Telangana High Court has held that Refund is allowed in Inverted Duty Structure when Goods are supplied to Government at Concessional Rates (same HSN but Input at full rate)

Petitioner is a proprietary concern established in the year 2005 engaged in the business of assembling and supply of computers and computer parts; is also a registered supplier to all the Defence, Research & Development Organisation (DRDO) Laboratories and affiliates across the country.

On the materials supplied by it, petitioner added 5% Goods and Services Tax (GST) as per the concessional rate fixed by the Government for supplies to DRDO. Petitioner filed application before Proper Officer claiming refund under inverted tax structure in terms of Section 54 of the CGST Act which was rejected on the basis that both supplies and inputs have same HSN but different rates and this is covered by CBIC’s Circular No.135/05/2020- GST dated 31.03.2020.

Aggrieved with this Rejection Order, assessee filed Appeal U/s 107 but that was also rejected.

Therefore, he filed Writ before Telengana High Court.

Para 3.2 of Circular No.135/05/2020- GST dated 31.03.2020.

Refund of accumulated ITC in terms of clause (ii) of sub-section (3) of Section 54 of the CGST Act is available where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies. It is noteworthy that, the input and output being the same in such cases, though attracting different tax rates at different points in time, do not get covered under the provisions of clause (ii) of sub-section (3) of Section 54 of the CGST Act. It is hereby clarified that refund of accumulated ITC under clause (ii) of subsection (3) of Section 54 of the CGST Act would not be applicable in cases where the input and the output supplies are the same.

The Court relied on CBIC’s Circular No.173/05/2022-GST dated 06.07.2022:

3.2 It may be noted that refund of accumulated ITC in terms of clause (ii) of first proviso to sub-section (3) of section 5.4 of the CGST Act is available where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies. It is noteworthy that, the input and output being the same in such cases, though attracting different tax rates at different points in time, do not get covered under the provisions of clause (ii) of the first proviso to sub-section (3) of section 54 of the CGST Act.

3.3 There may however, be cases where though inputs and output goods are same but the output supplies are made under a concessional notification due to which the rate of tax on output supplies is less than the rate of tax on inputs. In such cases, as the rate of tax of output supply is less than the rate of tax on inputs at the same point of time due to supply of goods by the supplier under such concessional notification, the credit accumulated on account of the same is admissible for refund under the provisions of clause (ii) of the first proviso to sub-section (3) of section 54 of the CGST Act, other than the cases where output supply is either Nil rated or fully exempted, and also provided that supply of such goods or services are not notified by the Government for their exclusion from refund of accumulated ITC under the said clause.”

The Court set aside the Order of Proper Officer and the Appellate Authority and remanded back to the Proper Officer for reconsideration in terms of the Circular dated 06.07.2022 as extracted above.

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Abhishek Raja Ram - Popularly known as "Revolutionary Raja" is FCA, DISA, Certificate Courses on – Valuation, Indirect Taxes , GST etc, M. Com (F&T) Mr. Abhishek Raja “Ram” is a Fellow member of ICAI, qualified in 2006, and holds Master’s-Degree in Commerce. He has more than a 15 ye View Full Profile

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