Refund under Inverted tax structure where supplier is making supply of goods under a concessional notification and the rate of tax of output supply is less than the rate of tax on input supply (of the same goods)

Case Title: Synergy Measurement Technologies (P.) Ltd. v. Union of India

Court: High Court of Telangana

Petition Number: Writ Petition No. 24508 of 2022

Date of Judgment: July 20, 2022

Category of Dispute: Refund of Accumulated Input Tax Credit (Inverted Duty Structure)

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

Circulars Involved:

Circular No. 135/05/2020-GST dated 31.03.2020

Circular No. 173/05/2022-GST dated 06.07.2022

Facts of the Case

[Para 2]

The petitioner, Synergy Measurement Technologies (P.) Ltd., filed a writ petition under Article 226 of the Constitution seeking a declaration that para 3.2 of Circular No. 135/05/2020-GST is ultra vires to Section 54(3)(ii) of the CGST Act, and requested a refund of ₹29,89,016 along with interest.

[Para 4]

During proceedings, the respondent placed on record Circular No. 173/05/2022-GST, which substituted the impugned para 3.2 and clarified the admissibility of refund under inverted duty structure in cases of concessional rate notifications.

Questions in Consideration

[Para 2]

Whether paragraph 3.2 of Circular No. 135/05/2020-GST is ultra vires to Section 54(3)(ii) of the CGST Act?

[Para 2]

Whether the petitioner is entitled to a refund of accumulated ITC under Section 54 due to an inverted duty structure arising from concessional notification?

Observation of the Court

[Para 4]

The Court noted the issuance of a new Circular No. 173/05/2022-GST dated 06.07.2022, which clarified that refund under inverted duty structure is available even where input and output goods are the same but taxed differently under concessional notifications at the same time. This clarification replaced the earlier para 3.2 of Circular No. 135/05/2020.

[Para 5]

Based on the updated circular, the respondent counsel submitted written instructions confirming the petitioner’s eligibility for refund.

Judgment of the Court

[Para 6]

The Court directed Respondent No. 4 to process the refund claim of the petitioner under Section 54 of the CGST Act within eight weeks from receipt of the order.

[Para 7-8]

The writ petition was accordingly disposed of, with no order as to costs and closure of miscellaneous applications.

Between Fine Lines

1. Refund under inverted duty structure is allowable even when input and output goods are the same, if different tax rates apply under concessional notifications.
2. Circular No. 173/05/2022-GST effectively corrected the anomaly in the earlier circular.
3. The petitioner became eligible for refund purely based on updated policy clarifications.
4. Judicial intervention ensured rightful benefit under statutory provisions.
5. Refund was ordered to be processed within eight weeks, ensuring time-bound remedy.

Summary of Referred Cases

Takeaway:

“Clarification Wins Refund: A Case Where Circular Superseded Circular”