The Goods and Services Tax Appellate Tribunal (GSTAT), Bhopal State Bench, has referred an important dispute concerning the refund of accumulated Input Tax Credit (ITC) under the inverted duty structure to a regular Division Bench after finding that the case raises a substantial question of law relating to the classification of plastic wrap knit fabric. 

The bench of Upendra Kumar Singh (Judicial Member) and Sunil K. Das (Technical Member) observed that the admissibility of the refund claim hinges upon the correct classification of the final product under the Customs Tariff and the applicable GST rate. 

The appeal arose from an order passed by the Additional Commissioner (Appeals) on June 15, 2022, affirming an earlier adjudication order dated February 11, 2021, which had rejected a refund claim of ₹20,94,820 for the tax period from November 2019 to December 2019. The refund was sought on account of the accumulation of ITC under the inverted duty structure provided under Section 54(3)(ii) of the CGST Act. 

Buy Now: GST Judgements E-Compilation – June 2026

The appellant contended that it procured High-Density Polyethylene (HDPE) as its primary input, which attracted GST at the rate of 18%. The finished product manufactured by the appellant, described as wrap knit fabric under HSN 60059000, attracted GST at only 5% during the relevant period. According to the appellant, this differential tax structure resulted in an accumulation of unutilized ITC, making it eligible for a refund under the inverted duty structure provisions of the CGST Act. 

However, the tax authorities rejected the refund application by taking the view that the finished product was, in substance, an article of plastic classifiable under Chapter 39 of the Customs Tariff. If classified under Chapter 39, the product would also attract GST at 18%, eliminating the inverted duty structure and, consequently, the entitlement to refund. 

The central controversy before the Tribunal was whether wrap knit fabric should be classified as a textile product under Chapter 60 attracting 5% GST or as an article of plastic under Chapter 39 attracting 18% GST.

The answer to this classification issue directly determines whether the appellant is entitled to claim a refund of accumulated ITC under Section 54(3)(ii) of the CGST Act. 

The GSTAT observed that the dispute primarily concerns the interpretation of tariff entries and the classification of the finished product. The Bench noted that resolving the issue would require examination of The relevant Chapter Headings under the Customs Tariff; Chapter Notes and Section Notes; the General Rules for Interpretation of the Customs Tariff Act, 1975; and the scope and application of Section 54(3)(ii) of the CGST Act relating to inverted duty refunds. 

The Tribunal held that since the outcome of the refund claim entirely depends upon the correct legal classification of the product, the matter involves a substantial question of law requiring adjudication by a Bench consisting of both a Judicial Member and a Technical Member.

Taking note of the legal complexity involved, the GSTAT directed that the appeal be placed before the appropriate Division Bench in accordance with Section 109(8) of the CGST Act. The Tribunal further directed the appellant to comply with its earlier order dated 17 July 2026 regarding Rule 33 compliance and listed the matter for arguments on admission on 31 July 2026. 

Membership Required to Access Case Details & Order Copy

To view the complete Case Details and Download Order Copy, you must have an active membership. Please subscribe to continue.

Read More: GSTAT Refers GST Refund Appeal Below Rs. 50 Lakh to Vice President for Further Directions