Rajasthan High Court Rules Circular Curtailing Input Tax Credit Refund Claims Is Entirely Illegal - 2025-09-08

Rajasthan High Court Rules Circular Curtailing Input Tax Credit Refund Claims Is Entirely Illegal

The High Court of Judicature for Rajasthan at Jodhpur has struck down a restrictive administrative circular, affirming that a manufacturer’s right to claim a refund of accumulated Input Tax Credit (ITC) under an inverted duty structure cannot be curtailed by executive fiat. The decision, delivered by a bench comprising Justice Dinesh Mehta and Justice Sangeeta Sharma, provides significant relief to businesses seeking tax refunds post-July 2022.

Context of the Dispute

The petitioner, Shree Arihant Oil and General Mills , is engaged in the manufacturing of edible oils. Due to an inverted duty structure—where the tax rate on inputs is higher than the rate on final products—the firm accumulated substantial ITC. Under Section 54 of the Central Goods and Services Tax (CGST) Act, 2017, the firm was entitled to claim a refund of this credit.

A notification issued on July 13, 2022, placed certain goods, including those manufactured by the petitioner, in a "negative list," effectively barring future ITC refunds for these items. This notification became effective on July 18, 2022. However, the Central Board of Indirect Taxes and Customs (CBITC) later issued a circular on November 10, 2022, asserting that the refund restriction applied to any applications filed after July 18, 2022. The petitioner challenged this circular, arguing it arbitrarily denied refund claims for tax paid before the notification took effect.

Legal Analysis and Reasoning

The court observed that the original notification of July 13, 2022, did not contain any embargo on refund applications filed after the implementation date. The bench held that the subsequent circular, which attempted to restrict rights based on the date of filing rather than the date of tax accrual, was ultra vires the CGST Act.

Justice Mehta, writing for the bench, emphasized that ITC is an "indefeasible right" that accrues to an assessee when goods are purchased. By attempting to differentiate between refund applications filed before and after July 18, 2022, the circular created a classification without any "rationale or intelligible criteria," thus violating the equality mandate under Article 14 of the Constitution of India.

Key Observations

The judgment clarifies that administrative guidance cannot override statutory provisions. The court stated:

• "The restriction imposed by the said notification would be applicable in respect of all refund applications filed on or after 18.07.2022, and would not apply to the refund applications filed before 18.07.2022... If the impugned clarification is tested on the anvil of reasonableness, it falls foul to Article 14 of the Constitution of India."
• "Input Tax Credit is an indefeasible right of an assessee, which accrues to it on the date when the goods were bought."
• "No assessee can be expected to file claim of refund of the tax for the period paid upto 18.07.2022 on 18.07.2022 itself, more particularly when he can apply for refund of tax within the permissible time limit of two years."

Impact of the Decision

The High Court declared the contentious point of the CBITC Circular dated November 10, 2022, illegal and quashed it to the extent that it confined refund claims to applications filed by July 18, 2022. The respondents have been directed to process the petitioner's pending applications within three months, disregarding the invalidated circular provisions. This ruling reinforces the principle that statutory entitlements to tax refunds cannot be stripped away by arbitrary executive clarifications, offering a robust precedent for other similarly situated taxpayers across the country.