Delhi HC Allows GST Refund to IOCL of Accumulated ITC Due to Inverted Duty Structure

The refund of ITC accumulated because of the inverted duty structure to the Indian Oil Corporation Limited (IOCL) is been permitted by the Delhi High Court.

The tax rate levied on the inputs excluding LPG which are more compared to the GST rate levied on bottled LPG. ITC has accumulated based on the tax rate on these inputs is more compared to the output supply- bottled LPG.

The applicant/taxpayer is a public sector undertaking and has the business of bottling and distributing the LPG for domestic and industrial usage.

Important: GST Impact on the Oil and Gas Sector in India

The main source of LPG is oil refineries processing crude oil. LPG vapour is been produced in the oil refineries at the time of the refining procedure. It is mentioned that LPG comprises distinct hydrocarbons like propylene, butane, and butylene.

The hydrocarbons are liquefied on compression. LPG is transported in bulk via road and rail to the petitioner’s bottling plant. It is unloaded and compressed into liquid form and the same is refilled and bottled in cylinders. The cylinders are thereafter sealed and safety valves are fixed. After that, the cylinders are distributed to customers.

The bulk LPG utilized as the principal input, and bottled LPG supplied through the applicant, are levied to GST at a 5% rate in terms of Entry No.165 and 165A of Schedule I appended to CGST Notification Ref. No.1/2017 – CT (Rate) on 28.06.2017. However, the applicant also uses different other items in the production of bottled LPG, which includes accessories required for safety. The stated items are levied to varying rates of GST.

The applications were considered however they were not processed. The pertinent officer issued show-cause notices (in Form GST RFD-08) beneath the separate refund applications filed via the applicant.

The applicant answered to the show causes notices. But, the claim of the petitioner was not accepted. The Adjudicating Authority denied the applications that the petitioner filed for distinct tax periods by respective Orders-in-Original.

The problem asked was that if the claim of the IOCL for the refund of the accumulated used input tax credit(ITC) is permitted that needs to be specified about the express provisions of section 54 of the CGST act.

The claim of the applicant for the refund is revealed in clause (ii) of the proviso to Section 54(3) of the CGST Act. As per the applicant, the tax rate on specific inputs is more compared to the tax filed on the output (bottled LPG). The applicant as a result is not able to completely use the ITC on its inputs.

Only on the ITC accumulated on the account of the “rate of tax on inputs being more than the rate of tax on output supplies” Clause (ii) of the proviso to sub-section (3) of Section 54 of the CGST Act is applicable.

The council argued that the refund shall be admissible under Clause (ii) to proviso Sub-section (3) of Section 54 of the CGST Act. No refund shall be admissible since the tax rate on the bulk LPG and bottled LPG was identical.

The court rendered that the related authority to process the application of the applicants for the refund including with the applicable interest as per the law as expeditiously as possible and in any event within 6 weeks from the date.