Introduction

The High Court of Judicature at Patna delivered a
significant judgment in the case of M/s Induvarna LPG Bottling Private Limited
vs. The Union of India & Others (Civil Writ Jurisdiction Case No.18609 of
2023). The case revolves around a refund claim under the “Inverted Duty
Structure” provision of the Goods and Services Tax (GST) regime,
highlighting important aspects of tax refund claims, limitation periods, and
the effect of appellate proceedings on such claims.

Background of the Case

M/s Induvarna LPG Bottling Private Limited, the petitioner,
is engaged in the business of bottling LPG gas. The company purchases LPG in
bulk after paying applicable taxes, bottles it in cylinders, and then sells it
to customers. Commercial users are charged the same tax rate as on the purchase
of LPG, while domestic users are charged at a lower rate. This creates what is
known as an “Inverted Duty Structure” – where the tax paid on inputs
(purchases) is higher than the tax collected on outputs (sales).

Legal Framework

Section 54(3)(ii) of the Central Goods and Services Tax Act,
2017 (CGST Act), read with Rule 89(5) of the Central Goods and Services Tax
Rules, 2017 (CGST Rules), provides for a refund of such differential tax. The
law mandates that applications for such refunds must be filed within two years
from the “relevant date,” which for unutilized input tax credit is
the end of the financial year in which the refund claim arises.

Chronology of Events

1. For
   the financial year 2018-19 (specifically October 2018 to March 2019), the
   petitioner had paid taxes according to the law and filed returns on time.
2. The
   “relevant date” for filing a refund application for FY 2018-19
   would be March 31, 2019, making the limitation period expire on March 31,
   2021.
3. On
   January 29, 2021, the Assessing Officer raised demand orders for FY
   2018-19 and 2019-20.
4. On
   March 20, 2021 (just before the limitation period expired), the tax
   department recovered the demanded amount by setting it off against the
   credit in the petitioner’s input tax credit ledger.
5. The
   petitioner appealed against these demand orders.
6. On
   February 20, 2022, the Appellate Authority allowed the appeal, but the
   order was allegedly received by the petitioner only on August 15, 2022.
7. The
   recovered amounts were credited back to the petitioner’s credit ledger on
   August 24, 2022.
8. The
   petitioner filed a refund application on April 12, 2023, claiming a refund
   of ₹6,12,487/- paid under IGST.
9. The
   Assessing Officer rejected the application on the grounds that it was
   filed beyond the limitation period.

Contention of Parties

Petitioner’s Arguments

1. The
   limitation period should commence from August 15, 2022, when the appellate
   order was received.
2. The
   Central Board of Indirect Taxes and Customs had extended the due date for
   filing refund claims for FY 2018-19 until March 31, 2023, through
   Notification No. 13/2020-Central Tax dated July 5, 2022.
3. The
   petitioner alleged that the Assessing Officer had demanded bribes, and
   when refused, wrongfully raised excessive demands for FY 2018-19 and
   2019-20.

Respondents’ Arguments

The Government Advocate argued that the online application
for refund could not be uploaded because the “Inverted Duty
Structure” refund is only available for two years from the relevant date.

Court’s Analysis

The High Court made several key observations:

1. Change
   in Character of Funds: When the tax department set off the amounts
   from the petitioner’s credit ledger against the demand (on March 20,
   2021), the character of those funds changed from “amount eligible for
   refund under Inverted Duty Structure” to “tax recovered by the
   department.”
2. Application
   of Explanation 2 to Section 54: Clause (2) of the second Explanation
   to Section 54 states that when tax becomes refundable as a consequence of
   a judgment or order of an Appellate Authority, the relevant date is the
   date of communication of such order. In this case, that date was August
   15, 2022, when the appellate order was communicated to the petitioner.
3. Nature
   of Current Application: The current application is not for a refund
   under the “Inverted Duty Structure” provision but for a refund
   of tax amounts that were set off against demands that were later set aside
   by the Appellate Authority.

Court’s Decision

The High Court allowed the writ petition with the following
directions:

1. The
   physical application filed by the petitioner should be considered under
   Clause (2) of the second Explanation to Section 54.
2. The
   refund should be processed and effectuated within two months from the date
   of receipt of the certified copy of this judgment.
3. The
   court recognized that the amount in the petitioner’s credit ledger is no
   longer characterized as amounts due under the “Inverted Duty
   Structure” but as tax amounts refunded based on the appellate order.

Significance of the Judgment

1. Clarification
   on Limitation Period: The judgment clarifies that when tax becomes
   refundable as a result of an appellate order, the relevant date for
   calculating the limitation period is the date of communication of that
   order, not the end of the financial year to which the tax relates.
2. Change
   in Character of Funds: The court recognized that the character of
   funds can change based on transactions and proceedings, affecting how
   limitation periods apply.
3. Procedural
   Justice: Despite technical issues with online uploads and strict
   limitation periods, the court prioritized substantive justice by directing
   the processing of the physical application.

Conclusion

This judgment demonstrates the judiciary’s approach to
balancing strict statutory requirements with the principles of substantive
justice. It recognizes that tax proceedings are dynamic and that the character
of funds can change based on administrative actions and appellate decisions.
The court’s interpretation of the “relevant date” under Explanation 2
to Section 54 provides valuable guidance for taxpayers seeking refunds
following successful appeals against tax demands.

The case also highlights the importance of understanding the
various provisions related to refunds under the GST regime, particularly in
complex situations involving inverted duty structures, appellate proceedings,
and changes in the nature of funds in credit ledgers. For businesses operating
under similar circumstances, this judgment offers a precedent for seeking
refunds even after the typical limitation period has expired, provided the
refund becomes due as a consequence of an appellate order.

Read the full judgement Below;

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