Facts of the Case:

The respondent, a manufacturer and exporter of mild steel billets, accumulated Compensation Cess ITC on inputs such as coal, whereas its finished goods were not subject to Cess. It exported goods under LUT without payment of tax and claimed refund of ₹42,77,081 towards accumulated Cess ITC for the period April 2023 to September 2023 under Section 54(3) read with Rule 89(4) of the CGST Rules. The refund was sanctioned by the adjudicating authority.

The Revenue challenged the refund, contending that ₹2,66,75,139 of Cess ITC was reversed in GSTR-3B during the relevant period and, in terms of Para 43(c) of CBIC Circular No. 125/44/2019-GST, such reversal was required to be deducted while determining Net ITC. The respondent contended that the reversal related to earlier tax periods and had no nexus with the ITC availed during the refund period.

Issue:

Whether ITC reversed during the refund period, but pertaining to earlier tax periods, is required to be deducted from “Net ITC” under Rule 89(4) while calculating refund of accumulated ITC on zero-rated supplies, merely because the reversal was reported in GSTR-3B during the relevant period.

Held That:

The Tribunal observed that Rule 89(4)(B) specifically defines “Net ITC” as input tax credit availed on inputs and input services during the relevant period, with the “relevant period” being the period for which the refund claim is filed. Therefore, the decisive consideration is whether the ITC in question was actually availed during the relevant refund period, and not merely whether an amount was reversed in GSTR-3B during that period.

On the facts, the Tribunal found that the ₹2,66,75,139 reversal pertained to an earlier tax period and represented unutilised credit remaining after sanction of a previous refund. It was not ITC availed during April–September 2023 and, therefore, could not be reduced from the Net ITC for the refund period. The authorities had examined the GSTR-3B returns and Electronic Credit Ledger and correctly determined the Net Cess ITC for the relevant period at ₹1,89,54,688.

The Tribunal further held that Para 43(c) of Circular No. 125/44/2019-GST cannot be interpreted contrary to Rule 89(4). The expression “ITC availed” cannot automatically be equated with every ITC reversal effected during the refund period. Reading the Circular as requiring deduction of every reversal made during the relevant period, irrespective of the period to which the underlying credit relates, would effectively add words to Rule 89(4).

Relying upon the settled principle that a departmental circular cannot override or enlarge the statutory provisions, including the Supreme Court decisions in Ratan Melting & Wire Industries and J.K. Lakshmi Cement, the Tribunal held that the statutory prescription under Rule 89(4) would prevail over an inconsistent interpretation of the Circular. Since the entitlement to refund under Section 54(3) and Rule 89(4) was otherwise established, the Circular could not curtail the statutory refund entitlement.

Accordingly, the Tribunal found no infirmity in the order of the First Appellate Authority and dismissed the Revenue’s appeal.

Case Name: Pramod Chandan Surin Versus Shivam Iron & Steel Co. Ltd., dated 23.09.2026

Citation No. 2026 Taxo.online 3030