Facts of the Case:

In this case, the appellant engaged in purchasing tea in bulk and supplying the same in packaged form through containers, packets, pouches and sachets. While bulk tea and the final packaged tea attracted GST at 5%, the packing materials used by the respondent attracted GST at 12%. Consequently, ITC accumulated on account of the higher tax rate on packing materials, and the respondent claimed refund of accumulated ITC of ₹59,26,077 under Section 54(3)(ii) of the CGST Act for the period October 2021 to March 2022. The original authority sanctioned ₹59,24,669. The Revenue challenged the refund before the first appellate authority, contending that the input and output were essentially the same commodity, i.e. tea, and that refund was barred by para 3.2 of CBIC Circular No. 135/5/2020-GST. The first appellate authority upheld the refund, leading the Revenue to approach GSTAT, Kolkata.

Issue:

Whether refund of accumulated ITC under Section 54(3)(ii) of the CGST Act is admissible where the principal input and output are both tea taxable at 5%, but packing materials used for making the final packaged product attract GST at a higher rate; and whether para 3.2 of CBIC Circular No. 135/5/2020-GST restricts such refund.

Held That:

The GSTAT, Kolkata dismissed the Revenue’s appeal and upheld the refund. The Tribunal held that Section 54(3)(ii) permits refund where ITC accumulates because the rate of tax on inputs is higher than the rate of tax on output supplies. The expression “inputs” is deliberately used in the plural and the statute makes no distinction between principal and ancillary inputs. Therefore, packing materials, labels, cartons and containers, being goods used in the course or furtherance of business, fall within the broad definition of “input” under Section 2(59) and are eligible for ITC as well as refund under Section 54(3)(ii), subject to statutory restrictions.

The Tribunal rejected the Revenue’s contention that the refund had to be examined merely by comparing bulk tea with packaged tea. It held that ignoring the packing materials would amount to incorrectly restricting the statutory expression “inputs”. The fact that the principal input and output were tea, both attracting 5% GST, could not defeat the refund when other eligible inputs—particularly packing materials taxed at 12%—resulted in accumulation of ITC.

The Tribunal also held that CBIC Circular No. 135/5/2020-GST was not applicable to the present facts. Para 3 of the Circular specifically dealt with accumulation of ITC arising due to reduction in the GST rate on the same goods at different points of time. In the present case, there had been no reduction in the rate of tax on tea; bulk tea purchased and packaged tea supplied both attracted GST at 5%. Hence, the factual situation contemplated by para 3.2 of the Circular was absent.

Relying upon the principles laid down by the Delhi High Court in Indian Oil Corporation Ltd., the Tribunal further observed that a CBIC circular issued under Section 168(1) cannot curtail, restrict or override a benefit expressly available under the CGST Act. A circular may ensure uniform implementation of the statute but cannot introduce a substantive restriction which is not contained in Section 54(3).

Accordingly, since the packing materials constituted eligible inputs and their higher tax rate resulted in accumulation of ITC, the respondent was entitled to refund under Section 54(3)(ii). The Revenue’s appeal was therefore dismissed, with parties directed to bear their own costs.

Case Name: The Pr. Commissioner CGST & CX, Siliguri Commissionerate Versus M/s. Tea Linker. Dated 03.09.2026