Circular restricting inverted duty refund where input and output are the same is inapplicable where ITC accumulates because rate on certain inputs is higher than the output rate; Revenue has not challenged four concurrent High Court decisions: Punjab & Haryana High Court

The Division Bench, led by the Chief Justice, held that CBIC Circular No. 135/5/2020-GST addresses only the narrow situation where ITC accumulates on account of different tax rates applicable at different points of time on the same input and output, and has no application where ITC accumulates because the rate on certain inputs is higher than the rate on the output supply.

The Punjab and Haryana High Court has allowed a writ petition challenging CBIC Circular dated 31 March 2020 to the extent it restricts the claim of inverted duty structure refund, following the Delhi High Court's reasoning in Indian Oil Corporation Ltd. v. Commissioner of CGST [(2024) 122 GSTR 318] and noting that the Revenue has not challenged any of the four concurrent High Court decisions on the issue [M/s Padmavati Ferrous Ltd. v. Union of India and Others].

The petitioner, engaged in the manufacture of ferrous products, contended that the restriction imposed by Paragraph 3.2 of Circular No. 135/5/2020-GST was inconsistent with the provisions of Section 54(3)(ii) of the CGST Act, which expressly permits refund of accumulated ITC where the rate of tax on inputs is higher than the rate of tax on the output supply. The Rajasthan, Calcutta, Guwahati and Madras High Courts had already held the circular to be repugnant to the statutory provision, and the Delhi High Court had followed suit.

Chief Justice Ashwani Kumar Mishra and Justice Rohit Kapoor noted the admitted position that the Revenue had not filed any appeal before the Supreme Court against any of the four High Court judgments relied upon by the petitioner. Adopting the Delhi High Court's reasoning, the Court held that the Circular addresses only the narrow situation where the same input and output attract different rates at different points in time — it does not purport to address a case where ITC accumulates because certain inputs carry a higher rate than the output supply. Where the principal input and the output are different, or where the rate differential arises between distinct inputs and the output, the case falls squarely within Section 54(3)(ii) and the Circular has no application.

The petitioner's refund claim was directed to be considered and decided under Section 54(3) within two months of filing the application. The Court also clarified that the period spent pursuing the writ petition would not be counted for limitation purposes. The decision adds the fifth High Court — the jurisdictional court for the states of Punjab and Haryana — to the growing line of authority holding that Circular No. 135/5/2020-GST cannot override the express statutory entitlement to inverted duty refund, and the Revenue's failure to challenge any of these decisions considerably strengthens the position for manufacturers and processors facing similar restrictions.

2026-juristway.com-2890-HC(Punjab & Haryana)-GST  |  High Court of Punjab & Haryana  |  CWP-25775-2024 (O&M)  |  11.09.2026