The Goods and Services Tax Appellate Tribunal (GSTAT), Kolkata Bench, has dismissed three appeals filed by the Revenue concerning refund claims of accumulated Input Tax Credit (ITC) under the inverted duty structure, holding that the refund eligibility of a fabric-processing unit could not be denied merely because the final product and certain inputs were covered by the same HSN classification.
The bench of Sunil Kumar Singh (Judicial Member) and Shri Bijoy Kumar Kar (Technical Member) clarified that a direction by the first appellate authority to merely re-compute the refund amount after deciding the substantive issue does not amount to a prohibited remand under Section 107(11) of the CGST Act, 2017.
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The appellant/assessee is engaged in scouring, dyeing and washing of grey fabric on a job-work basis. According to the facts recorded by the Tribunal, the company undertakes processing in accordance with specifications supplied by its principal manufacturers or buyers. Ordinarily, grey fabric is supplied by the principal manufacturer, although in certain cases the respondent also procures grey fabric on behalf of the principal manufacturer for carrying out the processing activity.
The dispute arose because the processing activity involved the use of various chemicals, dyes and other consumables on which GST was leviable at higher rates of 18%/12% at the relevant time, whereas the outward supply of processed fabrics attracted GST at 5%.
This difference in tax rates resulted in accumulation of ITC. The taxpayer consequently claimed refund of the accumulated ITC under the inverted duty structure in terms of Section 54(3)(ii) of the CGST Act, 2017 read with Rule 89(5) of the CGST Rules, 2017.
The taxpayer had filed three refund claims relating to accumulated ITC under the inverted tax structure.
The claims were: ₹15,66,368 for the period January 2024 to March 2024; ₹40,90,492 for July 2024 to September 2024; and ₹26,43,139 for October 2023 to December 2023.
During scrutiny, the original adjudicating authority noticed deficiencies and issued separate show-cause notices to the taxpayer. After considering the replies, the refund claims were rejected through refund sanction orders dated January and February 2025.
The taxpayer challenged the rejection before the first appellate authority.
The Additional Commissioner (Appeals), CGST & Central Excise, Kolkata Appeals-I Commissionerate, allowed the taxpayer’s appeals and set aside the refund rejection orders through three Orders-in-Appeal dated 30 April 2025.
The first appellate authority consequently allowed the refund claims, leading the Revenue to approach the GST Appellate Tribunal.
The Revenue raised, among other issues, an objection that the first appellate authority had effectively remanded the matter by directing the original authority to review or rework the refund calculation.
According to the Revenue, Section 107(11) of the CGST Act did not permit such a remand.
Another important issue before the Tribunal concerned CBIC Circular No. 135/05/2020-GST dated 31 March 2020, as amended by Circular No. 173/05/2022-GST dated 6 July 2022.
The Revenue relied upon the circular in contending that refund of accumulated ITC was unavailable where the inputs and output supplies fell under the same HSN.
The taxpayer, however, argued that the circular was being incorrectly applied to its case. The taxpayer’s processing activity involved dyeing and washing of fabric and the use of chemicals and other materials as inputs.
The GSTAT closely examined the relevant portion of Circular No. 135/05/2020-GST.
The Tribunal noted that paragraph 3 of the circular specifically dealt with refund of accumulated ITC on account of reduction in GST rate. Paragraph 3.2 clarified that refund under Section 54(3)(ii) would not be available in situations where the input and output supplies were the same but the same goods attracted different rates at different points of time due to a reduction in the GST rate.
The Tribunal therefore drew a distinction between the situation contemplated by the circular and the facts of the present case.
According to the Tribunal, the circular was concerned with cases where the same goods attracted different rates of GST at different points in time because of a rate reduction. The present dispute, however, did not involve such a reduction in the GST rate applicable to the final fabric.
The Tribunal observed that the final product, namely fabrics, continued to be sold in the open market at the same rate of GST and there was no reduction in the GST rate in the circumstances of the case. It therefore held that the Revenue’s reliance on the circular was factually incorrect and legally not tenable.
The Kolkata GSTAT also considered the decision of the Madras High Court in M/s Vindhya Spinning Mills Private Limited v. Assistant Commissioner of CGST and Central Excise, W.P.(MD) Nos. 16757 & 16758 of 2025, decided on 14 July 2026.
The Tribunal referred to the Madras High Court’s observations concerning refund of unutilised ITC where inputs such as chemicals, packing and other materials attract a higher rate of tax.
As recorded in the GSTAT order, the Madras High Court held that the statute does not distinguish between major and minor components and that where the statutory conditions for refund are satisfied, accumulated unutilised ITC can qualify for refund. The High Court also noted that Rule 89(5) provides the formula for calculating the refund.
The Madras High Court had consequently directed processing and sanction of refunds along with applicable interest in the cases before it, in accordance with the formula under Rule 89(5), after providing an opportunity of personal hearing.
Taking note of this decision, the Kolkata GSTAT concluded that Circular No. 135/05/2020-GST was not applicable to the facts before it and held that the Revenue’s argument on this aspect had no force.
The second significant issue concerned the interpretation of Section 107(11) of the CGST Act.
The Revenue argued that the first appellate authority had effectively remanded the matter by directing the original authority to review the refund calculation.
The Tribunal rejected this contention.
It observed that the first appellate authority had already decided the substantive issue and allowed the refund claims. What remained was only the consequential exercise of calculating or re-calculating the precise refund amount.
The Tribunal explained that the exact amount of refund under the inverted duty structure depends upon factors such as identification of inverted turnover, admissible Net ITC, relevant exclusions and application of the statutory formula under Rule 89(5). Therefore, directing the original authority to undertake the arithmetical exercise after the substantive issue has already been decided does not constitute a remand.
The GSTAT made an important distinction between a true remand and a direction for consequential implementation.
According to the Tribunal, Section 107(11) prohibits a true remand of the case to the adjudicating authority for a fresh decision. However, it does not prevent the appellate authority from directing consequential computation or implementation of an order after the substantive dispute has already been decided.
The Tribunal found that the first appellate authority had not left the refund claim open for fresh adjudication. Nor had it authorised the original authority to reconsider issues that had already been decided.
Instead, the original authority was required only to undertake the computational exercise in conformity with the appellate findings.
The Tribunal described such ministerial re-computation as fundamentally different from a prohibited remand.
An additional factual circumstance considered significant by the Tribunal was that the Orders-in-Appeal had in fact been acted upon by the Revenue.
The refund amounts had been reworked on the basis of the findings of the first appellate authority and the refund had already been sanctioned and paid in all three cases.
The Tribunal held that this demonstrated that the appellate orders were workable and capable of implementation and did not constitute prohibited references back to the original adjudicating authority.
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