GST Refund Granted Under IDS Based on Modified Formula: Key Insights

By: Admin Date: January 15, 2025 Categories: Important Pronouncements Reading Time: 4 Minutes

Introduction

The Hon’ble Gujarat High Court, in the case of Tirth Agro Technology Pvt. Ltd. & Anr. v. Union of India & Ors. [R/Special Civil Application No. 11649 of 2023, dated December 20, 2024], provided significant clarification on GST refunds under the Inverted Duty Structure (IDS). The Court directed the release of differential refunds as per the amended formula outlined in Rule 89(5) of the CGST Rules, 2017, irrespective of the filing date of the original refund applications.

Case Summary

1. Background

The petitioners filed refund applications under Section 54(3) of the CGST Act based on Rule 89(5) of the CGST Rules.

Refunds were initially granted as per the old formula, excluding input services. However, the petitioners sought differential refunds using the amended formula notified via Notification No. 14/2022, effective July 5, 2022.

2. Key Issue

Whether GST refunds can be granted using the modified formula for applications filed before the amendment date.

3. Arguments

The petitioners argued that the amended formula corrected anomalies and should apply retrospectively for refund claims filed within the two-year limitation under Section 54(1).

The GST authorities claimed that the amendment was prospective, applying only to applications filed on or after July 5, 2022.

4. Court Observations

Citing Collector of Central Excise v. Wood Craft Products Ltd. [(1995) 3 SCC 454], the Court clarified that amendments intended to rectify anomalies are clarificatory and must apply retrospectively.

The Court held that denying refunds based on the old formula for claims within the two-year limitation was discriminatory and violated Section 54(3) of the CGST Act.

Verdict

The Court ruled in favor of the petitioners, directing GST authorities to:

• Grant differential refunds using the amended formula to eligible taxpayers.
• Ensure compliance within three months of receiving the order.

Related Judgment

In Kashi Exports v. Union of India [R/Special Civil Application No. 13480 of 2023], the Gujarat High Court ordered the reconsideration of refund applications due to clarifications on the calculation of Adjusted Total Turnover under Rule 89(4).

Key Takeaways

• Taxpayers filing refund applications within the two-year limit are entitled to refunds using the modified formula.
• Amendments correcting procedural anomalies may apply retrospectively unless explicitly stated otherwise.
• This ruling provides clarity and reinforces the principle of equality in tax administration.

Stay updated on GST law developments to ensure compliance and maximize refunds.