Inverted duty refund cannot be denied merely because principal input and output fall under the same HSN code; CBIC Circular 135/2020 does not apply: GSTAT Kolkata

The Tribunal held that the statute employs 'inputs' in plural with no distinction between principal and ancillary inputs; the Circular applies only where ITC accumulation arose from reduction in GST rate over time, not where other inputs attract higher rates.

In two separate appeals by the Revenue, the GSTAT Kolkata Bench has upheld the entitlement to refund of accumulated ITC under Section 54(3)(ii) on the ground of inverted duty structure, even where the principal input and output fall under the same HSN and attract the same GST rate [Pr. Commissioner v. M/s Vaishnodevi Buildcon Pvt Ltd] and [Santosh Jaiswal v. Madanlal Murarilal].

In the first case, the respondent manufactured crushed stone from boulders — both under HSN 2517 at 5%. In the second, a tea trader's principal input and output both attracted 5%. In both cases, however, other inputs — vehicle tyres, crusher parts, screening spare parts, lubricants, packing materials — attracted 18% or 28%.

The Tribunal held that on plain reading of Section 54(3)(ii), the legislature consciously employed 'inputs' in plural with no distinction between principal and ancillary inputs. Relying on the Delhi High Court's ruling in Indian Oil Corporation Limited and the Calcutta High Court's decision in Shivaco Associates, the Tribunal confirmed that CBIC Circular No. 135/5/2020-GST applies only where ITC accumulated due to reduction in GST rate on the same goods over time — not where other inputs attract higher rates throughout.

Both Revenue appeals were dismissed.

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