Consistency of the "Relevant Period" in ITC Refund Computation

Consistency of the “Relevant Period” in ITC Refund Computation

1. The Dispute: Selective Interpretation of the “Relevant Period”

The assessee, a manufacturer of biostimulants and potash (seasonal goods), claimed a refund of accumulated Input Tax Credit (ITC) for the month of March 2025 under the zero-rated supply route (exports).

The Assessee’s Logic: The company applied the “relevant period” (one month) strictly for its Turnover calculation. However, for Net ITC, it attempted to claim the entire accumulated credit from previous months that was formally “availed” in the March GSTR-3B return.
The Conflict: The Revenue partially rejected the claim, asserting that the term “relevant period” must apply consistently to every component of the refund formula. You cannot “cherry-pick” a single month for the denominator (Turnover) while using an annual accumulation for the numerator (Net ITC).

2. Legal Analysis: The Rule 89(4) Formula

The High Court examined Rule 89(4) of the CGST Rules, 2017, which prescribes a specific mathematical formula for calculating the maximum refund of unutilized ITC on zero-rated supplies.

The Key Definitions under Rule 89(4):

Net ITC: ITC availed on inputs and input services during the relevant period.
Turnover of Zero-rated Supply: Value of zero-rated supplies made during the relevant period.
Adjusted Total Turnover: Sum total of turnover in the State/UT during the relevant period.
Relevant Period: The specific period for which the refund claim is filed (e.g., March 2025).

The Court held that the phrase “relevant period” is a common thread throughout these definitions. To maintain the mathematical integrity of the prorated refund, the period used to calculate the turnover must be the same period used to identify the qualifying ITC.

3. The Ruling: Remand and Direction

The Court noted that the assessee’s seasonal nature of business led to a genuine misconception regarding how credit should be “matched” with turnover.

Decision: The Court rejected the assessee’s selective application but observed that a substantive refund should not be denied due to a conceptual error.
Fresh Opportunity: The assessee was permitted to file a fresh refund application (manually, if necessary).
Mandate to Authorities: The department was directed to apply the formula strictly and uniformly across the “relevant period.” If the re-computation shows a higher eligible amount, the same must be paid to the assessee.

Key Takeaways for Taxpayers

Consistency is Key: Ensure that the ITC figure used in your refund claim matches the inward supplies received specifically within the months covered by the refund application.
Seasonal Industries: For seasonal businesses where ITC accumulates over months before an export happens, it is often better to club multiple tax periods into a single refund application to ensure the “Net ITC” and “Turnover” are correctly aligned in the formula.
Formula Cap: Remember that “Turnover of zero-rated supply of goods” is now capped at 1.5 times the domestic value of like goods.

HIGH COURT OF MADRAS

Sea 6 Energy (P.) Ltd.

Assistant Commissioner of Central Taxes^*

G.R. Swaminathan, J.

W.P (MD) No. 26287 of 2025
W.M.P. (MD) No. 20444 of 2025

NOVEMBER 21, 2025

G. Natarajan for the Petitioner. R. Gowri Shankar, Standing Counsel for the Respondent.

ORDER

1. Heard both sides.

2. The petitioner is a company engaged in the manufacture and sale of biostimulants and potash. It is a seasonal industry. The petitioner is eligible for refund of the accumulated ITC on account of export of the zero rated goods. The petitioner made such claim for the month of March 2025. The petitioner’s claim was partially allowed. Aggrieved by the order dated 24.06.2025, the present writ petition has been filed.

3. The learned counsel for the petitioner reiterated all the contentions set out in the affidavit filed in support of the writ petition and called upon this Court to set aside the impugned order and grant relief as prayed for.

4. The respondent has filed a detailed counter affidavit and the learned standing counsel took me through its contents.

5. I carefully considered the rival contentions and went through the materials on record. Rule 89 Sub Rule (4) of CGST Rules provides for granting refund of input tax credit. Formula reads as under:-

(Turnover of zero-rated supply of goods + Turnover of

zero-rated x supply of services)

Refund Amount =Net ITC X……………………………………………………………..

Adjusted Total Turnover

Where, –

(A) “Refund amount” means the maximum refund that is admissible;

(B) “Net ITC” means input tax credit availed on inputs and input services during the relevant period other than the input tax credit availed for which refund is claimed under sub-rules (4A) or (4B) or both;

[(C) -Turnover of zero-rated supply of goods” means the value of zerorated supply of goods made during the relevant period without payment of tax under bond or letter of undertaking or the value which is 1.5 times the value of like goods domestically supplied by the same or, similarly placed, supplier, as declared by the supplier, whichever is less, other than the turnover of supplies in respect of which refund is claimed under sub-rules (4A) or (4B) or both;] 186 (D) “Turnover of zero-rated supply of services” means the value of zerorated supply of services made without payment of tax under bond or letter of undertaking, calculated in the following manner, namely:- Zero-rated supply of services is the aggregate of the payments received during the relevant period for zero-rated supply of services and zero-rated supply of services where supply has been completed for which payment had been received in advance in any period prior to the relevant period reduced by advances received for zero-rated supply of services for which the supply of services has not been completed during the relevant period;

[(E) -Adjusted Total Turnover? means the sum total of the value of-

(a) the turnover in a State or a Union territory, as defined under clause

(112) of section 2, excluding the turnover of services; and

(b) the turnover of zero-rated supply of services determined in terms of clause (D) above and non-zero-rated supply of services, excluding-

(i) the value of exempt supplies other than zero-rated supplies; and

(ii) the turnover of supplies in respect of which refund is claimed under sub-rule (4A) or sub-rule (4B) or both, if any, during the relevant period.’]187 (F) -Relevant period? means the period for which the claim has been filed.

6. The expression “relevant period” is found in the definition of each of the terms found in the formula. I am, therefore, of the view that this expression should also be uniformly construed the board. The petitioner wants me to construe the expression “relevant period” as March as far as the turn over is concerned. However, when it comes to net ITC, he wants me to hold that the petitioner is entitled to full ITC accumulated around the year but availed in March. Such an approach does not appear to be appropriate. The petitioner has to understand and apply the expression “relevant period” consistently in respect of all the terms including ITC as well as turn over and also the adjusted turn over. Since the petitioner has been labouring under a misconception, I permit the petitioner to make a fresh application to the respondents. I make it clear that the following formula will be applied.

(Turnover of zero-rated supply of goods + Turnover of

zero-rated x supply of services)

Refund Amount =Net ITC X……………………………………………………………..

Adjusted Total Turnover

7. Upon such application submitted by the writ petitioner, the respondent will apply formula as mentioned above and if any further amount is payable to the petitioner, the same shall be paid within a period of eight weeks thereafter. Since the portal may not accept a fresh application, the petitioner is permitted to submit a manual application. The Writ Petition is disposed of accordingly. No costs. Consequently, connected miscellaneous petition is closed.