Refund under Inverted Duty Structure to Include Input Services – Gujarat HC Ruling

Case Details

• Case Name: Messrs Filatex India Ltd. & Anr. v. Union of India & Ors.

• Court: High Court of Gujarat, Ahmedabad

• Petition Number: R/Special Civil Application No. 3301 of 2025

• Judgment Date: 24 April 2025

• Coram: Hon’ble Mr. Justice Bhargav D. Karia and Hon’ble Mr. Justice D.N. Ray

• Category of Dispute: Refund of ITC – Inverted Duty Structure

• Relevant Sections: Section 16, Section 54(3), Section 56 of the CGST Act, 2017; Rule 89(5) of CGST Rules, 2017

Facts of the Case (Paras 3.1 – 3.13)

• The Petitioner, engaged in manufacturing of yarn, availed ITC on inputs (PTA, MEG) and input services, with output taxed at 12% against input GST at 18% leading to inverted duty structure.

• Refund claims for Feb 2021 – Feb 2022 were filed under Rule 89(5) (Para 3.4, 3.5).

• Assistant Commissioner sanctioned partial refunds by excluding ITC on input services, citing pendency of the VKC Footsteps appeal before SC (Para 3.6 – 3.7).

• Appeals were filed but dismissed by Additional Commissioner (Appeals) relying on SC ruling in UOI v. VKC Footsteps (2021) (Para 3.10).

• Petitioners approached HC under Article 226 since the GST Tribunal was not constituted, claiming entitlement under Notification No.14/2022 (05.07.2022) which amended Rule 89(5) to include input services (Para 3.13).

Question(s) in Consideration (Para 6.1)

• Whether the benefit of amended Rule 89(5) vide Notification No.14/2022 dated 05.07.2022 can be extended to refund claims filed before 05.07.2022 but within the statutory time limit?

Observations of the Court

• The Court relied on its rulings in Ascent Meditech (SCA 17298/2024) and Tirth Agro (SCA 11630/2023) where the clarification restricting retrospective application was struck down (Paras 6.2 – 6.3).

• The amendment in Rule 89(5) is clarificatory in nature and hence applies to all refund claims, irrespective of whether filed before or after 05.07.2022, provided within two years under Section 54(1) (Para 6.2, 6.3).

• Denial of refund on the ground of date of filing would result in discrimination and unjust enrichment to the government (Para 6.3).

• Petitioners are also entitled to statutory interest under Section 56 on delayed refunds (Para 7).

Judgment of the Court (Para 7)

• Orders-in-Original dated 31.03.2022 and 30.11.2022 quashed.

• Refund claims for Feb 2021 – Feb 2022 to be re-adjudicated under amended Rule 89(5) within 12 weeks.

• Statutory interest under Section 56 to be considered.

• Petition allowed; rule made absolute.

Between Fine Lines (Simplified Outcome)

1. Gujarat HC held that amended Rule 89(5) applies retrospectively.

2. Refund under inverted duty structure must include ITC on both inputs and input services.

3. Circular restricting refunds to post-05.07.2022 claims was declared invalid.

4. Refund claims filed within two years are valid irrespective of filing date.

5. Petitioners entitled to refund and interest on delayed payment.

Summary of Referred Cases

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