08.07.2022: Circular Being Subordinate Legislation Cannot Deny The Inverted Duty Refund Claim Allowed Under the Act- Rajasthan High Court

The Hon’ble High Court of Rajasthan vide its order dated 30.06.2022 in the matter of Baker Hughes Asia Pacific Limited Vs. Union of India & Ors. in Civil Writ Petition No. 5714/2021, held that Circular dated 31.03.2020, denying the refund of accumulated ITC in case of Inverted Duty Structure when the input and output supply is same, being a subordinate legislation, is repugnant and conflicting to the parent legislation i.e., Section 54(3) (ii) of the CGST Act.

The Petitioner filed the present writ petition praying for quashing the refund rejection order in Form RFD-06 dated 05.01.2021 as being arbitrary, illegal and constitutionally invalid, and to quash the Para 3 of Circular bearing No. 135/05/2020-GST F. No.- CBEC-20/01/06/2019-GST dated 31.03.2020, to the extent it denies refund in cases where input and output supplies are same, as being  arbitrary, violative of Article 14, Article 300A of the Constitution of India and ultra vires Section 54 of the CGST Act, 2017. Further, directions were sought to the respondents to grant refund of accumulated Input Tax Credit amounting to Rs. 27,02,26,876.


  • The Petitioner operating in the State of Rajasthan through its project office in Navi Mumbai, entered into a contract with the company Vedanta Limited which has been granted exclusive rights to carry out petroleum operations in Rajasthan Block RJ-ON-90/1 by the Government of India. For this purpose, a Production Sharing Contract was executed between Vedanta and the Central Government.
  • Further Vedanta entered into a sub-contract dated 11.12.2018 with the Petitioner for the supply of goods, materials and equipment for carrying out the Petroleum exploration and production operations as prescribed in the Production Sharing Contract. That in view of the contract the Petitioner was supposed to procure the required articles from India and abroad and the supply the same to Vedanta.
  • That for the aforementioned supply of goods, the petitioner obtained registration under RGST/CGST Acts and was filing the regular returns and paying the tax, the petitioner procured goods from authorized vendors at GST rates varying between 5% to 28%.
  • It was submitted that the Central Government, to give a boost to the oil and gas industry, issued a Notification No. 03/2017 dated 28.06.2017, whereby effective GST Rate of 5% was provided on all supplies made for specified operations subject to certain conditions. However, to avail 5% concessional rate on all supplies, a certificate from the Directorate General of Hydrocarbons, Ministry of Petroleum and Natural Gas which clears the transfer of said goods, which was later issued bearing the name of the petitioner as supplier and Vedanta as recipient.
  • That in view of notification 03/2017 – Central Tax (Rate), the petitioner procured the goods at 5 to 28%, however supplied the same to Vedanta at the fixed GST rate of 5%.
  • That the input tax credit available to the Petitioner was much higher than the Output Tax liability. Therefore, after utilization of credit towards its Output Tax Liability, a substantial amount of Input Tax Credit accumulated due to difference in rate of tax (GST) which was much higher than the rate of output tax.
  • Thereafter, due to accumulation of Input Tax Credit, a refund claim amounting to Rs.27,02,26,876/- in Form GST RFD 01, under the inverted duty structure was filed as provided under Section 54 (3) (ii) of the RGST/CGST Act for the period September, 2018 to September, 2019.
  • Further, pursuant to the filing of refund, the petitioner’s representative was summoned by the respondents and acting on the directions all relevant details with respect to ITC claim were provided.
  • Subsequently, the petitioner received a show cause notice dated 19.12.2020 was issued to the Petitioner, proposing to reject the said refund claim, which was duly replied by the Petitioner stating that as per CGST Notification dated 18.11.2019, there was no restriction on claiming refund in such cases where the inputs and output supplies are same and outward supplies were made at concessional GST rates.
  • After considering the reply filed, the respondents rejected the refund claim relying on para 3 of Circular dated 31.03.2020. Being aggrieved of the said order and challenging para 3 of the said circular, the petitioner is before us.

Petitioner’s Submissions:

  • It was submitted on the behalf of the petitioner that after filing of said refund, to the utter surprise, a notice under FORM-GST-RFD-08 dated 19.12.2020 was received requiring the petitioner to show cause as to why the refund claim to the tune of Rs.27,02,26,876/- be not rejected in light of the para 3.2 of the Circular dated 31.03.2020 issued by CBIC, which states that refund under inverted duty structure, as prescribed under Section 54 (3) (ii) would not be available where input and output supplies are same.
  • The Petitioner relied upon para 59 of the Circular No.125/44/2019-GST – CBEC-20/16/04/18-GST wherein, it has been clarified that refund under Section 54(3)(ii) of the CGST Act i.e., inverted duty structure, is to be allowed when the inputs are being procured at the normal GST rate and the output supplies are being made at a lower GST rate.
  • Further reliance was placed on the decision of Guwahati High Court in M.G Informatics Pvt. Ltd. Vs. Union of India & Ors, and on the decision of Calcutta High Court in M/s. Shivaco Associates & Anr. vs. Joint Commissioner of State Tax, Directorate of Commercial Taxes & Ors. and it was submitted that Hon’ble Guwahati High Court categorically ‘disapproved the stipulation made in the circular dated 31.03.2020 would have to be ignored in situations akin to the case at hand.
  • However, while accepting the writ petition in the case of M/s. Shivaco Associates (supra), Hon’ble Calcutta High Court went on to hold that the respondent authority, ought not to have rejected the claim of the petitioners by relying on the circular dated 31.03.2020 as the same was contrary to the provisions of the Act.
  • Lastly, it was submitted that the subordinate legislation in form circular cannot supersede or override the parent statute. Thus, the impugned circular and the impugned order dated 05.01.2021, are illegal and deserves to be struck down.

Respondents’ submissions:

  • It was submitted on the behalf of the respondents that input and output supply made by the petitioner are same and there is no value addition on the goods supplied. Thus, the refund claim filed is not compliant with the criteria of inverted duty structure under Section 54(3) of the CGST Act, 2017 and the tax credit would not be available to the petitioner.
  • Further reliance was placed on the para no. 3.2 of the Circular dated 31.03.2020 and it was submitted that the Circular dated 18.11.2019(supra) would not be applicable to the case of the Petitioner.
  • The submissions made on the behalf of the petitioner were vehemently opposed and it was argued that the petitioner is not entitled to refund claim of ITC in view of the said Circular dated 31.03.2020 and prayed for dismissing the Writ Petition.


  • The Hon’ble Court after considering the submissions made and the facts of the case, noted that Section 54(3) of the CGST Act is absolutely unambiguous and does not carve out any exception that Input Tax Credit under the Inverted Tax Structure would not be applicable where the input and the output goods are the same. Further para 59 of the Circular dated 18.11.2019 makes it clear that the supplier who supplies goods at a concessional rate to companies involved in specified projects is entitled to refund under the inverted tax structure as per Section 54 (3) (ii) of the CGST Act, 2017. Thus, the said circular dated 31.03.2020 would not be applicable in cases where the input and output supplies are same.
  • It was found that during the relevant period i.e., September, 2018 to September, 2019, the circular dated 18.11.2019 was in force however, the Circular dated 31.03.2020 was issued later on. The said circular dated 18.11.2019 clearly stipulates that a registered dealer who supplies goods at concessional rate is eligible for refund under the Inverted Tax Structure. Clause (ii) of Sub-Section (3) of Section 54 of the CGST Act does not indicate that ITC would be admissible only if the goods supplied had been subjected to same process.
  • It was observed that the very purpose of fixing the rate of GST at 2.5% each towards CGST/RGST on goods supplied for execution of petroleum projects was introduced with the object of promoting the oil and gas exploration activities. The Central Government Notification dated 28.06.2017, in unambiguous terms stipulates that upon being satisfied that it is necessary in the public interest to do so, on the recommendations of the council, intra State supply of goods, was being exempted/taxed at lower tax rates.
  • Further the Similar issue has already been decided in the favour of the assessee and the refund claim was allowed by the Guwahati High Court in M.G. Informatics Pvt. Ltd. (supra) and by Calcutta High Court in M/s. Shivaco Associates (supra). Moreover, it has been informed on the behalf of the respondents that said judgment in Case of B.M.G. Informatics has not been challenged further.
  • Lastly, in view of the submissions made and discussions, it was held by the Hon’ble High Court that circular dated 31.03.2020, being a subordinate legislation, is repugnant and conflicting to the parent legislation i.e., Section 54(3)(ii) of the CGST Act and hence, the same cannot be applied to oust the legitimate claim for accumulated ITC refund filed by the petitioner. The refund claim filed was for the period prior to the issuance of circular dated 31.03.2020.  Thus, the rejection of refund claim with reference to para 3 of said circular dated 31.03.2020, is invalid on the face of record and cannot be sustained.

The Hon’ble Court with the above findings quashed and set aside the impugned order dated 05.01.2021 and directed to immediately, refund the amount of accumulated Input Tax Credit.

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