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

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.

List of Cases Reviewed

• Indian Oil Corporation Ltd. v. Commissioner of CGST – 2023 (13) Centax 228 (Del) – (para 13) followed
• Baker Hughes Asia Pacific Ltd v. UOI 2022 (140) taxmann.com 326 (Raj)- (para 14) followed
• Shivaco Associates v. Joint Commissioner of State Tax 2022 (59) GSTL 389 (Cal) – (para 14) followed
• BMG Informatics (P) Ltd v. UOI 2021 (130) taxmann.com 182 (Gau) – (para 14) followed
• Malabar Fuel Corporation v. ACCT & CE 2024 (15) Centax 153 (Ker) – (para 14) followed
• MO Industries v. UOI 2024-TIOL 1245 HC RAJ GST – (para 14) followed
• Eveready Spinning Mills P Ltd v. ACCT 2024 TIOL 1207 HC MAD GST – (para 14) followed

List of Cases Referred to

• Suchitra Components Ltd v. CCE 2006 (12) SCC 452 (para 4)
• K.P. Varghese v. ITO [1981] 7 Taxman 13/131 ITR 597 (SC) (para 4)
• Baker Hughes Asia Pacific Ltd. v. Union of India [2022] 140 taxmann.com 326/93 GST 4 (Rajasthan) (para 4.1)
• Shivaco Associates v. Joint CCTes [2022] 137 taxmann.com 213/91 GST 976/59 GSTL 389 (Calcutta) (para 4.1)
• BMG Informatics (P.) Ltd. v. Union of India [2021] 130 taxmann.com 182/88 GST 368 (Gauhati) (para 4.1)
• Vikram Knittex (P.) Ltd. v. Union of India [2014] 43 taxmann.com 404/44 GST 519/304 ELT 344 (Gujarat) (para 4.1)
• MO Industries v. UOI 2024-TIOL 1245 HC RAJ GST (Para 7) (para 14)
• Eveready Spinning Mills P Ltd v. ACCT (para 14).