Facts of the Case

The petitioner, proprietress of Calgon Scientific Co., Edappally, Ernakulam, claimed refund of accumulated input tax credit on account of supply of goods at a concessional rate, for October, November and December 2019 (Exts.P2-P4 applications). The department issued show cause notices (Exts.P5-P7) and, despite the petitioner's objections (Exts.P8-P10), rejected the refund claims by orders dated 26.11.2021 (Exts.P12-P14). The petitioner challenged these rejection orders before the Kerala High Court.

Issues Involved

  1. Whether the petitioner's refund claim for accumulated ITC on concessional-rate outward supply is governed by the clarification in CBIC Circular No.173/05/2022-GST dated 06.07.2022, which modified the earlier Circular No.135/05/2020-GST.
  2. Whether the rejection orders ought to be reconsidered in light of that later clarificatory circular.

Petitioner's Arguments

  • The petitioner's counsel submitted that the matter was now covered by CBIC Circular No.173/05/2022-GST dated 06.07.2022, whose Paragraph 4 modifies Circular No.135/05/2020-GST to clarify that where inputs and output goods are the same but output supplies are made under a concessional notification (so that the output tax rate is lower than the input tax rate), the resulting accumulated credit is admissible for refund under the first proviso to Section 54(3) of the CGST Act — except where output supply is nil-rated/exempt or excluded by notification.

Respondent's Arguments

  • The Department's counsel fairly submitted that, if the petitioner's case was indeed covered by the Circular dated 06.07.2022, the matter could be directed to be reconsidered by the authority taking that circular and Section 54(3)(ii) into account.

Court Order / Findings

  • Having regard to the submissions of both sides, the Court ordered the writ petition by remanding the matter for reconsideration by the respondent under Section 54 of the CGST Act, taking into account the clarificatory Circular dated 06.07.2022.
  • The Exts.P12-P14 rejection orders were set aside to enable such reconsideration, with the respondent directed to finalise the matter after affording the petitioner an opportunity of hearing, within two months from receipt of a certified copy of the judgment.

Important Clarification

  • Where output supplies are made under a concessional-rate notification while inputs attract the standard rate, the resulting accumulated input tax credit is refundable under the first proviso to Section 54(3)(ii) of the CGST Act, per CBIC Circular No.173/05/2022-GST (clarifying Circular No.135/05/2020-GST) — refund rejections predating this clarification are liable to be reconsidered in its light.

Sections Involved

  • Section 54(3), Central Goods and Services Tax Act, 2017 – refund of unutilised input tax credit, including on account of an inverted duty/concessional-rate structure.
  • CBIC Circular No.173/05/2022-GST dated 06.07.2022 (modifying Circular No.135/05/2020-GST) – clarifies refund eligibility where output supply is at a concessional rate while inputs bear the standard rate.

Decision – In Favour of

The decision is in favour of the Assessee — the rejection orders were set aside and the refund claim remanded for fresh consideration in light of the clarificatory circular.

Case Details

Court: High Court of Kerala at Ernakulam
Case No.: WP(C) No.30645 of 2021
Coram: Justice Dinesh Kumar Singh
Date of Order: 27.07.2023

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