Legality of the Restriction Posed by Circular No. 181/13/2022-GST Dated 10-11-2022: Adding to the Woes of the Edible Oil and Coal Industry

The issuance of Circular No. 181/13/2022-GST dated 10-11-2022 by Central Board of Indirect Taxes and Customs (CBIC) has sparked considerable litigation, particularly among suppliers of specified goods falling under Chapters 15 (edible oils) and 27 (coal, lignite) of the Custom Tarriff Act, 1975¹. The retroactive denial of refund claim has led to widespread disputes, with affected taxpayers challenging the legality of Circular No. 181/13/2022-GST dated 10-11-2022.

This article aims to examine the legal implications of these developments, particularly concerning the retrospective application of refund restrictions.

Legal framework governing refund claims on account of inverted duty structure

The Central Government exercised their powers under clause (ii) of proviso to Section 54(3)² of the Central Goods and Services Tax Act, 2017 (CGST Act, 2017)³ and issued Notification No. 05/2017-Central Tax (Rate) dated 28-6-2017, notifying the products on the outward supply of which, no refund shall be allowed. To broaden the scope of the same, Notification No. 09/2022-Central Tax (Rate) dated 13-7-2022, was issued, whereby the suppliers of goods falling under Chapters 15 and 27 which includes edible oil, coal, etc. were notified as ineligible for claiming refund under the inverted duty structure (IDS).

Pursuant to the above amendment, the CBIC issued Circular No. 181/13/2022-GST dated 10-11-2022 to address the concerns regarding the implementation of the Notification dated 13-7-2022. The key clarification provided by the Circular was that the restriction imposed on refund of unutilised input tax credit on account of IDS, arising in case of specified goods falling under Chapters 15 and 27 would apply prospectively from 18-7-2022, meaning that the refund claims relating to the prior period, but filed post the said date shall also be hit by the restriction posed by the Notification dated 28-6-2017.

Impact of clarification provided by Circular No. 181/13/2022-GST dated 10-11-2022

It is worthwhile to note that the said clarification presents an inherent contradiction. On one hand, the Circular No. 181/13/2022-GST dated 10-11-2022 explicitly acknowledges that Notification No. 09/2022 dated 13-7-2022 has prospective applicability. However, in direct contradiction to this stance, the Circular asserts that refund applications cannot be made after 18-7-2022, even in cases where the accumulation of input tax credit occurred due to IDS in respect of supplies made prior to this date. Hence, rather than addressing ambiguities, this clarification has exacerbated confusion and given rise to further disputes among the assessees in the edible oil and coal industry. The authorities are strictly interpreting this Circular and rejecting claims solely on the ground that the applications seeking refund attributable to the past periods have been filed after the cut-off date.

Legal developments

It is pertinent to note that in terms of Section 54(1) of the CGST Act, 2017, an assessee can file a refund application in relation to a particular period, any time before the expiry of 2 years from the “relevant date” i.e. the due date of filing the monthly Form GSTR-3B returns in case of IDS refunds. Accordingly, it is inevitable that certain assessees who would have been eligible to file their refund claim for the period July 2020 onwards but had not done so yet, were adversely affected by the same.

It is a trite law that the refund must be ascertained in terms of the rules as in force during the relevant time and subsequent amendments cannot take away the substantive right of refund, which has accrued for the past period.⁴

The High Courts of Andhra Pradesh and Gujarat have already examined the issue and affirmed that Notification No. 09/2022 dated 13-7-2022 is prospective in nature. Accordingly, taxpayers are not barred from claiming refund of input tax credit accumulated prior to 18-7-2022, even if the refund application is filed subsequent to the said date. In this regard, it has now been held that Circular No. 181/13/2022-GST dated 10-11-2022 is invalid insofar as it precludes refund applications filed post 18-7-2022 for input tax credit accumulated before that date. Consequently, the clarification provided in Para 2(2) of Circular No. 181/13/2022-GST dated 10-11-2022 was struck down as being ultra vires Section 54 of the CGST, 2017, for being in violation of Article 14 of the Constitution of India.⁵

These rulings are a welcome development and hold a significant importance for the edible oil and coal industry. Now it is to be seen whether these rulings will suffice for the already suffering dealers of edible oil and coal industry or the Board will need to step in and offer clarity.

Our views

The dealers of edible oil and coal industry have been put in an extremely disadvantageous position as refund of unutilised input tax credit which was assumed to have already accrued was abruptly taken away by the Government by way of the clarification dated 10-11-2022. It is important to note that even if the above clarification does not stand the test of law, the refunds of such dealers still stand restricted post 18-7-2022. However, presently, the dealers can celebrate the small win and enjoy the much-needed relief to the assesses operating in the said field whose refund claims are rejected by the Department by relying upon Circular No. 181/13/2022-GST. It remains to be seen if the said rulings will be challenged or if the other High Courts will take a divergent view in the said regard.

These developments also raise the question of the fate of dealers who accepted the retroactive application of the restriction and resultantly, did not file the refund claims post 18-7-2022 for the past periods. Can they be put in a worse-off position merely for accepting the circular’s clarification on face value? Since the time-limit for filing the refund claims for the said period has since expired, there does not appear to be a ready remedy available for them unless the Board intervenes to ensure parity of such dealers with the ones who were able to obtain relief before the courts. It will be interesting to note how the uncertainties regarding the above issues will be put to rest.