The Goods and Services Tax Appellate Tribunal (GSTAT), Dehradun, has dismissed two appeals filed by the Revenue seeking recovery of refunds totalling approximately ₹1.89 crore, holding that a subsequent departmental circular could not override an unchallenged advance ruling binding on the taxpayer and the jurisdictional officer.
The Bench of Rajesh Jain (Judicial Member) and Amand Shah (Technical Member) upheld the first appellate authority’s orders setting aside the refund recovery demands, along with interest and penalties. The common order, dated October 15, 2026, concerned refunds arising from GST paid on licensing services for the right to extract minerals.
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The bench held that the refunds, sanctioned pursuant to an advance ruling that continued to hold the field, could not be treated as erroneous merely because the Central Board of Indirect Taxes and Customs subsequently issued a circular adopting a different interpretation.
The dispute arose from the activities of Kuldeep Butola, who was engaged in extracting and trading sand, gravel and boulders from areas allotted under a contract awarded through Garhwal Mandal Vikas Nigam Limited (GMVN).
GMVN granted the right to extract minerals against payment of royalty. It charged GST at 18% on the licensing services supplied during the relevant periods in 2017-18 and 2018-19, which the taxpayer paid.
The taxpayer subsequently approached the Authority for Advance Ruling to determine the applicable GST rate on these services for the period from July 1, 2017, to December 31, 2018.
By its ruling dated January 6, 2020, the authority held that the services fell under the residual entry concerning leasing or rental services in Notification No. 11/2017-Central Tax (Rate). For the period in question, it ruled that the services attracted the same GST rate as the corresponding goods.
Since sand, gravel and boulders attracted GST at 5%, the authority held that the licensing services supplied to the applicant during the specified period also attracted GST at 5%.
The Revenue did not challenge this ruling before the Appellate Authority for Advance Ruling under Section 100 of the CGST Act.
Following the advance ruling, the taxpayer sought a refund of the difference between the 18% GST paid and the 5% rate determined by the authority.
The judgment records that refund orders dated June 11, 2020, sanctioned amounts of ₹99,34,778 and ₹89,60,850, aggregating to ₹1,88,95,628.
The refund applications were supported by a chartered accountant’s certificate under Rule 89(2)(m), stating that the incidence of tax had not been passed on to another person.
Although the taxpayer had initially availed input tax credit of the entire GST charged by GMVN, he reversed credit equivalent to the refund claimed through debit entries in the electronic credit ledger. The refunds were released after this reversal.
The refund sanction orders were neither appealed against under Section 107 nor revised under Section 108.
The dispute resurfaced after CBIC issued Circular No. 164/20/2021-GST dated October 6, 2021, clarifying that licensing services for the right to use minerals, including exploration and evaluation, falling under SAC 997337 attracted GST at 18% during July 1, 2017, to December 31, 2018.
Relying on this circular, the department issued show cause notices under Section 73 on October 3, 2022, proposing recovery of the refunds as erroneously sanctioned.
The notices also alleged that the credit related to input services and was therefore ineligible for refund under the provisions governing an inverted duty structure.
The adjudicating authority subsequently confirmed recovery of the refunds, together with interest and penalties of 10%.
However, the Joint Commissioner (Appeals), State Tax, Dehradun, allowed the taxpayer’s appeals on November 29, 2024. The appellate authority held that the advance ruling remained binding in the absence of a successful challenge and that the department could not take a contrary position on the strength of the later circular.
The bench then approached the Tribunal.
Before the Tribunal, the Revenue argued that the circular constituted a change in law, facts or circumstances under Section 103(2), thereby ending the binding effect of the advance ruling.
The Tribunal rejected this contention.
It explained that an advance ruling binds the applicant and the concerned or jurisdictional officer in respect of that applicant under Section 103(1). Although such a ruling is not a precedent applicable to all taxpayers, it retains its statutory binding force between the parties concerned.
The Bench distinguished an administrative circular from a quasi-judicial ruling. A circular represents the executive’s understanding of the law and does not, by itself, amount to law or bind courts.
Consequently, the department could not rely on the subsequent circular to disregard an existing advance ruling that it had never challenged.
The Tribunal also referred to the principle that an adverse circular cannot be enforced against an assessee in disregard of a quasi-judicial order operating in that assessee’s favour.
On the facts before it, the Bench held that the recovery proceedings initiated under Section 73 on the basis of the circular were void from inception and unsustainable.
The department also attempted to question the jurisdiction of the Authority for Advance Ruling. It argued that the authority could not have ruled on transactions relating to an already completed period.
The Tribunal noted that this objection had not been raised during the advance ruling proceedings, in the refund proceedings, in the Section 73 notices, or even in the grounds of appeal before it. It emerged only in the Revenue’s rejoinder.
The Bench emphasised that the proceedings before it concerned the validity of refund recovery demands. The advance ruling itself was not under challenge.
It further observed that the CGST Act provides a specific statutory mechanism for challenging advance rulings. The department had neither appealed against the ruling nor sought rectification. There was also no allegation that the taxpayer had obtained it through fraud, suppression or misrepresentation.
The Tribunal therefore declined to examine the validity of the advance ruling through the Revenue’s appeals against the refund-related appellate orders. It also held that the State Bench lacked jurisdiction to decide the validity of the advance ruling in these proceedings.
The Revenue additionally contended that only GMVN, which deposited the tax, could have claimed the refund. It also raised the issue of unjust enrichment.
The Tribunal found that neither ground formed part of the show cause notices or the original adjudication orders.
Referring to Section 75(7), the Bench held that a demand cannot be confirmed on grounds other than those specified in the notice. The department could not introduce a new case at the second appellate stage.
The Tribunal nevertheless considered the taxpayer’s supporting material. It noted that the taxpayer had borne the tax charged by GMVN and had claimed only the differential amount following the advance ruling.
The chartered accountant’s certificate and the reversal of corresponding input tax credit supported the claim that the taxpayer had not passed on the tax incidence. The Revenue had not disputed either the certificate or the debit entries in the electronic credit ledger.
The Bench consequently rejected these objections.
The taxpayer maintained that the refund was sought under Section 54(1) for excess tax paid, under the “any other” category, rather than as a refund of accumulated input tax credit under Section 54(3).
This distinction addressed the department’s objection that refund of credit attributable to input services was unavailable under the inverted duty structure provisions.
The Tribunal’s decision rested on the subsisting advance ruling and the refunds sanctioned in consequence of it, supported by reversal of the corresponding credit and evidence concerning the tax incidence.
The department relied on the Patna High Court’s decision in Broad Son Commodities Pvt. Ltd. concerning the 18% GST rate on mineral licensing services for the disputed period.
The Tribunal distinguished that dispute from the case before it. Here, the central question was whether refunds sanctioned pursuant to an unchallenged advance ruling could subsequently be treated as erroneous.
The Bench stressed that the ruling in the taxpayer’s own case remained unchallenged and operative when the refunds were sanctioned.
Its decision therefore turned on the binding effect and finality of that ruling, rather than establishing a generally applicable 5% GST rate for all mineral licensing transactions during the period.
The taxpayer had also argued that the department could not invoke Section 73 without first challenging the refund sanction orders through appeal or revision.
The Tribunal expressly declined to decide this broader issue. Since the refunds in the present case were lawful and could not be termed erroneous, it considered a ruling on the independent scope of Section 73 unnecessary.
Accordingly, the order does not establish that every recovery proceeding under Section 73 requires the refund sanction order to be separately overturned first.
The Tribunal confirmed the first appellate authority’s orders setting aside recovery of the refunds, interest and penalties.
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