Agarbati Manufacturer Entitled to ITC Refund Under Inverted Duty Structure — CBIC Circular 135/2020 Not Applicable Where Inputs and Output Are Different Goods, Circular Not Binding on Tribunal: GSTAT Kolkata Bench

The GSTAT Kolkata Bench has dismissed Revenue’s appeal and upheld the concurrent findings of the Adjudicating Authority and the First Appellate Authority allowing an ITC refund of Rs. 4,00,000 to an agarbati manufacturer under Section 54(3)(ii), holding that Circular No. 135/05/2020-GST (as amended by Circular No. 173/05/2022-GST) is not applicable where the inputs (perfumes, fragrances, chemicals, packaging materials at 12%-18% GST) and the output supply (agarbati at 5% GST) are commercially distinct goods. The ruling by Members S.G. Chattopadhyay (JM) and Bijoy Kumar Kar (TM) in APL/22/KLK/2026 (Commissioner v. M/s Santosh Fragrance, decided 16.09.2026) also reiterated that CBIC Circulars are not binding on the Tribunal. The Kolkata Bench in a companion batch of appeals (APL/36, 37, 38, 41/KLK/2026, M/s Amrit Crafts, decided 18.09.2026) applied the same principle to a fabric dyeing job worker, additionally relying on the Madras HC’s decision in Vindhya Spinning Mills (2026).

The Revenue had argued that both the input (raw fabric/raw materials) and output (processed fabric/agarbati) fell under the same HSN heading and therefore the circular’s restriction applied. The Tribunal held that the circular by its own heading and language applies only to cases where ‘the input and output being the same’ attract different rates at different points in time due to GST rate reduction — not where commercially distinct inputs are used to manufacture a different output product. The Tribunal followed the Supreme Court’s interpretation in VKC Footsteps and the GSTAT Principal Bench’s ruling in Dow Chemical (regarding the non-binding nature of CBIC circulars on the Tribunal). The Kolkata Bench also held that the Appellate Authority’s direction for recomputation of the refund amount was not a prohibited remand under Section 107(11) but a permissible consequential direction for ministerial implementation.

- 2026-juristway.com-2545-GSTAT(Kolkata)-GST; 2552-GSTAT(Kolkata)-GST  |  GSTAT Kolkata Bench  |  APL/22/KLK/2026 & APL/36-41/KLK/2026  |  16–18.09.2026