HC allows refund of accumulated ITC to IOCL on bottled Liquid Petroleum Gas

The Delhi High Court in the matter of INDIAN OIL CORPORATION LIMITED Vs. COMMISSIONER OF CENTRAL GOODS AND SERVICES TAX allowed refund of accumulated ITC to Indian Oil Corporation Limited on bottled Liquid Petroleum Gas.

Key Points of the Judgment:

The petitioner (hereafter ‘IOCL’) has filed the present petition being aggrieved by denial of claims for the refund of accumulated Input Tax Credit (hereafter ‘ITC’). The same was denied to the petitioner on the ground that the rate of tax on input supply and output supply are the same. According to the Revenue, the refund is not permissible in view of Clause (ii) of the proviso to Section 54(3) of the Central Goods and Service Tax Act, 2017 (hereafter ‘the CGST Act’).

The petitioner states that it accumulates unutilized ITC on account of rate of tax on certain inputs being higher than the rate of tax, chargeable on bottled Liquid Petroleum Gas (hereafter ‘LPG’) – the petitioner’s output supply. Thus, according to the petitioner, refund of unutilized ITC is not proscribed in terms of the proviso to Section 54(3) of the CGST Act.

The principal question that arises for consideration is whether in the given facts refund of accumulated ITC is proscribed by virtue of Clause (ii) of the proviso to Section 54(3) of the CGST Act.

The petitioner, is a public sector undertaking and is, inter alia, engaged in the business of bottling and distributing LPG for domestic as well as industrial use.

The bulk LPG used as the principal input, as well as bottled LPG supplied by the petitioner, are chargeable to Goods and Service Tax (hereafter ‘GST’) at the rate of 5% in terms of Entry No.165 and 165A of Schedule I appended to CGST Notification Ref. No.1/2017 – CT (Rate) dated 28.06.2017. However, the petitioner also uses various other items in the production of bottled LPG, which includes accessories required for the purpose of safety. The said items are chargeable to varying rates of GST.

The petitioner applied for refund of accumulated ITC for various tax periods. A summary of the applications filed in Form GST RFD-01 and the period for which the said applications were filed are set out below:

At the outset, it is material to note that in terms of Section 112 of the CGST Act, the petitioner has a remedy of appealing the impugned order before the Appellate Tribunal. However, the petitioner is unable to avail of the said remedy as the Tribunal is not constituted. Thus, we consider it apposite to entertain the present petition.

The Appellate Authority found no fault with the orders passed by the Adjudicating Authority and accordingly upheld the denial of refund of accumulated ITC to the petitioner. The relevant extract of the impugned order is set out below:

“6. The adjudicating authority has rejected the appellant’s all five refund claims on identical ground i.e. by relying on para 3.2 of Circular No.135/5/2020-GST dated 31.03.2020 that the input and the output both are taxable @5% GST and the inverted duty structure is not applicable in the appellant’s case and the other inputs which are taxable @18% GST formed a very minor part of total input utilized / availed by them. In this context, the adjudicating authority has mentioned para 3.2. of Circular No.135/05/2020-GST dated 31.03.2020 in the impugned order, which is reproduced hereunder:

“3.2 It may be noted that refund of accumulated ITC in terms clause (ii) of sub-section (3) of section 54 of the CGST Act is available where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies. It is noteworthy that, the input and output being the same in such cases, though attracting different tax rate at different points in time, do not get covered under the provisions of clause (ii) of subsection (3) of section 54 of the CGST Act. It is hereby clarified that refund of accumulated ITC under clause (ii) of sub-section (3) of section 54 of the CGST Act would not be applicable in cases where the input and the output supplies are the same.”

6.1 In this context, the appellant submitted that the above clarification is not applicable in their case as it is applicable only in the cases where there is accumulation of ITC due to reduction in tax rate by the Government i.e. same goods were procured at different tax rates at two different points of time which resulted in accumulation of ITC to the recipient of such goods.

6.2 On going through the relevant portion of Circular No.135/05/2020-GST dated 31.03.2020, there is force in the submission made by the appellant that the clarification is applicable in those cases where accumulation of ITC was due to reduction in tax rate by the Government yet these clarifications applicable upon them which is evident from the last sentence of para 3.2 of the above Circular which clearly clarifies that refund of accumulated ITC under clause (ii) of subsection (3) of section 54 of the CGST Act would not be applicable in cases where the input and the output supplies are the same. In the appellant’s case, the adjudicating authority observed that the major input used by the appellant in LPG (HSN 2711) which was procured in bulk quantity from refiners and taxable @5% GST. The said LPG is repacked in domestic cylinder and supplied / marketed also @5% GST. Hence, the observations of the adjudicating authority, in this context, are sustainable and the appellant’s submissions are not acceptable.”

No merit found in the said contention. This is because it ignores the rate of tax chargeable on inputs other than LPG, which are admittedly higher than the rate of GST chargeable on the bottled LPG. More importantly, it disregards the fact that the ITC has accumulated on account of the rate on tax on such inputs being higher than the output supply – bottled LPG.

Given the above, the present petition is allowed.

The concerned authority is directed to process the petitioner’s applications for refund along with applicable interest in accordance with law as expeditiously as possible and in any event, within a period of six weeks from date.

The pending application is also disposed of.

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