M/S INDIAN OIL CORPORATION LTD vs. THE ASSISTANT COMMISSIONER OF CENTRAL TAX,

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IN THE HIGH COURT OF KARNATAKA AT BENGALURU

TH
DATED THIS THE 20 DAY OF AUGUST, 2024

R

BEFORE

THE HON'BLE MR JUSTICE S.R.KRISHNA KUMAR

WRIT PETITION NO.14414 OF 2024 (T-RES)

BETWEEN:

M/S INDIAN OIL CORPORATION LTD.,
NO.29, INDIAN OIL BHAVAN,
P. KALINGA RAO ROAD,
MISSION ROAD, BENGALURU URBAN,
KARNATAKA – 560 027.
(REPRESENTED BY SHRI. MANOHARAN POTHERI,
GENERAL MANAGER (FINANCE),
KARNATAKA STATE OFFICE,
AGED ABOUT 53 YEARS,
S/O SHRI APPU P OHM)
…PETITIONER

(BY SRI. V RAGHU RAMAN, SENIOR COUNSEL A/W
SRI. RAGHAVENDRA C.R., ADVOCATE)

AND:

THE ASSISTANT COMMISSIONER OF CENTRAL TAX,
SOUTH DIVISION – 1, BENGALURU.
GST SOUTH COMMISSIONERATE.

…RESPONDENT

(BY SRI. JEEVAN J. NEERALGI, ADVOCATE)

THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND
227 OF THE CONSTITUTION OF INDIA, PRAYING TO QUASH THE
IMPUGNED ORDER IN APPEAL BEARING NO.100-101/2024/ADC-
AI/GST ISSUED BY ADDITIONAL COMMISSIONER OF GST,
APPEALS-I, BENGALURU DATED 28.02.2024, ENCLOSED AS
ANNEXURE – A FOR THE REASONS STATED IN THE GROUNDS.

THIS WRIT PETITION, COMING ON FOR ORDERS THIS DAY,
ORDER WAS MADE THEREIN AS UNDER:













Digitally signed
by
LEELAVATHI S
R
Location: HIGH
COURT OF
KARNATAKA


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CORAM: HON'BLE MR JUSTICE S.R.KRISHNA KUMAR

ORAL ORDER

In this petition, petitioner seeks for the following reliefs:-
“ (A) Issue a writ of certiorari or any other writ or
direction or order to quash impugned Order in Appeal
bearing No.100-101/2024/ADC-A1/GST issued by Additional
Commissioner of GST, Appeals-I, Bengaluru dated:
28.02.2024, enclosed as Annexure-A for the reasons state in
the grounds.
AND
(B) Grant such other consequential reliefs as this
Honourable High Court may think fit including refund of
amounts paid, if any and the cost of this writ petition.”

2. Briefly stated, the facts giving rise to the present petition
are as under:
The petitioner - M/s Indian Oil Corporation Ltd., is a Public
Sector Undertaking engaged in storage and supply of various
petroleum products like petrol, diesel, LPG-Domestic and LPG
(Non-Domestic), Furnace Oil, Lubes, Superior Kerosene Oil (SKO)
- PDS and petrochemicals. Petitioner maintains terminals/depots
for SKO, Bunker fuel and bottling plants for LPG products from
where it is stored and then supplied to respective customers. It is
stated that LPG consists of various hydrocarbons such as Butane

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and Propane, which are imported. LPG is transported in bulk
through road and pipelines to the petitioner's bottling plant. It is
unloaded and bottled in cylinders. The cylinders are thereafter
sealed and safety valves are fixed. The said cylinders are then
distributed to customers.
2.1 It is contended that the goods supplied by the petitioner
attract multiple rates of GST. It supplies LPG-Domestic, Bunker
Fuel (Furnace Oil), Superior Kerosene Oil (SKO)-PDS which attract
GST @ 5% and LPG Non-Domestic, Auto LPG, Lubricants,
Petrochemicals etc. which are chargeable to GST @ 18%. In
supplying the products that attract GST @ 5%, certain inputs are
used which attract GST @ 5% or more, as tabulated below:

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2.2 It is contended that as per the aforesaid table, the
outward supplies of goods are taxable at 5%, whereas inputs are
chargeable to GST @ 5%, 18% and 28% and therefore, resulting in
accumulated credit on account of inverted duty structure and
accordingly, in terms of Section 54(3)(ii) of CGST Act, 2017,
petitioner was entitled for refund of accumulated ITC on account of
inverted duty structure on supply of LPG-Domestic, Bunker Fuel,
Superior Kerosene Oil (SKO)-PDS from the respondent.
2.3 The petitioner filed applications dated 26.11.2021 and
14.02.2022 for the periods April 2021 and February-September
2018 respectively in Forms GST RFD-01 for refund of accumulated
ITC on account of inverted duty structure on supply of LPG-
Domestic, Bunker Fuel, Superior Kerosene Oil (SKO)-PDS. In
st
pursuance of the said refund applications, 1 respondent issued
show cause notices dated 08.01.2022 and 23.03.2022, to which
the petitioner submitted replies dated 22.01.2022 and 06.04.2022
respectively which ultimately culminated in Orders dated
25.01.2022 and 13.04.2022 rejecting the refund applications on the
ground that in respect of PDS kerosene and LPG domestic,
refunds could not be granted as GST rates on at least one item on
the inputs and output /outward supplies was the same by placing

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reliance upon the Circular No. 135/05/2020-GST dated 31.03.2022
issued by the respondent.
2.4 Aggrieved by the said orders dated 25.01.2022 and
13.04.2022, petitioner filed 2 appeals which were disposed by the
impugned order dated 28.02.2024, under which the appeal filed by
the petitioner challenging the order dated 25.01.2022 was
dismissed, while the appeal challenging the order dated
13.04.2022 was allowed only to an extent of Rs.72,06,385/-.
Aggrieved by the impugned order passed by the respondent-
appellate authority, petitioner is before this Court by way of the
present petitions.

3. Heard learned Senior counsel for the petitioner and
learned counsel for the respondent-revenue and perused the
material on record.

4. In addition to reiterating the various contentions urged in
the petition and referring to the material on record, learned Senior
counsel for the petitioner would elaborate his submissions as
under;
•
Section 54(3)(ii) of the CGST Act does not proscribe/forbid the
grant of refund where the input and the output are the same. It

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is submitted that clause (ii) of proviso to sub-section (3) of
Section 54 of the CGST Act does not contemplate comparing
rate of tax on the principal input with the rate of tax chargeable
on the principal output supply. There is neither any reason nor
any scope to further confine the refund of unutilised ITC only to
the cases where the rate on main input is higher than the rate
of tax on the principal output as held by the Delhi High Court in
the petitioner’s own case in Indian Oil Corporation Ltd., vs.
Commissioner of CGST - 2023(13) Centax 228 (Del) .
•
It is submitted that where there are multiple inputs attracting
different rates of tax as per the formula provided in Rule 89(5)
of the CGST Rules, the expression/term “Net ITC” covers the
ITC availed on all inputs in the relevant period, irrespective of
their rate of tax and in this regard, learned Senior counsel
placed reliance upon paragraph-54 of the Circular bearing
No.125/44/2019-GST dated 18.11.2019 issued by the
respondent.
•
It is submitted that the respondent has erroneously placed
reliance upon Para 3.2 of Circular No. 135/05/2020-GST dated
31.03.2020 though the same has no application in the present
case as the said Circular applies only to scenarios/situations

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where the ITC is accumulated on account of different rates
being applicable at different points of time and merely seeks to
address an issue where the ITC is accumulated on account of
different rates being applicable at different points of time as
held by the Delhi High Court in the petitioner’s own case in
Indian Oil Corporation’s case supra and the impugned orders
deserve to be quashed on this ground alone.
•
It is submitted that Para 3.2 of the aforesaid Circular dated
31.03.2020 was substituted by subsequent Circular
No.173/05/2022-GST dated 06.07.2022, by virtue of which the
restriction that refund of accumulated credit on account of
inverted duty structure, in case where input and output supplies
are the same has been deleted and consequently, the petitioner
is eligible to claim refund of inverted duty structure, even when
input and output are same.
•
It is submitted that substitution of Para 3.2 of the aforesaid
Circular dated 31.03.2020 by subsequent Circular
No.173/05/2022-GST dated 06.07.2022 being beneficial in
nature, the same has to be applied retrospectively and the
Circular dated 06.07.2022 is clarificatory in nature and is
binding on the Department as held by the Apex Court in the

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case of Suchitra Components Ltd vs CCE, Guntur -
2006(12) SCC 452 and K.P. Varghese Vs Income Tax
Officers - (1981) 131 ITR 597 (SC).
•
It is submitted that Section 54(3)(ii) of the CGST Act is
absolutely unambiguous and does not carve out any exception
that Input Tax Credit under the Inverted Tax Structure would not
be applicable where the input and the output goods are the
same and the impugned orders deserve to quashed and the
respondent be directed to grant refund in favour of the
petitioner on this ground also.
•
It is submitted that the petitioner would be entitled to
consequential interest on refund in terms of Section 56 of
CGST Act, 2017 in that payment of interest under Section 56 of
the CGST Act being statutory in nature is automatically payable
in favour of the petitioner in case refund is not made within 60
days from the date of receipt of application.
4.1 In support of his submissions, learned Senior counsel
placed reliance upon the following decisions:
i) Indian Oil Corporation Ltd vs Commissioner
of CGST - 2023(13) Centax 228 (Del);
ii) Suchitra Components Ltd vs CCE, Guntur
2006(12) SCC 452;

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iii) K.P. Varghese Vs Income Tax Officers (1981)
131 ITR 597 (SC);
iv) Baker Hughes Asia Pacific Ltd vs UOI 2022
(140) Taxmann.com 326 (Raj);
v) Shivaco Associates vs Joint Commissioner
of State Tax, Directorate of Commercial Taxes 2022
(59) GSTL 389 (Cal)(Para 16,17,26);
vi) BMG Informatics (P) Ltd vs UOI 2021 (130)
Taxmann.com 182 (Gau);
vii) Malabar Fuel Corporation vs ACCT & CE
2024 (15) Centax 153 (Ker);
viii) MO Industries vs UOI 2024-TIOL 1245 HC
RAJ GST ;
ix) Eveready Spinning Mills P Ltd vs ACCT
2024 TIOL 1207 HC MAD GST;
x) Ranbaxy Laboratories Ltd vs UOI 2012 (27)
STR 193 (SC);
xi) Raghav Ventures vs Commissioner of Delhi
GST 2024 (16) Cen 69 (Del);
xii) Panaji Engineering P Ltd vs UOI 2023 (9)
Cen 419 (Guj).

5. Per contra, learned counsel for the respondent would
submit that there is no merit in the petition and that the same is
liable to be dismissed.

6. Before adverting to the rival contentions, it would be
necessary to reproduce Section 54 of the CGST Act, which reads
as under;

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“ 54. Refund of tax.
(1) Any person claiming refund of any tax and interest, if
any, paid on such tax or any other amount paid by him, may
make an application before the expiry of two years from the
relevant date in such form and manner as may be prescribed:
Provided that a registered person, claiming refund of
any balance in the electronic cash ledger in accordance with
the provisions of sub-section (6) of section 49, may claim
1
such refund in [such form and] manner as may be
prescribed.
(2) A specialised agency of the United Nations
Organisation or any Multilateral Financial Institution and
Organisation notified under the United Nations (Privileges and
Immunities) Act, 1947, (46 of 1947), Consulate or Embassy of
foreign countries or any other person or class of persons, as
notified under section 55, entitled to a refund of tax paid by it
on inward supplies of goods or services or both, may make an
application for such refund, in such form and manner as may
1
be prescribed, before the expiry of [two years] from the last
day of the quarter in which such supply was received.
(3) Subject to the provisions of sub-section (10), a
registered person may claim refund of any unutilised input tax
credit at the end of any tax period:
Provided that no refund of unutilised input tax credit
shall be allowed in cases other than––
(i) zero rated supplies made without payment of tax;
(ii) where the credit has accumulated on account of rate
of tax on inputs being higher than the rate of tax on output
supplies (other than nil rated or fully exempt supplies), except

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supplies of goods or services or both as may be notified by
the Government on the recommendations of the Council:
Provided further that no refund of unutilised input tax
credit shall be allowed in cases where the goods exported out
of India are subjected to export duty:
Provided also that no refund of input tax credit shall be
allowed, if the supplier of goods or services or both avails of
drawback in respect of central tax or claims refund of the
integrated tax paid on such supplies.
(4) The application shall be accompanied by—
(a) such documentary evidence as may be prescribed to
establish that a refund is due to the applicant; and
(b) such documentary or other evidence (including the
documents referred to in section 33) as the applicant may
furnish to establish that the amount of tax and interest, if any,
paid on such tax or any other amount paid in relation to which
such refund is claimed was collected from, or paid by, him
and the incidence of such tax and interest had not been
passed on to any other person:

Provided that where the amount claimed as refund is
less than two lakh rupees, it shall not be necessary for the
applicant to furnish any documentary and other evidences but
he may file a declaration, based on the documentary or other
evidences available with him, certifying that the incidence of
such tax and interest had not been passed on to any other
person.
(5) If, on receipt of any such application, the proper
officer is satisfied that the whole or part of the amount claimed
as refund is refundable, he may make an order accordingly

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(11) Where an order giving rise to a refund is the
subject matter of an appeal or further proceedings or where
any other proceedings under this Act is pending and the
Commissioner is of the opinion that grant of such refund is
likely to adversely affect the revenue in the said appeal or
other proceedings on account of malfeasance or fraud
committed, he may, after giving the taxable person an
opportunity of being heard, withhold the refund till such time
as he may determine.
(12) Where a refund is withheld under sub-section (11),
the taxable person shall, notwithstanding anything contained
in section 56, be entitled to interest at such rate not exceeding
six per cent. as may be notified on the recommendations of
the Council, if as a result of the appeal or further proceedings
he becomes entitled to refund.
(13) Notwithstanding anything to the contrary contained
in this section, the amount of advance tax deposited by a
casual taxable person or a non-resident taxable person under
sub-section (2) of section 27, shall not be refunded unless
such person has, in respect of the entire period for which the
certificate of registration granted to him had remained in
force, furnished all the returns required under section 39.
(14) Notwithstanding anything contained in this section,
no refund under sub-section (5) or sub-section (6) shall be
paid to an applicant, if the amount is less than one thousand
rupees.
Explanation. —For the purposes of this section,––
(1) “refund” includes refund of tax paid on zero-rated
supplies of goods or services or both or on inputs or input
services used in making such zero-rated supplies, or refund

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of tax on the supply of goods regarded as deemed exports, or
refund of unutilised input tax credit as provided under sub-
section (3).
(2) “relevant date” means—
(a) in the case of goods exported out of India where a
refund of tax paid is available in respect of goods themselves
or, as the case may be, the inputs or input services used in
such goods,––
(i) if the goods are exported by sea or air, the date on
which the ship or the aircraft in which such goods are loaded,
leaves India; or
(ii) if the goods are exported by land, the date on which
such goods pass the frontier; or
(iii) if the goods are exported by post, the date of des
patch of goods by the Post Office concerned to a place
outside India;
(b) in the case of supply of goods regarded as deemed
exports where a refund of tax paid is available in respect of
the goods, the date on which the return relating to such
deemed exports is furnished;
[(ba) in case of zero-rated supply of goods or services
or both to a Special Economic Zone developer or a Special
Economic Zone unit where a refund of tax paid is available in
respect of such supplies themselves, or as the case may be,
the inputs or input services used in such supplies, the due
date for furnishing of return under section 39 in respect of
such supplies;]
(c) in the case of services exported out of India where a
refund of tax paid is available in respect of services

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themselves or, as the case may be, the inputs or input
services used in such services, the date of––
(i) receipt of payment in convertible foreign
exchange “or in Indian rupees wherever permitted by the
Reserve Bank of India”, where the supply of services had
been completed prior to the receipt of such payment; or
(ii) issue of invoice, where payment for the services
had been received in advance prior to the date of issue of the
invoice;
(d) in case where the tax becomes refundable as a
consequence of judgment, decree, order or direction of the
Appellate Authority, Appellate Tribunal or any court, the date
of communication of such judgment, decree, order or
direction;
“(e) in the case of refund of un utilized input tax credit
under clause (ii) of the first proviso to sub-section (3), the due
date for furnishing of return under section 39 for the period in
which such claim for refund arises;”
(f) in the case where tax is paid provisionally under this
Act or the rules made thereunder, the date of adjustment of
tax after the final assessment thereof;
(g) in the case of a person, other than the supplier, the
date of receipt of goods or services or both by such person;
and
(h) in any other case, the date of payment of tax.”

7. Para 3.2 of Circular No.135/05/2020-GST dated
31.03.2020 is reproduced as under:

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3.2 Iit may be noted that refund of accumulated ITC in
terms clause (ii) of sub-section (3) of section54 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 rates at different points in time, do not get
covered under the provisions of clause (ii) of sub-section
(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.”] – deleted vide Circular No.
173/05/2022-GST dated 06-07-2022.

8 Para 3.2 stands substituted vide Circular No.173/05/2022-
GST dated 06.07.2022 as under:
3.2 It may be noted that refund of accumulated ITC in
terms of clause (ii) of first proviso to 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 rates at
different points in time, do not get covered under the
provisions of clause (ii) of the first proviso to sub-section
(3) of section 54 of the CGST Act. […….deleted….]

3.3 There may however, be cases where though inputs
and output goods are same but the output supplies are

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made under a concessional notification due to which the
rate of tax on output supplies is less than the rate of tax
on inputs. In such cases, as the rate of tax of output
supply is less than the rate of tax on inputs at the same
point of time due to supply of goods by the supplier under
such concessional notification, the credit accumulated on
account of the same is admissible for refund under the
provisions of clause(ii) of the first proviso to sub-section
(3) of section 54 of the CGST Act, other than the cases
where output supply is either Nil rated or fully exempted,
and also provided that supply of such goods or services
are not notified by the Government for their exclusion from
refund of accumulated ITC under the said clause.”

9. As rightly contended by the learned Senior counsel for
petitioner, the Circular No.135/05/2020-GST dated 31.03.2020 was
issued with two restrictions viz., the input and output being the
same in such cases, though attracting different tax rates at different
points in time, would not be covered under 54(3)(ii) of CGST Act,
2017 and accumulated ITC under Section 54(3)(ii) of the CGST Act
would not be applicable in cases where the input and the output
supplies are the same. However, by way of substitution vide
Circular No. 173/05/2022-GST dated 06-07-2022, the restriction
that refund of accumulated credit on account of inverted duty
structure, in case where input and output supplies are the same
has been deleted. It is therefore clear that the petitioner is eligible

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to claim refund of inverted duty structure, even when input and
output are same and consequently, the impugned orders passed by
the respondent refusing to grant refund in favour of the petitioner
deserves to be set aside and directions are to be issued to the
respondent to grant refund in favour of the petitioner.

10. It is also significant to note that substitution of Para 3.2
of the aforesaid Circular dated 31.03.2020 by subsequent Circular
No.173/05/2022-GST dated 06.07.2022 being beneficial in nature,
the same has to be applied retrospectively and the Circular dated
06.07.2022 is clarificatory in nature and is binding on the
Department as held by the Apex Court in the cases of Suchitra
Components Ltd vs CCE, Guntur - 2006(12) SCC 452 and K.P.
Varghese Vs Income Tax Officers - (1981) 131 ITR 597 (SC) and
consequently, the petitioner would be entitled to refund on this
ground also.

11. Learned Senior counsel is also correct in his submission
that Section 54(3)(ii) of the CGST Act is absolutely unambiguous
and does not carve out any exception that Input Tax Credit under
the Inverted Tax Structure would not be applicable where the input
and the output goods are the same and the impugned orders

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deserve to quashed and the respondent is to be directed to grant
refund in favour of the petitioner on this ground also.

12. It is also seen that where there are multiple inputs
attracting different rates of tax, as per the formula provided in Rule
89(5) of the CGST Rules, the expression/term “Net ITC” covers the
ITC availed on all inputs in the relevant period, irrespective of their
rate of tax as per paragraph-54 of the Circular bearing
No.125/44/2019-GST dated 18.11.2019 issued by the respondent
and the claim of the petitioner deserves to be upheld on this ground
also.

13. Under identical circumstances in relation to the
petitioner’s own case, the Delhi High Court in the case of Indian
Oil Corporation Ltd vs Commissioner of CGST - 2023(13)
Centax 228 (Del), held as under:-
“ 1. 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 & Service Tax Act, 2017 (hereafter 'the CGST
Act').

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2. 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.
QUESTION TO BE ADDRESSED
3. 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.
BRIEF FACTS
4. 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.
5. The principal source of LPG is oil refineries
processing crude oil. LPG vapour is produced in the oil
refineries during the refining process. It is stated that LPG
consists of various hydrocarbons such as propylene, butane
and butylene. The said hydrocarbons are liquefied on
compression. LPG is transported in bulk through road and
rail to the petitioner's bottling plant. It is unloaded and
compressed into liquid form and the same is refilled and
bottled in cylinders. The cylinders are thereafter sealed and
safety valves are fixed. The said cylinders are then
distributed to customers.
6. Once the seals of the cylinder are opened, the LPG
returns to the gaseous state, which is used by the end
consumers. The Supreme Court had considered the said

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process in Commissioner of Income Tax-I, Mumbai v.
Hindustan Petroleum Corporation Ltd.1 in the context of
whether the same amounts to manufacture or production for
the purpose of Section 80-HH, 80-I and 80-IA of the Income
Tax Act, 1961. The Court concluded that the LPG produced
at the oil refineries is not in a state which can be supplied
directly to the consumers for domestic use. LPG bottling is a
highly technical and complex activity, which requires precise
functions of machines operated by technical experts. And,
bottling LPG in cylinders effectively renders the product
marketable for domestic use. In view of the aforesaid
findings, the Supreme Court held that the same amounts to
production.
7. The petitioner has two bottling plants in Delhi for
supply of LPG. One is located at Tikri Kalan and the other at
Madanpur Khadar.
8. 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 (2017)
15 SCC 254 accessories required for the purpose of safety.
The said items are chargeable to varying rates of GST.
9. 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:

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10. The said applications were acknowledged but the
same were not processed. The concerned officer issued
show cause notices (in Form GST RFD-08) pursuant to the
respective refund applications filed by the petitioner. The
petitioner responded to the said show causes notices.
However, the petitioner's claims were not accepted. The
Adjudicating Authority rejected the applications filed by the
petitioner for various tax periods by respective Orders-in-
Original. A tabular statement indicating the details of the
Orders-in-Original (five in number) denying refund for the
respective tax-periods is set out below:

11. The petitioner filed separate appeals against the
respective Orders-in-Original passed by the Adjudicating

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Authority before the Appellate Authority. However, the said
appeals were rejected by a common Order-in-Appeal No.19-
23/2023-24 dated 21.04.2023 (hereafter the 'impugned
order') which is assailed in the present petition.
REASONS AND CONCLUSION
12. 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.
13. A perusal of the Orders-in-Original indicates that
the petitioner's claim for refund was denied on the ground
that the bulk LPG as well as bottled LPG is the same product
chargeable to GST at the rate of 5%. The Adjudicating
Authority held that in the circumstances, the petitioner's case
is not one of inverted duty structure and therefore, the refund
is proscribed in terms of Clause (ii) to Section 54(3) of the
CGST Act. The Adjudicating Authority referred to the Circular
No.135/5/2020-GST dated 31.03.2020 (hereafter also
referred to as 'Circular No.135/5/2020') and noted that in
terms of Clause (ii) of the proviso to Section 54(3) of the
CGST Act, the refund of ITC is impermissible in cases where
input and output supplies are the same.
14. 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:

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"6. I find that 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 sub- section (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, I find that though,
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 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.

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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."
15. It is apparent from the above that the Appellate
Authority had accepted that Circular No.135/05/2020 was
applicable in cases where accumulation of ITC was due to
reduction in tax. Nonetheless, the Appellate Authority was of
the view that the petitioner was not entitled to refund by
virtue of the last sentence of paragraph 3.2 of the Circular
135/5/2020, which provided that provisions of Clause (ii) of
Sub- section (3) of Section 54 was inapplicable, where input
and output supplies are the same.
16. Before proceedings to examine the import of
Circular No.135/05/2020 issued by the Central Board of
Indirect Taxes and Customs (CBIC), it is important to note
that the said Circular was in exercise of powers
under Section 168(1) of the CGST Act. This is expressly
stated in the opening paragraph of the said Circular. It is thus
relevant to refer to Sub-section (1) of Section 168 of the
CGST Act, which reads as under:
"168(1) The Board may, if it considers it necessary or
expedient so to do for the purpose of uniformity in the
implementation of this Act, issue such orders, instructions or
directions to the central tax officers as it may deem fit, and
thereupon all such officers and all other persons employed in
the implementation of this Act shall observe and follow such
orders, instructions or directions."

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17. It is apparent from the plain reading of Sub-section
(1) of Section 168 of the GST Act that CBIC can issue such
orders, instructions, or directions only if it considers it
necessary and expedient to do for the purpose of uniformity
in implementation of the CGST Act. Plainly, CBIC has no
power to issue circulars in derogation of the provisions of
the CGST Act. CBIC can neither add to the provisions of
the CGST Act nor curtail the import of any part of the
enactment. Section 168(1) of the CGST Act confines the
powers of CBIC to issue circulars for uniformly implementing
the provisions of the CGST Act. It can do nothing further.
Plainly, if the IOCL is entitled to refund in terms of Section
54(1) of the CGST Act, the same cannot be denied by virtue
of any circular issued under Section 168(1) of the CGST Act.
18. The question whether IOCL's claim for refund for
accumulated unutilised ITC is admissible, has to be
determined with reference to the express provisions
of Section 54 of the CGST Act. In terms of Section 54(1) of
the CGST Act, any person claiming refund of tax and interest
paid on such tax or any amount paid by him, is entitled to
make an application for refund before expiry of two years
from the relevant date, which is defined under Explanation
(2) to Section 54 of the CGST Act. Sub-section (3) of Section
54 of the CGST Act provides that subject to provisions of
Sub-section (10) of Section 54 of the CGST Act, a person
may claim refund of unutilised ITC at the end of any tax
period. However, the proviso to Sub-section (3) to Section
54 of the CGST Act restricts the entitlement to refund of
unutilised ITC. It expressly provides that no refund of
unutilised ITC would be allowed except in cases covered

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under Clauses (i) and (ii) of the proviso to Section 54(3) of
the CGST Act. Under Clause (i) of the proviso to Section
54(3) of the CGST Act, refund of ITC is available in cases of
zero rated supplies made without payment of tax. In terms of
Clause (ii) of the proviso to Section 54(3) of the CGST Act,
refund is admissible, where the credit is accumulated on
account of rate of tax on inputs being higher than the rate of
tax of output supplies. Sub-section (3) of Section 54 of the
CGST Act is set out below:
"Section 54. Refund of tax.-
(3) Subject to the provisions of sub-section (10), a
registered person may claim refund of any unutilised input
tax credit at the end of any tax period:
Provided that no refund of unutilised input tax credit
shall be allowed in cases other than-
(i) zero rated supplies made without payment of tax;
(ii) where the credit has accumulated on account of
rate of tax on inputs being higher than the rate of tax on
output supplies (other than nil rated or fully exempt supplies),
except supplies of goods or services or both as may be
notified by the Government on the recommendations of the
Council:
Provided further that no refund of unutilised input tax
credit shall be allowed in cases where the goods exported
out of India are subjected to export duty:
Provided also that no refund of input tax credit shall be
allowed, if the supplier of goods or services or both avails of

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drawback in respect of central tax or claims refund of the
integrated tax paid on such supplies."
19. The Supreme Court had considered the proviso to
sub-section (3) to Section 54 in Union of India and Ors. v.
VKC Footsteps India Pvt. Ltd.2 and had authoritatively held
that the refund of unutilised ITC was confined to two
categories as spelt out in Clauses (i) and (ii) of the proviso to
Sub-section (3) of Section 54 of the CGST Act. The relevant
extract of the said decision is set out below:
"98. Sub-Section (3) of Section 54 begins, in its main
part, with the stipulation that a registered person may claim
refund of any 'unutilised ITC at the end of any tax period'.
Whether we construe the first proviso as an exception or in
the nature of a fresh enactment, the clear intent of
Parliament was to confine the grant of refund to the two
categories spelt out in clauses (i) and (ii) of the first proviso.
That clauses (i) and (ii) are the only two situations in which a
refund can be granted is evident from the opening words of
the first proviso which stipulates that "no refund of unutilised
input tax credit shall be allowed in cases other than". What
follows is clauses (i) and (ii). The (2022) 2 SCC 603 intent of
Parliament is evident by the use of a double - negative
format by employing the expression "no refund" as well as
the expression "in cases other than." In other words, a refund
is contemplated in the situations provided in clauses (i) and
(ii) and no other. To put it differently, the first proviso can be
recast, without altering its meaning to read that a refund of
unutilised ITC shall be allowed only in the cases governed by
clauses (i) and (ii). ..."
20. The petitioner's claim for refund is founded on
Clause (ii) of the proviso to Section 54(3) of the CGST Act.
According to the petitioner, the rate of tax on certain inputs is
higher than the tax paid on outputs (bottled LPG).
Resultantly, the petitioner has been unable to fully utilise the
ITC on its inputs.

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21. There is no controversy or dispute that the
petitioner uses various items in production of bottled LPG,
which include accessories required for the purposes of
safety. Undisputedly, the items and accessories as specified
are essential for production of the bottled LPG and making it
suitable for retailing. The said items are chargeable to
varying rates of GST. A tabular statement setting out the
input supplies, their classification, and the rate of tax
chargeable on such supplies as set out in petition, is
reproduced below

22. It is material to note that Clause (ii) of proviso to
sub-section (3) of Section 54 of the CGST Act is applicable
only where ITC has accumulated on account of "rate of tax
on inputs being higher than the rate of tax on output

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supplies". The use of the word 'inputs' in plural clearly
indicates that the refund of accumulated ITC is not confined
to ITC accumulated on a singular input. Thus, there may be
multiple inputs that may be used or consumed for effecting
the output supplies. The use of the words 'output supplies'
also indicates that the taxpayer's output supply may not be
singular. In such circumstances, it would be necessary to
determine whether the accumulation of any unutilised ITC is
on account of the rate of tax on inputs exceeding the rate of
tax on the output or for any other reason. In case where the
accumulation of ITC is attributable solely to the rate of tax on
inputs exceeding the rate of tax on output supplies, the
taxpayer's claim for refund on accumulated unutilised ITC
will squarely fall under Clause (ii) of proviso to sub- section
(3) of Section 54 of the CGST Act.
23. It is important to note that Clause (ii) of Section
54(3) of the CGST Act does not proscribe the grant of refund
where the input and the output are the same. Clause (ii) of
proviso to sub-section (3) of Section 54 of the CGST Act
merely restricts the refund of unutilised ITC to cases where
there is accumulation of unutilised ITC on account of rate of
tax on inputs being higher than the rate of tax on the output
supplies.
24. Clause (ii) of proviso to sub-section (3) of Section
54 of the CGST Act does not contemplate comparing rate of
tax on the principal input with the rate of tax chargeable on
the principal output supply. There is neither any reason nor
any scope to further confine the refund of unutilised ITC only

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to cases where the rate on main input is higher than the rate
of tax on the principal output.
25. It is necessary to bear in mind that one of the
principal objects of enacting the CGST Act was to address
the cascading effect of taxes as the taxes levied by the
Central Government and State Governments were not
available for being set off for payment of other taxes. It is
clear that the legislative intent behind grant of refund of
unutilised ITC that has accumulated on account of inverted
tax structure is to confine the tax to the tax on the output
supplies at the rate so fixed. In view of the plain language of
proviso to Sub-section (3) of Section 54 of the CGST Act, the
Revenue's contention that the petitioner is not entitled to
refund of unutilised ITC as the rate of bulk LPG and bottled
LPG is the same, is unsustainable. It is impermissible to
disregard the rate of tax on other inputs.
26. As stated at the outset, a taxpayer's claim for
refund, which is admissible under Section 54 of the CGST
Act, cannot be denied on account of a Circular issued by
CBIC under Section 168(1) of the CGST Act. Plainly, if the
Circular No.135/05/2020 is read in the manner as contended
by the Revenue, it would be in conflict with the provisions
of Section 54(3) of the CGST Act and thus, would be liable to
be set aside and disregarded. However, plain reading of the
Circular 135/5/2020 indicates that it does not proscribe grant
of refund in cases where the principal input and the output
supply are similar. It is apparent from Article 3 of the said
Circular that it relates to a clarification regarding refund of
ITC, which has accumulated on account of reduction in the

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GST rate. It would be relevant to refer to Article 3 of the
Circular 135/5/2020. The same is set out below:
"3. Refund of accumulated input tax credit (ITC) on
account of reduction in GST Rate 3.1 It has been brought to
the notice of the Board that some of the applicants are
seeking refund of unutilized ITC on account of inverted duty
structure where the inversion is due to change in the GST
rate on the same goods. This can be explained through an
illustration. An applicant trading in goods has purchased, say
goods "X" attracting 18% GST. However, subsequently, the
rate of GST on "X" has been reduced to, say 12%. It is being
claimed that accumulation of ITC in such a case is also
covered as accumulation on account of inverted duty
structure and such applicants have sought refund of
accumulated ITC under clause (ii) of sub-section (3)
of section 54 of the CGST Act.
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
rates at different points in time, do not get covered under the
provisions of clause (ii) of sub-section (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."
27. It is clear from a plain reading of paragraph 3.2 of
the Circular 135/5/2020 that it seeks to clarify that in cases
where input and output is the same but the tax has
accumulated on account of the different tax rates at different
points of time, refund under Section 54 of the CGST Act is
not admissible. It is not necessary for this Court to examine
whether such clarification falls foul of Section 54(3) of the
CGST Act as it is apparent that the same is inapplicable in
the facts of the present case. The clarification seeks to

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address an issue where the ITC is accumulated on account
of different rates being applicable at different points of time. It
does not seek to address any issue where the principal input
and output is the same. In terms of the Circular 135/5/2020,
if the rate of tax on input and output is the same and ITC is
accumulated on account of different rates being applicable at
different points of time, the case would not fall under Clause
(ii) of the proviso to Sub-section (3) of Section 54 of the
CGST Act. The use of the words, the input and output being
the same, is essentially in the context of the rate on input
and output being the same.
28. Circular No.135/05/2020 has no application where
ITC, refund of which is sought, has accumulated on account
of rate of taxes on certain inputs being higher than tax
chargeable on the output supply, notwithstanding that the
one of the main input and output is chargeable at the same
rate of tax.
29. There may be myriad of circumstances where the
ITC accumulates notwithstanding that the rate of tax on input
and output supplies is the same. Mr Ganesh, learned senior
counsel appearing for petitioner had referred to the decision
of the Supreme Court in Union of India and Ors. v. VKC
Footsteps India Pvt. Ltd. (supra) and mentioned the following
illustrative cases, where claim for refund may arises on
account of factors other than the duty structure
(i) High discount pricing
(ii) Predatory pricing
(iii) Shut down of business or industry

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(iv) Business loss
(v) Economic compulsion to sell at below cost
prices
(vi) Stoppage of work.
30. Clearly, in such cases, refund of unutilised ITC
would not be admissible by virtue of proviso to Sub-section
(3) of Section 54 of the CGST Act.
31. In Shivaco Associates and Anr. v. Joint
Commissioner of State Tax, Directorate of Commercial
Taxes and Ors.3 the taxpayer was engaged in supplying
LPG in containers. The tax on bulk LPG (input supply) was
chargeable at 18% but the tax on output supply being LPG
containers for domestic consumers was 5%. The Revenue
had denied the refund of ITC accumulated for the aforesaid
reason on the ground 2022 SCC OnLine Cal 459 that the
input and the output supply was the same. The Calcutta High
Court accepted the petitioner's claim and rejected the
Revenue's contention that refund was not admissible by
virtue of the Circular 135/05/2020. The Court held that any
circular issued under Section 168(1) of the CGST Act
"cannot supplant or implant any provision which is not
available in the Act". The Circular could not restrict release of
benefits as provided under the CGST Act. The Court held as
under:
"26. In the present case, the Act does not mention
about non-granting of the benefit of accumulated input tax
credit where the input and output supplies are the same. The
circular is trying to restrict the refund to a particular set of
supplies. The circular is trying to create a class inside the
class, which is impermissible. According to the Act, refund is
permissible in respect of all classes where the input tax is

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higher than the output tax. By way of the circular, the Board
is curtailing the said benefit and making refund permissible
only if the input and output supplies are different. The same
amounts to overreaching the provisions as laid down in the
Act.
27. It cannot be said that the legislature was unmindful
of the fact that there may be instances where the input and
output supplies are the same. On the contrary, it can be said
that the legislature consciously did not create any distinction
for allowing refund in all cases where the input tax is more
than the output tax. The said benefit is applicable to all
similar cases."
32. In Baker Hughes Asia Pacific Limited v. Union of
India4, the Hon'ble Rajasthan High Court held that in cases
where the refund of accumulated ITC arises on account of
the inverted duty structure, the 2022 SCC OnLine Raj
1061 same could not be denied on the ground that the input
and output supplies were the same.
33. In BMG Informatics (P.) Ltd. v. The Union of India
and Ors.5, the Hon'ble Gauhati High Court held that Circular
No. 135/05/2020 is unsustainable and is liable to be ignored.
34. Mr Tripathi, learned counsel appearing for
Revenue had sought to distinguish the aforesaid decision on
the ground that in the said cases, there was a difference in
the rate of tax chargeable on input and output even though
the input and output supplies were the same. He contended
that therefore, in such circumstances, refund would be
admissible under Clause (ii) to proviso to Sub-section (3)
of Section 54 of the CGST Act. He argued that no refund
would be admissible in the present case as the rate of tax on
bulk LPG and bottled LPG was the same.

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35. We do not find merit 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.
36. It is also relevant to note that the Appellate
Authority had, inter alia, found that the petitioner's claim for
refund would not be admissible by virtue of the Circular
No.135/05/2020 as in terms of the 2021 SCC OnLine Gau
2570 paragraph 3.2 of the said Circular refund of
accumulated ITC was not available, where the input and
output supplies were the same. It is implicit in the
contentions advanced on behalf of the Revenue before us
that, this ground stands virtually abandoned. This is because
the decisions referred on behalf of the petitioner are sought
be distinguished on the basis that though the input supply
and output supply is the same, the rate chargeable on input
and output are different. In any view, we find no merit in the
Revenue's contention.
37. In view of the above, the present petition is
allowed.
38. 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.
39. The pending application is also disposed of.”

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14. A similar view has been taken by other High Courts in
the following judgments:-
(i) Baker Hughes Asia Pacific Ltd vs UOI 2022 (140)
taxmann.com 326 (Raj)(Para 14);
(ii) Hon’ble Calcutta High Court Shivaco Associates
vs Joint Commissioner of State Tax, Directorate of
Commercial Taxes 2022 (59) GSTL 389 (Cal)(Para
16,17,26);
(iii) BMG Informatics (P) Ltd vs UOI 2021 (130)
taxmann.com 182 (Gau)(Para 28);
(iv) Malabar Fuel Corporation vs ACCT & CE 2024
(15) Centax 153 (Ker)(Para 10-11);
(v) MO Industries vs UOI 2024-TIOL 1245 HC RAJ
GST (Para 7);
(vi) Eveready Spinning Mills P Ltd vs ACCT 2024
TIOL 1207 HC MAD GST (Para 6,7)

15. As held in the aforesaid judgments by the Delhi High
Court and other High Courts, Section 54(3)(ii) of the CGST Act
does not proscribe/forbid the grant of refund where the input and
the output are the same and that clause (ii) of proviso to sub-
section (3) of Section 54 of the CGST Act does not contemplate
comparing rate of tax on the principal input with the rate of tax
chargeable on the principal output supply; further, there is neither
any reason nor any scope to further confine the refund of unutilised

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ITC only to cases where the rate on main input is higher than the
rate of tax on the principal output.

16. A perusal of the impugned orders will indicate that
respondent has erroneously placed reliance upon Para 3.2 of
Circular No. 135/05/2020-GST dated 31.03.2020 though the same
has no application in the present case as the said Circular applies
only to scenarios/situations where the ITC is accumulated on
account of different rates being applicable at different points of time
and merely seeks to address an issue where the ITC is
accumulated on account of different rates being applicable at
different points of time as held in the aforesaid judgments and the
impugned orders deserve to be quashed and directions are to be
issued to the respondent to refund the amount back to the
petitioner.

17. Insofar as the claim for interest on refund is concerned,
in the light of the provisions contained in Section 56 of CGST Act,
the respondent would be liable to pay interest for the period
commencing from 60 days of the filing of the refund claims by the
petitioner which were rejected by the respondent by passing the
impugned orders. However, having regard to my finding

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hereinbefore that the impugned orders deserve to be set aside and
that the petitioner would be entitled to refund as sought for by
them, interest would also become payable from the end of 60 days
from date of receipt of application being filed under Section 56 of
the CGST Act and payment of interest is automatic, the same
would have to be paid by the respondent to the petitioner as held
in the following judgments;
(i) Ranbaxy Laboratories Ltd vs UOI - 2012 (27)
STR 193 (SC);
(ii) Raghav Ventures vs Commissioner of Delhi -
GST 2024 (16) Cen 69 (Del);
(iii) Panaji Engineering P Ltd vs UOI - 2023 (9) Cen
419 (Guj).

18. A perusal of the memorandum of petition will indicate
that though the petitioner has not challenged the original orders
dated 25.01.2022 and 13.04.2022 rejecting the refund claim of the
petitioner in the present petition, in view of the findings recorded by
me hereinbefore that the said orders are illegal, arbitrary and
contrary to law and facts, I deem it just and appropriate to set aside
the said orders as well as the impugned order at Annexure-A dated
28.02.2024 passed by the respondent – appellate authority and
direct the respondent to grant refund in favour of the petitioner as

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sought for in their refund applications together with applicable
interest within a stipulated timeframe.
19. In the result, I pass the following:-
ORDER

(i) Petition is hereby allowed.
(ii) The impugned order at Annexure – A dated
28.02.2024 insofar as it relates to rejection of the appeal filed by
the petitioner at Sl.No.1 of the impugned order is hereby set aside.
(iii) So also, the order at Annexure – F dated 25.01.2022
insofar as it relates to rejection of refund claim of the petitioner to
an extent of Rs.16,86,68,133/- is hereby set aside.
(iv) So also, the order at Annexure – L rejecting refund
claim of the petitioner to an extent of Rs.39,70,00,392/- is also
hereby set aside.
(v) Respondents are directed to refund the amount due to
the petitioner together with applicable interest in accordance with
law, within a period of four weeks from the date of receipt of a copy
of this order.

Sd/-
(S.R.KRISHNA KUMAR)
JUDGE
SV/SRL