Refund Cannot Be Denied Merely Because Input and Output Are the Same

Case Summary

• Case Title: M/s Indian Oil Corporation Ltd. v. Assistant Commissioner of Central Tax

• Court: High Court of Karnataka, Bengaluru

• Petition Number: WP No. 14414 of 2024

• Category of Dispute: Refund – Inverted Duty Structure

• Date of Judgement: 20 August 2024

• Relevant Sections: Section 54(3)(ii), Section 56 of CGST Act, Rule 89(5) of CGST Rules

• Judgement By: Justice S.R. Krishna Kumar

Facts of the Case [Para 2–2.4]

1. The petitioner, Indian Oil Corporation Ltd., a PSU, supplies petroleum products such as LPG (domestic and non-domestic), Bunker Fuel, SKO, etc., which attract varying GST rates (5% and 18%) depending on the product.

2. For supplies taxed at 5%, the petitioner procures multiple inputs taxed at 18% or 28%, leading to an accumulation of Input Tax Credit (ITC) due to the inverted duty structure.

3. The petitioner filed refund applications in Form RFD-01 for accumulated ITC for two periods—April 2021 and Feb–Sept 2018. The applications were rejected by the department citing Circular No. 135/05/2020-GST on the ground that input and output were the same and had the same rate.

4. On appeal, one refund was partly allowed, but the rest were rejected. Aggrieved, the petitioner filed this writ.

Question(s) in Consideration [Para 3, 13, 15]

• Whether refund of accumulated ITC can be denied under Section 54(3)(ii) of the CGST Act solely because the input and output are the same and attract the same tax rate?

• Whether Circular No. 135/05/2020-GST could override the provisions of Section 54(3)(ii)?

• Whether retrospective application of Circular No. 173/05/2022-GST is valid?

• Whether interest under Section 56 is payable for delay in refund?

Observation of the Court [Para 9–17]

1. The Court noted that Circular No. 135/05/2020-GST had earlier denied refund when input and output were the same. However, Circular No. 173/05/2022-GST deleted this restriction.

2. The Court held that Section 54(3)(ii) does not prohibit refund if inputs and outputs are the same. The only condition is that the rate of tax on inputs must be higher than on outputs—plural use of the term “inputs” implies totality. [Para 11, 12]

3. Reliance on Circular 135 was misplaced as it applied only where rate differences occurred at different points in time, not to scenarios of inverted structure due to multiple high-tax inputs. [Para 16]

4. The Court emphasized that CBIC circulars cannot override the statute, as held in multiple decisions, including Delhi HC’s judgement in IOCL’s own case (2023(13) Centax 228 Del). [Para 13, 15]

5. Interest under Section 56 of the CGST Act is automatically payable if refund is not disbursed within 60 days. [Para 17]

Judgement of the Court [Para 19]

• The Court allowed the writ petition.

• It quashed the impugned appellate order dated 28.02.2024, the original refund rejections dated 25.01.2022 and 13.04.2022.

• The respondent was directed to refund the amounts along with applicable interest within 4 weeks.

Between Fine Lines

1. Refund under Section 54(3)(ii) can’t be denied merely because inputs and outputs are the same.

2. Multiple inputs taxed at higher rates qualify the claim under inverted duty structure.

3. Circular No. 135/05/2020-GST was replaced by Circular No. 173/05/2022-GST and the latter applies retrospectively.

4. CBIC circulars can’t override statutory provisions.

5. Interest under Section 56 is automatically payable if refund is delayed beyond 60 days.

Summary of Referred Cases

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