The Hon’ble Supreme Court in the case of Union of India & Ors. v. Tirth Agro Technology Pvt. Ltd. & Ors. [SLP (Civil) Diary No. 31632 of 2025 dated July 18, 2025] held that no interference was warranted with the Gujarat High Court’s judgment granting refund based on the modified formula of Inverted Duty Structure (IDS) Refund under Rule 89(5) of the CGST Rules.
Facts:
Tirth Agro Technology Pvt. Ltd. (“the Respondent”) had filed a writ petition before the Gujarat High Court, seeking refund of the differential ITC amount, accumulated under inverted duty structure (IDS), based on the amended formula under Rule 89(5) of the CGST Rules.
The change in the rule 89(5) of CGST Rules, 2017 has been reproduced as following:
| Rule. 89(5) of the CGST Rules, 2017
|
In the case of refund on account of inverted duty structure, refund of input tax credit shall be granted as per the following formula:-
Maximum Refund Amount = {(Turnover of inverted rated supply of goods and services) x Net ITC ÷ Adjusted Total Turnover} – tax payable on such inverted rated supply of goods and services.
|
| Explanation: | For the purposes of this sub-rule, the expressions –
(a) Net ITC shall mean input tax credit availed on inputs during the relevant period other than the input tax credit availed for which refund is claimed under sub-rules (4A) or (4B) or both; and
(b) Adjusted Total turnover shall have the same meaning as assigned to it in sub-rule (4).” |
In the instant case, the refund claims pertained to applications filed for the period prior to July 5, 2022. Although partial refund had been granted under the old formula (excluding input services), rectification applications filed in light of the amended formula were rejected by the department citing that refund as per the old formula had already been disbursed.
The Gujarat High Court, relying on its earlier decision in Ascent Meditech Ltd. v. Union of India & Ors. [SCA No. 18317 of 2023, dated October 17, 2024], held that the amendment to Rule 89(5) and the corresponding CBIC Circular No. 181/13/2022-GST dated November 10, 2022, were clarificatory and curative in nature, and therefore applicable retrospectively. Consequently, the writ petition was allowed. Aggrieved, the Revenue filed a Special Leave Petition before the Hon’ble Supreme Court.
Issue:
Whether the Gujarat High Court was justified in allowing refund based on the amended formula under Rule 89(5) for claims filed prior to July 5, 2022, treating the amendment as retrospective.
Held:
The Hon’ble Supreme Court in SLP (Civil) Diary No. 31632 of 2025 held as under:
- Observed that the Gujarat High Court had relied upon its earlier decision in Ascent Meditech Ltd., which had already been subjected to challenge before the Supreme Court in SLP (C) No. 8134 of 2025 and was dismissed on March 28, 2025.
- Noted that, the present SLP was filed in June 2025, yet the factum of dismissal of the earlier SLP was not disclosed by the petitioners.
- Held that, in view of the above factual matrix, no grounds for interference were made out.
- Accordingly, dismissed the Special Leave Petition and disposed of pending applications, if any.
Our Comments:
The Gujarat High Court has held in the case of Ascent Meditech Ltd. Vs. Union of India and Ors. [R/SPECIAL CIVIL APPLICATION NO. 18317 of 2023] that the amendment to Rule 89(5) of CGST Rules is curative and clarificatory in nature and hence, the same would apply retrospectively to the refund or rectification applications filed within the period prescribed under Section 54 of CGST Act. This decision of the Hon’ble Supreme Court reinforces the view taken by the Gujarat High Court that the amendment to Rule 89(5) by Notification No. 14/2022-CT and the clarificatory Circular dated November 10, 2022 is to be applied retrospectively to refund claims filed within the two-year limitation under Section 54(1) of the CGST Act. The Court’s dismissal of the present SLP aligns with the earlier dismissal in Ascent Meditech Ltd. v. Union of India & Ors., thereby affirming the consistent judicial position that the amended formula under Rule 89(5) must govern even pre-amendment claims where refund is sought within the prescribed time.
Relevant Provisions:
Section 54(1) of the CGST Act, 2017
“Any person claiming refund of any tax and interest, if any, paid on such tax or any other amount paid by him, may make an application before the expiry of two years from the relevant date in such form and manner as may be prescribed:
Provided that a registered person claiming refund of any balance in the electronic cash ledger in accordance with the provisions of sub-section (6) of section 49 may claim such refund in the return furnished under section 39 in such manner as may be prescribed.”
Rule 89(5) – CGST Rules 2017
Application for refund of tax, interest, penalty, fees or any other amount.-
“(5) In the case of refund on account of inverted duty structure, refund of input tax credit shall be granted as per the following formula:-
Maximum Refund Amount = {(Turnover of inverted rated supply of goods and services) x Net ITC Adjusted Total Turnover} – 12[{tax payable on such inverted rated supply of goods and services x (Net ITC ÷ ITC availed on inputs and input services)}].
Explanation: – For the purposes of this sub-rule, the expressions –
(a) “Net ITC” shall mean input tax credit availed on inputs during the relevant period and
(b)”Adjusted Total turnover” and “relevant period” shall have the same meaning as assigned to them in sub-rule (4)
CBIC Circular No. 181/13/2022-GST dated November 10, 2022
“Vide Notification No. 14/2022-Central Tax dated 05.07.2022, amendment has been made in sub-rule (5) of rule 89 of CGST Rules, 2017, modifying the formula prescribed therein. The said amendment is not clarificatory in nature and is applicable prospectively with effect from 05.07.2022. Accordingly, it is clarified that the said amended formula under sub-rule (5) of rule 89 of the CGST Rules, 2017 for calculation of refund of input tax credit on account of inverted duty structure would be applicable in respect of refund applications filed on or after 05.07.2022. The refund applications filed before 05.07.2022 will be dealt as per the formula as it existed before the amendment made vide Notification No. 14/2022-Central Tax dated 05.07.2022.”
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