Writ Petition No. 2932/2023 held as under:
- Observed that, the Notification No. 09/2022-Central Tax (Rate) is prospective in nature effective from July 18, 2022, and does not bar refund claims for periods prior to that date.
- Noted that, the Circular impermissibly denies claiming refunds for ITC paid up to July 18, 2022, if the refund application is filed after that date, which is contrary to the statutory limitation period of two years under Section 54.
- Noted that, the Circular is illegal and arbitrary for creating an unreasonable classification between applications filed before and after July 18, 2022, lacking intelligible or rational basis, thus violating Article 14.
- Held that, ITC is an indefeasible right accruing on the date of purchase, and the Circular’s restrictive interpretation curtails this right unjustifiably and quashed and set aside Point No. 2 of Circular No. 181/13/2022-GST to the extent that restricts refund to applications filed after July 18, 2022.
- Further directed Respondents to decide the Petitioner’s refund applications filed on January 4, 2023, in accordance with law, disregarding the impugned Circular, within three months.
Our Comments:
This decision robustly supports taxpayers’ rights by reaffirming the primacy of statute and notifications over executive circulars when there is conflict. The Court correctly identifies the Circular’s restriction as lacking reasonableness and discriminatory in nature. It echoes principles set forth in Patanjali Foods Ltd. v. Union of India [Special Civil Application No. 17298/2024] by the Gujarat High Court. The judgment reasserts that refunds under Section 54 should not be curtailed by administrative clarifications that contradict express law or constitutional equality principles.
Relevant Provisions:
Circular No. 181/13/2022-GST (dated November 10, 2022):
“ Issue 2. Whether the restriction placed on refund of unutilised input tax credit on account of inverted duty structure in case of certain goods falling under chapter 15 and 27 vide Notification No. 09/2022-Central Tax (Rate) dated 13.07.2022, which has been made effective from 18.07.2022, would apply to the refund applications pending as on 18.07.2022 also or whether the same will apply only to the refund applications filed on or after 18.07.2022 or whether the same will be applicable only to refunds pertaining to prospective tax periods?
Clarification: Vide Notification No. 09/2022-Central Tax (Rate) dated 13.07.2022, under the powers conferred by clause (ii) of the first proviso to sub-section (3) of section 54 of the CGST Act, 2017, certain goods falling under chapter 15 and 27 have been specified in respect of which no refund of unutilised input tax credit shall be allowed, where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on the output supplies of such specified goods (other than nil rated or fully exempt supplies). The said notification has come into force with effect from 18.07.2022. The restriction imposed vide Notification No. 09/2022-Central Tax (Rate) dated 13.07.2022 on refund of unutilised input tax credit on account of inverted duty structure in case of specified goods falling under chapter 15 and 27 would apply prospectively only. Accordingly, it is clarified that the restriction imposed by the said notification would be applicable in respect of all refund applications filed on or after 18.07.2022, and would not apply to the refund applications filed before 18.07.2022.”
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(Author can be reached at info@a2ztaxcorp.com)
Author Bio
The Rajasthan High Court’s ruling reinforces that administrative circulars cannot override statutory rights under the CGST Act. By striking down the refund restriction, it protects taxpayers’ entitlement to ITC for periods prior to July 18, 2022.