Refund of Input Credit under GST due to Inverted Structure will be eligible and can be claimed – High Court

Facts:

• The petitioners are engaged in the business of purchasing LPG gas in bulk through tanker and thereafter filling it bottles/cylinders of 4kgs, 6kgs, 14kgs, 17kgs and 21kgs and sell them to commercial customers with GST @ 18% and to the domestic customer @5%.
• Prior to January 2018, the input and output tax on liquefied Petroleum Gases to commercial and domestic consumers was 18%, however by notification dated 28.06.2018 the rate of output tax on domestic LPG was reduced from 18% to 5%.
• As the rate of tax on inputs as compared to output was higher, the petitioner filed a refund claim of unutilized ITC accumulated on account of inverted duty structure for October 2018 to December 2018.
• The aforesaid refund claim of the petitioners was rejected by the adjudicating authority relying on circular No. 135/2020-GST dated 31.03.2020 and stated ‘taxpayers cannot claim refund in terms of clause (ii) of section 54(3) of the CGST Act, 2017 in case where the input and output supplies remain the same’.
• The appeal preferred by the petitioners against the aforesaid adjudicating authority was also rejected by order dated December 2021.

Points put forth:

• It was submitted on behalf of the petitioners that the Circular relied upon by the respondents is clarificatory in nature, the respondents cannot take advantage of the said circular as the Act permits such refund.
• It cannot be said that the input and output supplies remain the same as the bulk gas purchase is refilled in small containers and then sold to the commercial and domestic consumers.
• The petitioners in support of their stand relied on the decisions of Gujarat Authority for Advance Ruling in Advance Ruling No. GUJ/GAAR/R/2020/15 dated 19.05.2020.
• On the other hand, the respondents relying on the decision of the Madhya Pradesh High Court, submitted the gas purchased and sold to the consumers remains the same and the petitioners are liable to pay 18% tax in both input and output supplies, thus are not entitled to any refund on account of the inverted duty structure.

Held:

• The Hon’ble High Court after considering the submissions from the both sides and the law applicable on the facts of the instant case, observed the claim of the refund has been filed under Section 54(3) by the petitioners for accumulated credit on account of rate of tax on input Supply (LPG in bulk) is higher i.e., 18% than the rate of tax on output supply (LPG in small containers for domestic consumers) i.e., 5%.
• The claim of the petitioner was rejected by the respondents relying on circular dated March 2020 issued in exercise of powers conferred under Section 168(1) of the CGST Act, 2017.
• It was further observed that said circular relied upon by the respondents is restricting the claim of the petitioners which is otherwise admissible under the Act.
• The Hon’b1e High Court taking note of the law stated in Section 168(1) observed that the circulars are issued for the purpose of bringing uniformity in the implementation of the Act and the intention of the legislature as expressed in Section 54(3) Of the Act is clear and unambiguous. The Act does not restrict refund where input and output supplies are different.
• The ‘Uniformity in implementation’ does not mean curbing benefits available in the Act by introducing new provisions. A circular cannot supplant or implant any provision which is not available in the Act.

Judgement:

The legislature did not create any distinction for allowing the refund in all cases where the input tax is more than output tax. Thus, the refund is permissible in all cases where the input tax is more than the output tax. Lastly, the Hon’ble High Court laying down that the petitioners are entitled for refund claim observed that the refund claim should not have rejected by the respondent authority relying on the said circular.

Aditi Mittal, Audit Associate, SW India