Refund under Inverted Duty Structure.

Case Title: Baker Hughes Asia Pacific Ltd. v. Union of India

Court: Rajasthan High Court

Petition No.: D.B. Civil Writ Petition No. 5714 of 2021

Category of Dispute: Refund – Inverted Duty Structure

Date of Judgment: 30 June 2022

Relevant Section: Section 54(3)(ii) of the CGST Act, 2017

Takeaway: Circulars Cannot Override the Statute: ITC Refund Allowed Despite Identical Input and Output Supplies

Facts of the Case [Paras 2–5]

• The petitioner, registered under CGST/RGST Acts, entered into a contract with Vedanta Ltd. to supply goods for petroleum operations in Rajasthan.
• Goods were procured from vendors at 5%-28% GST and supplied to Vedanta at a concessional 5% GST under Notification No. 3/2017-CGST (Rate) dated 28-6-2017, based on an Essentiality Certificate.
• Due to the higher GST on inputs and concessional GST on output, a large input tax credit (ITC) accumulated.
• A refund claim of ₹27,02,26,876/- was filed for September 2018–September 2019 under section 54(3)(ii) of CGST Act citing inverted duty structure.
• The refund was denied based on Para 3.2 of CBIC Circular No. 135/05/2020-GST dated 31-3-2020, stating refund is inapplicable when input and output goods are the same.

Questions in Consideration [Paras 1, 6–7]

1. Whether Para 3.2 of Circular No. 135/05/2020-GST is ultra vires section 54(3)(ii) of CGST Act?
2. Whether refund under inverted duty structure is permissible where input and output supplies are same but taxed at different rates?
3. Whether rejection of refund claim based on said circular is sustainable?

Observations of the Court [Paras 10–14]

• Section 54(3)(ii) is clear and does not restrict refund where input and output goods are the same; it only requires that input GST > output GST.
• The impugned circular is merely explanatory and cannot override statutory provisions.
• Circular dated 31-3-2020 is in conflict with earlier clarification dated 18-11-2019 (Para 59), which permitted such refund.
• Petitioner’s refund claim pertains to a period before the said circular, hence not governed by it.
• Judgments of Guwahati HC (B.M.G. Informatics Pvt. Ltd.) and Calcutta HC (Shivaco Associates) upheld refund despite identical input/output supplies and disregarded the circular.

Judgment of the Court [Paras 14–16]

• Held that Para 3.2 of Circular dated 31-3-2020 is repugnant to Section 54(3)(ii) of CGST Act.
• Rejection order dated 5-1-2021 set aside as being contrary to law.
• Directed authorities to refund the accumulated ITC to petitioner as per its entitlement.
• Writ petition allowed with no order as to costs.

Between Fine Lines (Plain Summary in 5 Lines)

• The Court ruled that refund under the inverted duty structure is permissible even if input and output goods are the same, provided tax on inputs is higher.
• Circulars cannot override or curtail the scope of the CGST Act.
• Refund rejection based on Para 3.2 of Circular No. 135/05/2020-GST was held ultra vires.
• The petitioner’s refund was upheld as legitimate under Section 54(3)(ii).
• This sets a precedent that identical nature of goods does not bar ITC refund under inverted duty structure.

Summary of Referred Cases

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