Refund of ITC on account of IDS allowed where goods supplied under concessional rate notification


The Hon’ble Telangana High Court in Micro Systems and Services v. Union of India and 5 others [Writ Petition No.37465 of 2021 dated September 5, 2022] remanded back the matter to the assessing authority for reconsidering the refund claimed by the assessee noting that refund of accumulated Input Tax Credit (“ITC”) on account of inverted duty structure (“IDS”) is allowed where the goods have been supplied under concessional rate notification.


Micro Systems and Services (“the Petitioner”) is a proprietary concern engaged in the business of assembling and supply of computers and computer parts and is also a registered supplier to all the Defense, Research & Development Organization (“DRDO”) Laboratories and affiliates across the country.

The Petitioner filed an refund application dated December 2, 2020 (“the Refund Application”) to the assessing authority (“the Respondent”), claiming a refund of GST under IDS on supply of goods under concessional rate notification.

Further, the Respondent issued a Show-Cause Notice dated December 28, 2020 (“the SCN”), calling upon the Petitioner to show that why the refund application should not be rejected for contravention of Section 54(3)(ii) of the Central Goods and Services Tax Act, 2017 (“the CGST Act”).

Notwithstanding the reply submitted by the Petitioner, the Respondent rejected the refund application in the order dated January 04, 2021 (“the OIO”), based on Para 3.2 of the Circular No. 135/05/2020- GST dated March 31, 2020 (“Circular No. 135/2020-GST”).

Being aggrieved by this, the Petitioner appealed under Section 107 of the CGST Act. However, the Respondent by order dated April 9, 2021 (“the OIA” or “the Impugned order”), confirmed the rejection and dismissed the appeal.

Therefore, the Petitioner filed the present writ petition contending that Para 3.2 of the Circular No. 135/2020-GST, has been further clarified by the Circular No. 173/05/2022- GST dated July 06, 2022 (“Circular No. 173/2022-GST”) thus, Refund application should be allowed.


Whether or not the Petitioner is eligible for the refund in light of Circular No. 173/2022-GST?


The Hon’ble Telangana High Court in Writ Petition No.37465 of 2021 dated September 5, 2022, held as under:

  • Noted that the Circular No. 173/2022-GST, clarified that it was not the intent of Para 3.2 of Circular No. 135/2020-GST, to cover the cases where the supplier is making supply of goods under a concessional notification and the rate of tax on output supply is less than the rate of tax on input supply (of the same goods) at the same point of time due to supply of goods by the supplier under a concessional notification. Therefore, clarified that in such cases, refund of accumulated ITC on account of IDS would be allowed.
  • Further, stated that the above-mentioned circular was clarificatory in nature thus, effective from March 31, 2020.
  • Accordingly, set aside the Impugned order and held that claim of the Petitioner must be re-considered and remanded back the matter for re-consideration based on the above-mentioned circular. Further, directed that the above exercise on remand must be carried out by the Respondent within a period of 8 weeks from the date of receipt of a copy of this order.
  • Therefore, allowed the writ petition filed by the Petitioner.

Relevant Provision:

Section 54(3) of the CGST Act:

“54. Refund of tax

(3) Subject to the provisions of sub-section (10), a registered person may claim refund of any unutilised input tax credit at the end of any tax period:

Provided that no refund of unutilised input tax credit shall be allowed in cases other than–

(i) zero rated supplies made without payment of tax;

(ii) where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies (other than nil rated or fully exempt supplies), except supplies of goods or services or both as may be notified by the Government on the recommendations of the Council:

Provided further that no refund of unutilised input tax credit shall be allowed in cases where the goods exported out of India are subjected to export duty:

Provided also that no refund of input tax credit shall be allowed, if the supplier of goods or services or both avails of drawback in respect of central tax or claims refund of the integrated tax paid on such supplies.”

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CA Bimal Jain
A2Z Taxcorp LLP is a boutique Indirect Tax firm having its offices at New Delhi and Guwahati specializing in GST, Central Excise, Custom, Service Tax, VAT, DGFT, Foreign Trade Policy, SEZ, EOU, Export – Import Laws, Free Trade Policy, etc. It is a professionally managed firm having a team of experienced and distinguished Chartered Accountants, Company Secretary, Lawyers, Corporate Financial Advisors and Tax consultants to provide various services like litigation and representation, transaction advisory, diagnostic reviews/ health checks, audit defense & protection, retainership & compliance, configuration of tax efficient business model etc. Its clientele consists mainly of Foreign MNC, large/mid-sized Indian companies which includes exporters, FMCG, consumer durables, automobiles, aerated beverages, ceramic tiles, real-estate, hospitality, etc. Our clients include Varun Beverages Limited, Kajaria Ceramics Limited, L.G. Electronics India Private Limited, Shipra Hotel Limited, Multani Pharmaceuticals Limited, Shangri-La Eros Hotel etc. Flat No. 34B, Ground Floor, Pocket - 1, Mayur Vihar, Phase–I, Delhi – 110091 India Desktel:+91-11-42427056 Mobile:+91 8076563802
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