Inverted Duty Refund Allowed Even When Input and Output GST Rates Are Same

Case Details: South Indian Oil Corporation vs. Assistant Commissioner Central Tax - [2026] 182 taxmann.com 864 (Karnataka)

Judiciary and Counsel Details

S.R. Krishna Kumar, J.
Venkatanarayana G.M., Adv. for the Appellant.
Akash B. Shetty, Adv. for the Respondent.

Facts of the Case

The petitioner was engaged in the procurement of edible oils falling under HSN Code 15 on payment of GST at the rate of 5 per cent, which were purchased in bulk and thereafter packed into retail containers of varying quantities and supplied as output under the same HSN Code 15 at the same rate. Due to a higher rate of tax suffered on certain inputs used in the packing process, accumulated and unutilised input tax credit (ITC) arose, and the petitioner filed refund applications claiming a refund of the accumulated credit on account of the inverted duty structure. The officer rejected the refund claiming inverted duty structure was not available where input and output tax rates were the same. The matter was accordingly placed before the High Court.

High Court Held

The High Court held that accumulation of credit arose due to the rate structure and not due to change in rates at different points of time. The restriction denying refund of accumulated credit in cases where the rate of tax on input and output supplies was the same stood deleted by way of substitution through Circular No. 173/05/2022-GST, dated 06-07-2022. The Court further held that the Department of Revenue was not justified in rejecting the petitioner’s refund claims. It was accordingly held that the petitioner was eligible to claim refund of accumulated ITC on account of inverted duty structure even where the tax rate on input and output supplies was the same, and the refund claim deserved to be allowed under Section 54 of the CGST Act and the Karnataka GST Act.