HC judgement on IOCL sets precedent on input tax refunds under GST
New Delhi, Dec 11, 2023
The court has instructed the authorities to process the input tax refund sought by IndianOil despite the tax rate on its principal input and principal output being the same
The Delhi High Court has resolved a dispute arising from conflicting interpretations of input tax refunds under the goods and services tax (GST) system by the authorities and oil major, Indian Oil Corporation (IndianOil).
Experts believe that the judgment sets a precedent not only for the oil industry but also for many others.
The court has instructed the authorities to process the input tax refund sought by IndianOil despite the tax rate on its principal input and principal output being the same.
According to provisions under the GST laws, an input tax refund is applicable either when the output draws zero tax or when the tax on the input is higher than that on the output, technically called an inverted duty structure.
In all other cases, input taxes need to be utilised to pay taxes on the output, technically called input tax credit.
In this case, the input tax refund was denied to IndianOil since GST on its principal input, bulk liquefied petroleum gas (LPG), stands at 5 per cent, the same as that on its principal output, bottled LPG.
However, IndianOil claimed that some of its inputs draw more than 5 per cent GST, and hence it is eligible for input tax refunds.
Besides bulk LPG, IndianOil uses various other inputs for the safety of cylinders, such as valves, safety caps, nylon thread, stainless steel clips, plastic seals, lubricants, nuts and bolts, gaskets, water pumps, fuel filters, oil, clamp, dry chemical for extinguishers, etc.
The court noted that the GST laws only restrict the refund of unutilised input tax credit to cases where there is an accumulation of unutilised ITC due to the rate of tax on inputs being higher than the rate of tax on the output supplies.
It also observed that the GST laws do not contemplate comparing the rate of tax on the principal input with the rate of tax chargeable on the principal output supply.
There is neither any reason nor any scope to further confine the refund of unutilised ITC only to cases where the rate on the main input is higher than the rate of tax on the principal output, it noted.
As such, it ruled in favour of IndianOil.
Saurabh Agarwal, tax partner at EY, said the landmark judgment not only granted IndianOil the rightful refund but also set a precedent for all businesses operating under the GST regime, such as manufacturers of fertiliser, vanaspati and cooking oil, acrylic yarn, traders of goods incurring costs on packing materials, etc.
“The judgment will ultimately benefit businesses across all sectors, leading to improved cash flow, enhanced competitiveness, and a more equitable tax environment,” Agarwal said.
The judgment also strengthens India’s attractiveness for foreign investors, by promoting tax transparency and predictability, encouraging capital inflow, and further fuelling economic growth, he said.
[The Business Standard]