HC Allows ITC Refund Despite Same Tax Rate on Input and Output

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  • Last Updated on 8 May, 2025

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Section 54(3)(ii) ITC refund

Case Details: Indian Oil Corporation Ltd. vs. Assistant Commissioner of Central Tax - [2025] 174 taxmann.com 1 (Karnataka)

Judiciary and Counsel Details

  • S.R. Krishna Kumar, J.
  • V. Raghu Raman, Senior Counsel & Raghavendra C.R., Adv. for the Petitioner.
  • Jeevan J. Neeralgi, Adv. for the Respondent.

Facts of the Case

The petitioner, a public sector undertaking engaged in the bottling and distribution of Liquefied Petroleum Gas (LPG), filed a claim for a refund of accumulated Input Tax Credit (ITC) under Section 54(3)(ii) of the CGST Act. The petitioner had accumulated ITC due to the higher tax rates on certain inputs, such as valves, safety caps, and other components, which were taxed at 18%. However, the tax rate on the principal input (bulk LPG) and the principal output (bottled LPG) was the same, i.e., 5%.

The department, however, rejected the refund claim, arguing that Section 54(3)(ii) only allows refunds when the tax rate on the principal input is higher than the tax rate on the principal output. Following the rejection by the department, the petitioner filed an appeal before the Karnataka High Court.

High Court Held

The Hon’ble Karnataka High Court held that Section 54(3)(ii) of the CGST Act does not impose a restriction on granting refunds solely based on a difference in tax rates between the principal input and principal output. The Court clarified that the provision allows for a refund of accumulated ITC when the ITC arises from any inputs being taxed at a higher rate than the output supplies, regardless of whether the tax rates on the principal input and output are identical.

Accordingly, the impugned order was quashed and department was directed to refund ITC along with interest within a period of four weeks from date of receipt of this order.

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Author: Taxmann

Taxmann Publications has a dedicated in-house Research & Editorial Team. This team consists of a team of Chartered Accountants, Company Secretaries, and Lawyers. This team works under the guidance and supervision of editor-in-chief Mr Rakesh Bhargava.

The Research and Editorial Team is responsible for developing reliable and accurate content for the readers. The team follows the six-sigma approach to achieve the benchmark of zero error in its publications and research platforms. The team ensures that the following publication guidelines are thoroughly followed while developing the content:

  • The statutory material is obtained only from the authorized and reliable sources
  • All the latest developments in the judicial and legislative fields are covered
  • Prepare the analytical write-ups on current, controversial, and important issues to help the readers to understand the concept and its implications
  • Every content published by Taxmann is complete, accurate and lucid
  • All evidence-based statements are supported with proper reference to Section, Circular No., Notification No. or citations
  • The golden rules of grammar, style and consistency are thoroughly followed
  • Font and size that's easy to read and remain consistent across all imprint and digital publications are applied