Order (Oral)

Per: Arun Monga, J.

1. The present writ petition is directed against the order dated 14.10.2020 passed by the Assistant Commissioner (CGST), Jodhpur, whereby the refund claims of the petitioner came to be rejected, as well as the Order-in-Appeal dated 26.02.2021 passed by the Additional Commissioner (Appeals), Jodhpur, whereby the appeal preferred by the petitioner against the said rejection was dismissed, affirming the order of the adjudicating authority.

2. Brief facts of the present case are that the petitioner is a registered person under the Central Goods and Services Tax Act, 2017 (hereinafter, “Act of 2017”) holding GSTIN No. 08AABFA4724G1ZS, and is engaged in the business of manufacturing utensils. The rate of tax on inputs, namely steel patta, and input services such as job work is 18%, whereas the rate of tax on output supplies (utensils) is 12%, resulting in accumulation of unutilized input tax credit on account of an inverted duty structure. During the financial year 2019–20, such unutilized input tax credit accumulated for the four quarters amounted to Rs.11,76,757/-, Rs.23,27,504/-, Rs.3,37,201/-, and Rs.13,61,718/- respectively.

2.1 In accordance with Section 54 of Act of 2017, the petitioner filed applications in prescribed form GST RFD-01 seeking refund of the aforesaid unutilized input tax credit within the stipulated time. However, the respondent No. 3 issued show-cause notices dated 12.10.2020 for all four quarters, proposing to restrict the eligible input tax credit by excluding input services from the computation of “Net ITC.” The petitioner submitted detailed replies on 13.10.2020, objecting to the proposed restriction.

2.2 Subsequently, the respondent No. 3 rejected the refund claims vide orders dated 14.10.2020, holding that the petitioner had wrongly included input tax credit on input services in the computation of “Net ITC” in contravention of Rule 89(5) of the CGST Rules, 2017 and had also claimed credit on certain items allegedly not qualifying as inputs.

2.3 Aggrieved thereby, the petitioner preferred appeals under Section 107 of Act of 2017 before respondent No. 2, which came to be dismissed vide order dated 26.02.2021. The appellate authority upheld the interpretation that under amended Rule 89(5), “Net ITC” is confined to input goods only. The petitioner’s claim, being one of refund arising out of inverted duty structure, was thus denied to the extent of input services.

2.4 Hence, the present writ petition.

3. Learned counsel for the petitioner submits that under Section 54(3) of the Act of 2017, a registered person is entitled to refund of unutilized input tax credit where accumulation arises from an inverted duty structure, namely, where the tax on inputs exceeds that on output supplies. It is undisputed, even by the respondents, that the petitioner falls within this category. The accumulated balance reflected in the electronic credit ledger for FY 2019–20 establishes such entitlement. Rejection of the refund claim is, therefore, contrary to the statute and unsustainable.

3.1. It is further contended that the respondents wrongly denied the claim on the assumption that it included ITC on input services. The turnover, output tax liability, and ITC figures clearly show that the output tax liability on inverted duty turnover exceeds the ITC on input services, leaving no scope for refund of input service credit. Denial on this basis effectively restricts utilization of validly availed ITC without statutory authority.

3.2. Learned counsel for the petitioner also submits that the Act does not contemplate any distinction between ITC on goods and input services once credit is validly availed, as all such credit merges into a common electronic credit ledger. The respondents, therefore, fundamentally misconstrued the statutory scheme in treating the claim as one for refund of input service credit, whereas it was a claim for accumulated credit due to an inverted duty structure