Indian Oil Corporation Limited Vs Commissioner of Central Goods And Services Tax & Ors. (Delhi High Court)
Delhi High Court held that refund of accumulated Input Tax Credit (ITC) permissible as rate of taxes on certain inputs being higher than tax chargeable on the output supply.
Facts-
The petitioner has filed the present petition being aggrieved by denial of claims for the refund of accumulated Input Tax Credit. 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 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.
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 – 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 Act.
Conclusion-
Circular No.135/05/2020 has no application where ITC, refund of which is sought, has accumulated on account of rate of taxes on certain inputs being higher than tax chargeable on the output supply, notwithstanding that the one of the main input and output is chargeable at the same rate of tax.
We do not find merit in the said contention. This is because it ignores the rate of tax chargeable on inputs other than LPG, which are admittedly higher than the rate of GST chargeable on the bottled LPG. More importantly, it disregards the fact that the ITC has accumulated on account of the rate on tax on such inputs being higher than the output supply – bottled LPG.
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
INTRODUCTION
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 same. 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 Act.
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 use.
5. The principal source of LPG is oil refineries processing crude oil. 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 consumers. The Supreme Court had considered the said process in Commissioner of Income Tax-I, Mumbai v. Hindustan Petroleum Corporation Ltd.1 in 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 LPG. 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 No.165 and 165A of Schedule I appended to CGST Notification Ref. 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 periods. 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:
