IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/SPECIAL CIVIL APPLICATION NO. 3301 of 2025 FOR APPROVAL AND SIGNATURE:

HONOURABLE MR. JUSTICE BHARGAV D. KARIA and HONOURABLE MR.JUSTICE D.N.RAY ==========================================================

Approved for Reporting Yes No ==========================================================

MESSRS FILATEX INDIA LTD. & ANR.

Versus UNION OF INDIA & ORS.

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Appearance:

AMAL PARESH DAVE(8961) for the Petitioner(s) No. 1,2 MR PARESH M DAVE(260) for the Petitioner(s) No. 1,2 MR NEEL P LAKHANI(10679) for the Respondent(s) No. 3 MR PRADIP D BHATE(1523) for the Respondent(s) No. 1 MR UTKARSH R SHARMA(6157) for the Respondent(s) No. 2 ==========================================================

CORAM:HONOURABLE MR. JUSTICE BHARGAV D. KARIA and HONOURABLE MR.JUSTICE D.N.RAY Date : 24/04/2025

ORAL JUDGMENT

(PER : HONOURABLE MR.JUSTICE D.N.RAY)

1. Heard learned advocate Mr. Paresh M. Dave with learned advocate Mr. Amal Paresh Dave appearing on behalf of the Petitioner, and learned advocate Mr. Neel P. Lakhani with learned advocate Mr. Pradip D. Bhate for the Respondents.

2. Rule returnable forthwith. Learned advocate Mr.Neel P. Lakhani with learned advocate Mr. Pradip D. Bhate waives service of notice of rule for the Respondents. Having regard to the controversy arising in the petition, which is in narrow compass, with the consent of the learned advocates for the respective parties, the matter is taken up for hearing.

3. The brief facts of the case are as follows:

3.1 The Petitioner is a company engaged, inter alia, in the business of manufacturing and supplying various categories of yarns. The Petitioner is a registered Assessee under the Central Goods and Services Tax Act, 2017 (hereinafter referred to as “the CGST Act”) and falls under the jurisdiction of the GST authorities of Bharuch Division, Vadodara-II Commissionerate.

3.2 The Petitioner avers that in the course of its manufacturing activity, it procures various inputs and raw materials, including Purified Terephthalic Acid (PTA) and Mono Ethylene Glycol (MEG), both of which are essential for the production of textile yarns. The Petitioner has also availed various input services. It is stated that all such inputs and input services were subjected to GST at the time of procurement, and hence, in accordance with the scheme laid down under Section 16 of the CGST Act, the Petitioner has been availing Input Tax Credit (ITC) on the tax paid.

3.3 The record indicates that while the inputs procured, such as PTA and MEG, are taxed at the rate of 18%, the final product i.e. Yarn, manufactured and supplied by the Petitioner attracts GST at the rate of 12% ad valorem. This results in an inverted duty structure wherein the rate of tax on inputs is higher than the rate applicable on output supplies.

3.4 It is the case of the Petitioner that such inverted duty structure leads to accumulation of unutilized ITC, and therefore, the Petitioner has been claiming refund of the accumulated credit under the mechanism provided in Rule 89(5) of the Central Goods and Services Tax Rules, 2017 (hereinafter referred to as “the CGST Rules”). The present dispute pertains to refund claims filed for the periods covering February and March 2021, and from April 2021 to February 2022.

3.5 For the aforementioned periods, the Petitioner filed refund claims on the ground of inverted duty structure under Rule 89(5), computing the refundable amount based on “Net ITC,” which, according to the Petitioner, includes credit of tax paid on both inputs and input services. A summary of the refund claims filed by the petitioners, as detailed in Annexure “B” are as under:-