Facts of the case:

In this case, the petitioner, an unincorporated joint venture engaged in metro rail construction works for MMRDA, was registered under GST and discharged tax at 12% on output works contract services. However, it procured inputs and input services at higher tax rates (18% and 28%), resulting in accumulation of Input Tax Credit (ITC) due to an inverted duty structure. Accordingly, it filed multiple refund claims under Section 54(3) of the CGST Act for different tax periods between 2018 and 2021.

Initially, refund claims were rejected based on the formula under Rule 89(5), as upheld by the Supreme Court in VKC Footsteps, which excluded input services from “Net ITC.” Subsequently, after amendment of Rule 89(5) via Notification No. 14/2022 dated 05.07.2022 (based on GST Council recommendations), the petitioner refiled/refreshed its claims using the revised formula.

However, the authorities again rejected the claims on the ground that the amended formula was prospective and not applicable to earlier refund applications. The appellate authority also upheld this view without considering judicial precedents and clarifications.

Aggrieved, the petitioner approached the High Court under Article 226.

Issue:  Whether the amended formula for refund of unutilized ITC under the inverted duty structure, introduced with effect from 05.07.2022, could be applied retrospectively to refund applications filed for prior periods. Whether the rejection of refund claims by the authorities, without considering binding judicial precedents and the true nature of the amendment, was legally sustainable.

Held That:

The Court observed that the appellate authority had failed to apply its mind to the relevant legal developments, particularly the binding precedent laid down in Ascent Meditech Ltd. v. Union of India. It was emphasized that at the time of passing the appellate order, the legal position regarding retrospective applicability of the amended formula was already settled and could not have been ignored.

The Court accepted the proposition that the amendment introduced in 2022 to the refund formula was clarificatory in nature, intended to remove anomalies in the earlier computation mechanism. Consequently, such an amendment must be given retrospective effect, especially in cases where refund claims were filed within the prescribed limitation period.

It was further held that merely because the refund applications pertained to a period prior to 05.07.2022, the benefit of the amended formula could not be denied. The Court also noted that the legal position had attained finality after the Supreme Court of India declined to interfere with the Gujarat High Court ruling, thereby reinforcing its binding nature.

In view of these findings, the Court quashed O-I-O and the appellate order , and directed the GST authorities to grant refund to the petitioner in accordance with Section 54(3) of the CGST Act, considering the inverted duty structure and applying the amended formula.

 Case Name: CHEC-TPL Line 4 Joint Venture v. Union of India & Ors. dated 23.04.2026