The Bombay High Court rules that a GST refund cannot be denied due to a rate mismatch between inputs and outputs, granting relief under Section 54(3) post Notification 14/2022.
Meetu Kumari | Apr 28, 2026 |
ITC Refund Claim Allowed; HC Grants Relief in Metro JV Matter
The petitioner, CHEC-TPL Line 4 Joint Venture, was engaged in the execution of the Metro Line 4 (Wadala–Kasarvadavali) project. During its operations, the petitioner incurred GST on inputs, both goods and input services, at rates higher than the GST applicable to its output supply of construction services provided to the government. This mismatch resulted in the accumulation of unutilised Input Tax Credit (ITC), leading the petitioner to file refund claims under Section 54(3) of the CGST Act 2017 on account of an inverted duty structure.
The department rejected the refund claims through the order in the original, and the same was upheld in appeal. The Revenue’s stand was that the rate difference arose due to exemptions or concessional rate notifications and therefore did not qualify as a “genuine” inverted duty structure. Aggrieved, the petitioner approached the High Court challenging both orders.
Main Issue: Whether the refund of unutilised ITC under Section 54(3) can be denied where the accumulation arises from higher input (including services) tax rates post Rule 89(5) amendment.
HC Decided: The High Court allowed the writ petition and quashed the impugned rejection orders. This ruling from the High Court serves as a significant check on the tax department’s tendency to overcomplicate straightforward laws. Essentially, the court told the revenue that it cannot invent “restrictive” hurdles when the law itself is clear. The Bench noted that a 2022 amendment to the GST Rules (Notification No. 14/2022) was specifically designed to handle these exact situations.
It created a clear mechanism for refunds in “inverted duty” cases, including those involving input services. The judges pointed out that the whole point of Section 54(3) is to prevent tax from being “stuck” in a business’s books. Denying a refund just because the rate difference came from a government notification (rather than the nature of the goods) effectively defeats the purpose of the law.
To Read Full Judgment, Download PDF Given Below
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