GST Refund Cannot Be Denied Solely on Circular 135/15/2020, Held Contrary to Section 54(3)(ii): Rajasthan High Court

The petitioner, a manufacturer of mustard oil, palm oil and mustard de-oiled cake, applied on 29.07.2021 for a refund of Rs 19,62,616 of input tax credit accumulated because of an inverted tax structure, for the period starting from March 2021 (para 2). The refund was allowed on 05.08.2021 (para 2). On the Department's appeal, the Appellate Authority's order of 02.04.2024 quashed the refund order, relying on Circular No. 135/15/2020-GST dated 31.03.2020 (paras 1-2). The petitioner pointed out that the Court had held the circular repugnant to Section 54(3)(ii) of the CGST Act in Baker Hughes, decided on 30.06.2022 (para 3). The Department replied that the petitioner was not entitled to the refund even without the circular (para 4).

The Court reproduced the concluding paragraphs of Baker Hughes Asia Pacific Limited v. Union of India (D.B. Civil Writ Petition No. 5714/2021). There, a Division Bench held that the circular of 31.03.2020, being subordinate legislation, is repugnant to Section 54(3)(ii) of the CGST Act and cannot be applied to oust a legitimate claim for refund of accumulated input tax credit; it also noted that the claim before it related to a period before the circular was issued, and directed the refund (para 5). The Bench read that judgment as holding the circular to be in conflict with Section 54(3)(ii), with the earlier period of the claim as a further consideration (para 6). That additional reason, the Court held, does not nullify the fact that the circular had not stood judicial scrutiny (para 7). Since the Appellate Authority had allowed the Department's appeal solely on the basis of the circular, its order was set aside (para 7). The order does not rule on the Department's alternative plea that no refund was due even without the circular (para 4); the appeal goes back to be decided afresh in accordance with law (para 7).