Refund of ITC under Inverted Duty Structure Allowed Despite Same HSN{ Commissioner of CGST & Central Excise vs. HP Cotton Casuals (P.) Ltd. [2026] 190 taxmann.com 451 (GSTAT – KOLKATA)/[2026] 117 GST 632 (GSTAT – KOLKATA)}
Facts:
Assessee claimed refund of unutilised ITC accumulated due to an inverted duty structure, where the tax rate on inputs was higher than the rate applicable to the outward supplies. The refund was denied on the ground that the input and output goods had the same HSN classification, relying on Circular No. 135/05/2020-GST.
Issue:
Whether refund of accumulated ITC under Section 54(3)(ii) of the CGST Act can be denied merely because the input and output goods have the same HSN classification.
Held:
The Tribunal held that refund cannot be denied merely on the basis of the same HSN classification. Section 54(3)(ii) focuses on the existence of an inverted tax rate structure, i.e. higher tax on inputs than outputs, and does not require the input and output goods to be different or involve manufacturing. Circular No. 135/05/2020-GST was held inapplicable where higher-taxed inputs were actually used for supplying lower-taxed outputs.
