M/S Indian Oil Corporation Ltd vs The Assistant Commissioner Of Central ... on 20 August, 2024

Here's a summary of the judgment M/S Indian Oil Corporation Ltd vs The Assistant Commissioner Of Central ... on 20 August, 2024, structured as requested:

Judgment Summary: M/S Indian Oil Corporation Ltd vs The Assistant Commissioner Of Central ...

1. Outcome
The Karnataka High Court allowed the Writ Petition, setting aside the impugned Order in Appeal dated 28.02.2024 (which had largely upheld the denial of refund) and the underlying original rejection orders dated 25.01.2022 and 13.04.2022. The Court directed the respondent to process and refund the accumulated Input Tax Credit (ITC) to the petitioner, along with applicable interest, within four weeks from the date of the order.

2. Core Issue
The core issue was whether the petitioner (Indian Oil Corporation Ltd.) was entitled to a refund of accumulated Input Tax Credit (ITC) under an "inverted duty structure" as per Section 54(3)(ii) of the CGST Act, 2017, specifically when the principal input and principal output supplies were the same goods (e.g., bulk LPG and bottled LPG) and attracted the same GST rate, but other essential inputs used in the process attracted higher GST rates. A secondary issue concerned the interpretation and retrospective application of relevant circulars issued by the Central Board of Indirect Taxes and Customs (CBIC).

3. Key Facts
* Petitioner: M/s Indian Oil Corporation Ltd. (IOCL), a Public Sector Undertaking, engaged in storing and supplying various petroleum products, including LPG-Domestic, Bunker Fuel, and Superior Kerosene Oil (SKO)-PDS.
* Output Supplies: LPG-Domestic, Bunker Fuel, SKO-PDS were taxable at 5% GST.
* Input Supplies: Various inputs used in the process, such as Furnace Oil/Bunker Fuel, R&M Materials, Printing and Stationery, SC Valves, Safety Caps, O-rings, and Tamper Evident Seals, were chargeable to GST at 5%, 18%, or 28%.
* Claim for Refund: The petitioner claimed accumulated ITC refund on account of an inverted duty structure for the periods April 2021 and February-September 2018, contending that the GST rates on some inputs were higher than the output supplies, leading to credit accumulation.
* Rejection by Revenue: The Assistant Commissioner initially rejected the refund applications (orders dated 25.01.2022 and 13.04.2022), primarily relying on Para 3.2 of Circular No. 135/05/2020-GST dated 31.03.2020, which stated that refund is not applicable where the input and output supplies are the same.
* Appellate Authority Decision: The Additional Commissioner of GST (Appeals) dismissed the appeal against the 25.01.2022 order entirely and partially allowed the appeal against the 13.04.2022 order for a limited amount (Rs. 72,06,385/-), still denying a significant portion of the refund based on the same interpretation of the Circular.
* Writ Petition: IOCL filed the present writ petition challenging the Appellate Authority's order.

4. Arguments
* Taxpayer (M/s Indian Oil Corporation Ltd.):
* Section 54(3)(ii) of the CGST Act does not prohibit refund merely because the principal input and principal output are the same goods, especially when other inputs used in the supply chain attract higher rates of GST.
* The provision refers to "inputs" (plural), meaning ITC on all inputs must be considered, not just the main one. The "Net ITC" formula under Rule 89(5) of CGST Rules covers ITC availed on all inputs.
* Circular No. 135/05/2020-GST (Para 3.2) was misinterpreted by the Revenue. It was intended for scenarios where ITC accumulated due to a reduction in tax rates on the same goods over time, not general inverted duty structures involving multiple inputs.
* Crucially, Para 3.2 of Circular No. 135/05/2020-GST, which restricted refunds where input and output supplies were the same, was deleted and substituted by Circular No. 173/05/2022-GST dated 06.07.2022.
* The later Circular (No. 173/05/2022-GST) is beneficial and clarificatory in nature and should be applied retrospectively, making the petitioner eligible for the refund.
* The statutory provision (Section 54(3)(ii)) is unambiguous and does not create an exception for cases where input and output goods are the same.
* The petitioner is also entitled to consequential interest on the delayed refund as per Section 56 of the CGST Act.
* Cited numerous High Court and Supreme Court judgments supporting these contentions, including the Delhi High Court's decision in the petitioner's own identical case.

• Revenue (The Assistant Commissioner of Central Tax):
  • The Revenue's argument was primarily based on the interpretation of Circular No. 135/05/2020-GST, contending that refund was not admissible because the principal input (bulk LPG) and principal output (bottled LPG) were the same product and attracted the same GST rate of 5%.
  • They maintained that this situation did not qualify as an "inverted duty structure" as defined by the circular and Section 54(3)(ii). (As noted by the Court, the Revenue's argument became weak in light of the Delhi HC judgment and the subsequent circular.)

5. Court’s Reasoning
* Interpretation of Circulars: The Court found that the initial reliance by the Revenue on Para 3.2 of Circular No. 135/05/2020-GST was erroneous. This circular was primarily intended to clarify situations where ITC accumulated due to a reduction in GST rates on the same goods over different points in time, not to restrict refunds in a general inverted duty structure where various inputs bear higher tax than the output.
* Effect of Substitution: The Court emphasized that Para 3.2 of Circular No. 135/05/2020-GST was subsequently substituted by Circular No. 173/05/2022-GST dated 06.07.2022, which deleted the restriction on refund of accumulated credit where input and output supplies are the same.
* Retrospective Application: Applying established Supreme Court precedents (Suchitra Components Ltd vs CCE, Guntur; K.P. Varghese Vs Income Tax Officers), the Court held that Circular No. 173/05/2022-GST, being beneficial and clarificatory, must be applied retrospectively. Therefore, the petitioner was eligible for the refund even when input and output were the same.
* Interpretation of Section 54(3)(ii): The Court affirmed that Section 54(3)(ii) of the CGST Act is unambiguous and does not contain any exception prohibiting ITC refund in an inverted duty structure merely because the input and output goods are the same. It does not mandate comparing only the principal input with the principal output. The term "inputs" in the plural in the statutory provision implies consideration of all inputs.
* Reliance on Precedent (IOCL Delhi HC): The Court heavily relied on the Delhi High Court's decision in Indian Oil Corporation Ltd. vs. Commissioner of CGST (2023), which involved identical facts and the same petitioner. The Delhi High Court had already held that CBIC circulars issued under Section 168(1) cannot curtail or override the express provisions of the CGST Act. It also stated that disregarding the rates of tax on other inputs (beyond the principal one) for determining inverted duty structure is impermissible.
* Consistency with other High Courts: The Karnataka High Court noted that several other High Courts (Rajasthan, Calcutta, Gauhati, Kerala, Madras) have taken a similar stance, rejecting the Revenue's interpretation and allowing refunds in comparable situations.
* Interest on Refund: The Court held that interest under Section 56 of the CGST Act is automatically payable from the end of 60 days from the date of the refund application, given the wrongful denial of refund.

6. Statutory References
* Articles 226 and 227 of the Constitution of India
* Central Goods and Services Tax Act, 2017:
* Section 54 (Refund of tax), specifically sub-section (3) proviso (ii)
* Section 56 (Interest on delayed refunds)
* Section 168(1) (Power to issue instructions or directions)
* Section 49(6), 55, 33, 57, 77, 27(2), 39, 112
* Central Goods and Services Tax Rules:
* Rule 89(5) (Formula for refund of accumulated ITC)
* United Nations (Privileges and Immunities) Act, 1947

7. Precedents Cited
* By the Petitioner (and affirmed by the Court):
* Indian Oil Corporation Ltd. vs. Commissioner of CGST - 2023(13) Centax 228 (Del)
* Suchitra Components Ltd vs CCE, Guntur - 2006(12) SCC 452 (SC)
* K.P. Varghese Vs Income Tax Officers - (1981) 131 ITR 597 (SC)
* Baker Hughes Asia Pacific Ltd vs UOI - 2022 (140) Taxmann.com 326 (Raj)
* Shivaco Associates vs Joint Commissioner of State Tax, Directorate of Commercial Taxes - 2022 (59) GSTL 389 (Cal)
* BMG Informatics (P) Ltd vs UOI - 2021 (130) Taxmann.com 182 (Gau)
* Malabar Fuel Corporation vs ACCT & CE - 2024 (15) Centax 153 (Ker)
* MO Industries vs UOI - 2024-TIOL 1245 HC RAJ GST
* Eveready Spinning Mills P Ltd vs ACCT - 2024 TIOL 1207 HC MAD GST
* Ranbaxy Laboratories Ltd vs UOI - 2012 (27) STR 193 (SC)
* Raghav Ventures vs Commissioner of Delhi GST - 2024 (16) Cen 69 (Del)
* Panaji Engineering P Ltd vs UOI - 2023 (9) Cen 419 (Guj)
* By the Court (in Delhi HC judgment cited):
* Union of India and Ors. v. VKC Footsteps India Pvt. Ltd. - (2022) 2 SCC 603 (SC)
* Commissioner of Income Tax-I, Mumbai v. Hindustan Petroleum Corporation Ltd. - (2017) 15 SCC 254 (SC)
* Circulars:
* Circular No. 135/05/2020-GST dated 31.03.2020 (initial circular relied upon by Revenue)
* Circular No. 173/05/2022-GST dated 06.07.2022 (substituted Para 3.2 of the previous circular)
* Circular No. 125/44/2019-GST dated 18.11.2019 (Para 54 cited for "Net ITC")
* CGST Notification Ref. No.1/2017 - CT (Rate) dated 28.06.2017 (Entry No.165 and 165A of Schedule I)