Indian Oil Corporation Ltd. v. Commissioner of CGST & Ors.

Delhi High Court | W.P.(C) 10222/2023 | Category: Refund – Inverted Duty Structure | Judgment dated 05.12.2023 | Relevant Provision: Section 54(3) of the CGST Act

Facts (Paras 1–11)

Indian Oil Corporation Limited, engaged in bottling LPG for domestic and industrial supply, procured bulk LPG at 5% GST and also used multiple ancillary inputs—safety caps, valves, lubricants and other consumables—taxed at 18%, all essential to render bottled LPG marketable.
For various tax periods from October 2018 to August 2020, the petitioner filed refund applications under Section 54(3) for accumulated ITC arising from the inverted duty structure.
The adjudicating authority rejected the claims on the ground that both input bulk LPG and output bottled LPG attracted the same tax rate (5%). The appellate authority upheld this rejection relying heavily on para 3.2 of CBIC Circular 135/05/2020, concluding that no refund is available where input and output supplies are the same.

Question for Determination (Para 3)

Whether refund of accumulated ITC is barred under Section 54(3)(ii) on the premise that bulk LPG (input) and bottled LPG (output) are taxable at the same rate, despite several other inputs used in the manufacturing process being taxed at a higher rate.

Court’s Observations (Paras 12–36)

a. Statutory Framework Prevails Over Circulars

The Court held that Section 168 empowers CBIC to issue circulars only for uniform implementation, not to override or curtail statutory entitlements. A circular cannot take away a refund permissible under Section 54 (Paras 16–18).

b. Proper Interpretation of Section 54(3)(ii)

Section 54(3)(ii) requires only that accumulation must be on account of tax on “inputs” being higher than output supplies.
The Court stressed that:

• The term “inputs” is plural (Para 22).

• Refund is not restricted to cases where the principal input alone has a higher tax rate than the principal output (Para 24).

• The legislative intent is to prevent cascading taxes; therefore, the entire input basket must be considered, not merely the primary commodity (Para 25).

c. Misapplication of Circular 135/05/2020

The Court held that Circular 135/05/2020 applies only to cases where inversion arises due to a rate change on the same goods (Paras 27–28).
In IOCL’s case, the accumulation was due to higher-rated ancillary inputs, not due to any rate change. Thus the circular was irrelevant.

d. Supporting Case Law

The Court referred to:

• Shivaco Associates (Calcutta HC) – Circular cannot override the statute; refund available where higher-rated inputs are used even if input/output goods are “similar” (Para 31).

• Baker Hughes Asia Pacific (Rajasthan HC) – Refund cannot be denied solely because input and output goods are the same (Para 32).

• BMG Informatics (Gauhati HC) – Circular 135/05/2020 is unsustainable (Para 33).

e. Revenue’s Argument Rejected

Revenue argued that because bulk LPG (main input) and bottled LPG (output) are taxed identically at 5%, refund is barred. The Court rejected this as it ignored the higher-rated ancillary inputs, which formed the basis of ITC accumulation (Para 35).

Judgment (Paras 37–39)

The writ petition was allowed.
Revenue was directed to process all refund claims with applicable interest within six weeks.
Circular 135/05/2020 could not be used to deny refund legally permissible under Section 54(3)(ii).

Cases Referred – Summary Table

Between the Fine Lines — Practical Takeaways for Industry

The ruling confirms that refund under Section 54(3)(ii) must be evaluated by examining all inputs collectively, not only the principal commodity. Even where the primary input and output share the same tax rate, businesses are entitled to refund if other essential inputs attract higher GST and lead to ITC accumulation. Circulars cannot amputate statutory rights.

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