Delhi High Court Directs GST Dept. To Pay GST ITC To IOCL

The Delhi High Court has allowed the refund of accumulated Input Tax Credit (ITC) due to the inverted duty structure to Indian Oil Corporation Limited (IOCL).

The bench of Justice Vibhu Bakhru and Justice Amit Mahajan has observed that the rate of tax chargeable on inputs other than LPG, which are higher than the rate of GST chargeable on bottled LPG. The ITC has accumulated on account of the rate of tax on such inputs being higher than the output supply – bottled LPG.

The petitioner/assessee is a public sector undertaking and is engaged in the business of bottling and distributing LPG for domestic as well as industrial use.

The principal source of LPG is oil refineries processing crude oil. LPG vapour is produced in the oil refineries during the refining process. It is stated that LPG consists of various hydrocarbons such as propylene, butane and butylene. The hydrocarbons are liquefied on compression. LPG is transported in bulk through 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. The cylinders are then distributed to customers.

The bulk LPG used as the principal input, as well as bottled LPG supplied by the petitioner, are chargeable to GST at the rate of 5% in terms of Entry No.165 and 165A of Schedule I appended to CGST Notification Ref. No.1/2017 – CT (Rate) dated 28.06.2017. However, the petitioner also uses various other items in the production of bottled LPG, which includes accessories required for the purpose of safety. The said items are chargeable to varying rates of GST.

The applications were acknowledged but the same were not processed. The concerned officer issued show cause notices (in Form GST RFD-08) pursuant to the respective refund applications filed by the petitioner. The petitioner responded to the show causes notices. However, the petitioner's claims were not accepted. The Adjudicating Authority rejected the applications filed by the petitioner for various tax periods by respective Orders-in-Original.

The issue raised was whether IOCL's claim for a refund for accumulated unutilised ITC is admissible, which has to be determined with reference to the express provisions of Section 54 of the CGST Act.

The petitioner's claim for refund is founded on Clause (ii) of the proviso to Section 54(3) of the CGST Act. According to the petitioner, the rate of tax on certain inputs is higher than the tax paid on outputs (bottled LPG). As a result, the petitioner has been unable to fully utilise the ITC on its inputs.

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

The department contended that the refund would be admissible under Clause (ii) to proviso to Sub-section (3) of Section 54 of the CGST Act. No refund would be admissible as the rate of tax on bulk LPG and bottled LPG was the same.

The court directed the concerned authority to process the petitioner's applications for refund along with applicable interest in accordance with law as expeditiously as possible and in any event, within a period of six weeks from the date.

Counsel For Petitioner: S. Ganesh

Counsel For Respondent: Atul Tripathi

Case Title: IOCL Versus Commissioner Of Central Goods And Services Tax & Ors.

Citation: 2023 LiveLaw (Del) 1279

Case No.: W.P.(C) 10222/2023 & CM No.39561/2023

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