Goods & Services Tax (GST) in IndiaPedantic Approach cannot be Adopted for Rejection of a Legitimate Refund Claim

November 7, 20230

The Gujarat High Court in PeeGee Fabrics Pvt. Ltd. vs Union of India & Ors. (Special Civil Application No. 5010 of 2021 decided on 15.09.2023) directed for the refund of ITC as a refund claim cannot be rejected on hyper-technical grounds. Moreover, the refund application was filed as the reversal was restricted by the GSTN Portal, hence, a pedantic approach cannot be adopted for  rejecting a legitimate refund claim.


PeeGee Fabrics Pvt. Ltd. (hereinafter referred to as the “Petitioner”)  was engaged in the business of textile manufacturing of fabrics i.e. from raw yarn and trading activity of fabrics. The Petitioner was liable for the payment of tax at rate of 5% on the sale of the fabrics. Whereas, raw materials used for manufacturing of fabrics i.e. yarn, colour and chemical, stores and consumable, power and fuel are chargeable at higher rate from 12% to 28% under the law.

The Petitioner was eligible to avail Input Tax Credit (hereinafter referred to as “ITC”) due to inverted duty tax structure as per Section 54(3)(ii) of the Central Goods and Services Tax Act, 2017 (hereinafter referred to as the “CGST Act”).

As per the Notification No. 5/2017, the Petitioner was ineligible to claim refund of unutilised ITC on woven fabrics as well as knitted fabrics. Further, the restriction was removed by Notification No. 20/2018 dated 26.07.2018 and clarification for calculating lapse of credit was issued vide Circular No. 56/2018 dated 24.08.2018.

The Petitioner had filed the returns for the FY 2017-18, wherein, wrong credit was mistakenly claimed on the capital goods and the Petitioner had already claimed depreciation on the amount of invoice while buying such capital goods. Therefore, the Petitioner was required to reverse the credit claimed on ITC of such capital goods.

The Petitioner was supposed to reverse the ITC under Form DRC-03 as prescribed under Rules 42 and 43 of the Central Goods and Services Tax Rules, 2017 (hereinafter referred to as the “CGST Rules”). Due to non-availability of Form DRC-03 on the GSTN Portal, the Petitioner reversed the ITC in Form-3B for the month of August 2018. Moreover, the Petitioner also claimed ITC of Rs. 56,01,017/-  (Rupees Fifty Six Thousand One Thousand Seventeen Only) in respect of supplies of goods and Rs. 1,14,689/- (Rupees One Lakh Fourteen Thousand Six Hundred Eighty Nine Only) in respect of supplies of services under the inverted duty tax structure, for which the Petitioner was not entitled.

The Petitioner was then eligible for refund of ITC from August 2018 as per the Notification No. 20/2018 and Circular No. 56/2018 subject to calculation under Rule 89 of the CGST Rules. Hence, the Petitioner was eligible for refund of Rs. 22,78,798/- (Rupees Twenty Two Lakhs Seventy Eight Thousand Seven Hundred Ninety Eight Only). In view of reversal of wrongly claimed ITC on capital goods, the amount of refund claim was reduced by Rs. 8,06,852/- (Rupees Eight Lakhs Six Thousand Eight Hundred Fifty Two Only) as per the calculation by the GSTN Portal.

The Petitioner raised a query vide email dated 14.06.2019 before CBIC Mitra Helpdesk which was finally resolved by e-mail dated 19.06.2020, the Petitioner was asked to file refund under  “any other” category instead of “refund of unutilized ITC on account of accumulation due to inverted tax structure” in FORM GST RFD-01A.

The Petitioner filed second application in FORM GST RFD-01A seeking refund on account of ITC accumulated due to Inverted Tax Structure and acknowledgment was generated on 21.06.2019. However, the Petitioner was allowed refund of Rs.14,71,946/- (Rupees Fourteen Lakhs Seventy One Thousand Nine Hundred Forty Six Only). Further the Petitioner filed another refund application for amount of Rs.8,06,852/- (Rupees Eight Lakhs Six Thousand Eight Hundred Fifty Two Only) under the head “any other specify” and was filed on 08.08.2019.

The Respondent Authority issued a Show Cause Notice (hereinafter referred to as the “SCN”) against the refund application dated 08.08.2019. The Ld. Deputy Commissioner disregarded all the submissions and rejected refund application vide order dated 12.09.2019 (hereinafter referred to as the “Impugned Order”) on the ground of impossibility of split of refund claim for one month into two refund applications. Further, also on the ground of refund of reversed ITC on capital goods cannot be claimed as refund.

The Petitioner preferred an appeal against the Impugned Order before the Ld. Joint Commissioner (Appeals) under Section 107 of the CGST Act, which was rejected vide order dated 20.09.2019 (hereinafter referred to as the “Impugned Appellate Order”)

Being aggrieved by the Impugned Order and Impugned Appellate Order, the Petitioner has filed the present petition.


  1. Whether the second refund application filed by the Petitioner due to restriction of filing of reversal ITC on the GSTN Portal is maintainable?


The Petitioner contended that the Petitioner was entitled for the refund of ITC as per Notification No.20/2018 read with Circular No. 56/2018 under Rule 89 read with Rule 54(3)(ii) of the CGST Rules. It was also submitted that petitioners are entitled to get refund of ITC as per the inverted duty tax structure amounting to Rs.22,78,798/- Rupees Twenty Two Lakhs Seventy Eight Thousand Seven Hundred Ninety Eight Only).

It was argued that the refund was proportionally reduced due to wrongly claim of ITC on capital goods for the FY 2017-18 in August 2018. It was also submitted that the Respondents could not reject the refund application of the Petitioner dated 08.08.2019 is in contravention to Circular No. 94/2019 dated 28.03.2019..

The Respondents argued that the Petitioner cannot file a second refund application for the same month (August, 2018) in “any other” category and the same was contrary to Rule 89(5) of the CGST Rules. It was contended  that the Petitioner had already reversed ITC amounting to Rs.10,12,189/- (Rupees Ten Lakhs Twelve Thousand One Hundred Eighty Nine Only) under Form GSTR-3B and hence, the refund cannot be again claimed under the inverted duty tax structure under Section 54, CGST Act.


The Gujarat High Court examined the Notification No.5/2017 dated 28.06.2017, Notification No.20/2018 dated 26.07.2018 as well as Circular No. 56/2018 dated 24.08.2018 and Circular No.94/2019 dated 28.03.2019. It was observed that the reasons given by the Respondents for the rejection of refund application dated 08.08.2019 was not in accordance of Rule 89(5) of the CGST Rules was wrong, as the Petitioner had filed the second claim of refund ITC merely because the GSTN Portal did not permit the Petitioner to file the application for reversal of ITC.

The High Court observed that the Respondents should not have adopted a pedantic approach and should not have rejected the application on such hyper technical grounds.

The High Court quashed and set aside the Impugned Order and Impugned Appellate Order and directed the Respondents to sanction the refund of Rs.8,06,852/- as per the refund application dated 08.08.2019 within six weeks from the order.


The High Court of Gujarat in the present case has upheld that the Department cannot have a pedantic approach while dealing with refund applications. Moreover, filing of two refund applications due to restriction by GSTN Portal cannot be considered to be contrary or in violation to Rule 89(5) of the CGST Rules. Moreover, CBIC Circulars are binding on the Department.



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