GST: High Court Quashes Refund Rejection Based on Post-Notification Filing Date; Strikes Down Discriminatory Circular

The Gujarat High Court, in a recent ruling, has allowed the petitioner company to avail the accumulated ITC due to inverted tariff structure, which was earlier rejected by the tax authority.

The petitioner company, Kush Proteins, manufactures and trades edible oil, cattle feed, palmolein oil, mustard oil, etc. The raw materials for manufacturing the products attracted a higher rate of tax under the Customs Tariff Act. Therefore, the petitioner has always claimed accumulation of Input Tax Credit (ITC) due to inverted tariff structure. This structure happens when the import tariff on raw materials or inputs is higher than the tariff on the finished products. Section 54(3) of the CGST Act allows the claim of such refund of accumulated ITC.

When the company applied for refund under section 54(3), their refund applications, filed in January 2023 for periods before 18/07/2022, were rejected by the Tax officer in order dated 31.03.2023. The tax authority referred to Notification No. 9/2022 dated 13.07.2022, which stated the products of the petitioner company were not eligible for refund of ITC. However, this notification was applicable from 18.07.2022, and the petitioner had filed an application for the period before 18/07/2022. The company also filed an appeal to challenge this order before the appellate authority, but this appeal was rejected by the authority in an order dated 29.2.2024. Therefore, the company approached the High Court to challenge both orders.

The company argued that the petitioner had filed applications for the refund within 2 years, which is the specified period under Section 54(1) of CGST Act. Additionally, the notification was made applicable from 18.07.2022, and the company was eligible to claim the refund of accumulated ITC for the period up to 17.07.2022. The GST department rejecting such a claim is against the law, and therefore, this order must be quashed.

The High Court of Gujarat observed the decision passed in the Ascent Meditech(Supra), which stated that refund application for periods before 18.07.2022 cannot be denied just because the application was filed after that date. The court also observed that this issue was already decided in the case of Patanjali Foods Ltd. Versus Union Of India & Ors., where the High Court ruled in favour of the petitioner and allowed it to claim the refund.

The order dated 31.3.2023 in the refund application and the order dated 29.2.2024 were illegal and unsustainable, and therefore, both orders were quashed by the High Court.