Inverted Duty Structure Refund: Writ Petition Dismissed, Assessee Relegated to Appellate Remedy

Inverted Duty Structure Refund: Writ Petition Dismissed, Assessee Relegated to Appellate Remedy Due to Disputed Factual Issues

Issue:

Whether a writ petition is maintainable for a partial rejection of an inverted duty structure refund claim when there are disputed factual issues regarding the nature of goods (capital vs. non-capital) and their eventual sale/supply, and an alternative statutory remedy of appeal is available.

Facts:

For the period October 2018 to March 2019, the petitioner, an LPG cylinder bottling and supplying company, claimed a refund of ₹6,12,487 under the inverted duty structure. The original authority allowed a partial refund of ₹4,81,247 but rejected the balance amount of ₹1,31,240, citing reasons related to Section 54 of the CGST Act, 2017, read with Rule 89(5) of the CGST Rules, 2017. The petitioner asserted that it was rightfully entitled to the full refund and filed a writ petition without first exhausting the statutory remedy of appeal.

The petitioner explained its business model: it purchased LPG empty cylinders and distributed them to domestic consumers based on Aadhaar cards, asserting that the supply of empty cylinders to domestic consumers was not a “sale.” It also stated that LPG gas was purchased at 18% IGST and sold to domestic consumers at 5% GST, and to commercial entities (hotels, schools, etc.) at 18% GST. However, the court noted that the petitioner had not provided material information or clearly pointed out transactions of purchase of capital goods (gas cylinders) that were not sold/supplied, which would qualify for the refund claim. This led to disputed issues that the original authority partly rejected.

Decision:

The court held that since there were certain disputed issues, particularly regarding the original authority’s partial allowance and rejection, and the specific nature of the goods (capital goods not sold/supplied), these could not be adjudicated under Article 226 (writ jurisdiction). The remaining amount was rejected by the original authority in light of Section 54 of the CGST Act read with Rule 89(5) of the CGST Rules. Given these disputed factual matters, the petitioner was relegated to the appellate authority.

Key Takeaways:

• Alternative Remedy Rule: Writ jurisdiction (under Article 226 of the Constitution) is an extraordinary remedy and is generally not exercised when an effective alternative statutory remedy, such as an appeal under Section 107 of the CGST Act, is available.
• Factual Disputes Not Suited for Writ: Writ courts typically do not delve into complex factual disputes that require detailed evidence, cross-examination, and a thorough examination of records. Such matters are best addressed through the statutory appellate mechanism.
• Inverted Duty Structure Refund (Section 54, Rule 89(5)): Refunds under an inverted duty structure (where the tax rate on input is higher than on output supply) are governed by specific rules. Rule 89(5) lays down the formula for calculating such refunds, and its application often involves factual nuances about inputs, outputs, and their utilization.
• Burden of Proof for Refund Claim: The assessee bears the burden of clearly demonstrating their entitlement to a refund. Failure to provide sufficient material information or clarify the nature of transactions (e.g., whether cylinders were capital goods not intended for sale) during the initial adjudication or in the writ petition itself can lead to dismissal of the writ and relegation to appeal.
• Partial Rejection: A partial rejection by the original authority inherently implies that the authority has applied its mind and found certain aspects of the claim not compliant, making it a “disputed issue” suitable for appeal.
• In Favour of Revenue (Procedurally): While no decision was made on the merits of the refund claim, the procedural ruling is in favor of the revenue, as the assessee is now required to follow the prescribed appellate hierarchy.