2026-VIL-731-MAD
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SGST High Court Cases

GST - Refund of Unutilized Input Tax Credit under Section 54(3) of CGST Act 2017 on account of Inverted Duty Structure - Accumulation of input tax credit due to higher rates on cost of packing materials and other ancillary inputs - Petitioner, a textile manufacturing company engaged in manufacture of combed cotton yarn, purchased raw cotton yarn and undertakes process involving application of chemicals, consumables and packing materials - Rate of tax on principal input namely raw cotton yarn is 5 per cent same as output combed cotton yarn but other inputs attract GST at 12 per cent and 18 per cent resulting in accumulation of unutilized input tax credit - Petitioner claimed refund under Section 54(3) of CGST Act 2017 but applications were rejected - Whether petitioner entitled to refund of accumulated unutilized input tax credit when rate of tax on certain inputs exceeds rate of tax on output supplies and whether Circular No. 135/05/2020-GST restricts such refund claim - HELD - The Section 54(3) does not make any distinction between major and minor components and clearly provides that if higher rate of tax on certain inputs compared to output supplies, party entitled to claim refund of unutilized input tax credit at end of any tax period - Statute has to be construed as such and taxing statutes are to be construed in manner that gives effect to legislative intent. The Circular No. 135/05/2020-GST cannot override statutory provisions of CGST Act 2017 and Circular No.125/44/2019-GST, dated 18.11.2019 has already been declared unconstitutional - In present case though rate of tax on cotton yarn is same with reference to chemicals used, packing and other materials used, there is higher rate of tax on inputs compared to output goods hence petitioner entitled to refund. The formula prescribed under Rule 89(5) of CGST Rules must be applied irrespective of individual rates of tax on various inputs - Impugned orders rejecting refund applications stand quashed - Respondent directed to process and sanction refund with interest - The writ petitions are allowed
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