Supreme Court Upholds ITC Refund Rights Despite Late Claims

A company seeking a refund of unutilized Input Tax Credit (ITC) faced rejection from the tax department, which cited that the claims were filed after July 18, 2022. Relying on Notification No. 9/2022 and Circular No. 181/13/2022-GST, the department denied the refund, even though the ITC pertained to periods prior to the said date. The primary legal question that emerged was whether claims for ITC accumulated before July 18, 2022, under an inverted duty structure could be refused solely because the refund application was submitted after that date.

The High Court ruled in favor of the assessee, stating that policy changes introduced through notifications or circulars could not retroactively affect rights that had already been established. The Revenue, dissatisfied with the High Court’s ruling, escalated the matter to the Supreme Court by filing Special Leave Petitions (SLPs).

The Supreme Court, in dismissing the SLPs, confirmed the reasoning adopted by the High Court. It held that Notification No. 9/2022 could not be applied retrospectively to deny refund claims where the ITC had already accrued before its issuance. The Court highlighted that a taxpayer's right to claim refunds under Section 54 of the CGST Act is a statutory right and cannot be negated by retrospective application of policy instruments like circulars.

Further, the Court found that Circular No. 181/13/2022-GST, to the extent it aimed to block refund claims for pre-notification ITC, lacked legal standing. It stressed that the timing of the refund application alone could not justify denial if the credit itself had been lawfully accumulated earlier.

By upholding the High Court’s decision and rejecting the Revenue’s arguments, the Supreme Court affirmed the prospective operation of the notification. It underscored that vested rights cannot be undone through subsequent administrative directions unless explicitly stated by the legislature. Consequently, the SLPs were dismissed, and the assessee’s entitlement to the refund was upheld.