• Dated 11^th September, 2026

Refund of Accumulated ITC Cannot Be Denied by Excluding Ancillary Inputs Merely Because the Principal Input and Output Attract the Same Rate: GSTAT Kolkata

BRIEF FACTS:

The Assessee was engaged in purchasing tea in bulk, blending the same and supplying it in packaged form through containers, pouches, jars and sachets. Bulk tea was taxable at 5%, while the packing materials used by the Assessee attracted GST at 12%/18%. The packaged tea supplied by the Assessee was taxable at 5%. Accordingly, ITC accumulated on account of the higher rate of tax applicable to packing materials. The Assessee filed a refund claim of ₹7,83,547/- under the inverted duty structure for the period from 01.03.2021 to 30.11.2021. After scrutiny and issuance of a Show Cause Notice, the adjudicating authority sanctioned refund of ₹7,77,858/-. The refund was subsequently upheld by the Commissioner (Appeals), against which the Revenue preferred an appeal before the GSTAT, Kolkata.

ASSESSEE'S CONTENTION:

The Assessee contended that Section 54(3)(ii) of the CGST Act refers to "inputs" and does not distinguish between principal inputs and ancillary inputs. Packing materials qualify as inputs under Section 2(59) of the CGST Act and CBIC Circular No. 79/53/2018-GST also recognises packing materials as eligible inputs. Therefore, the higher rate of tax on packing materials resulting in accumulation of ITC entitled the Assessee to refund under the inverted duty structure. It was further submitted that Circular No. 135/5/2020-GST was not applicable as the said Circular dealt with cases where inversion arose due to reduction in the rate of GST on the same goods at different points of time. In the present case, bulk tea and packaged tea both attracted GST at 5% and there was no change in the rate of tax.

DEPARTMENT'S CONTENTION:

The Revenue contended that the Assessee was not eligible for refund under Section 54(3)(ii) as the principal input and output were both tea and attracted GST at 5%. It was further argued that reliance on higher tax applicable to packing materials could not justify refund under the inverted duty structure. The Revenue also relied upon paragraph 3.2 of Circular No. 135/5/2020-GST and contended that refund was not admissible where the input and output supplies were the same.

DECISION:

The GSTAT, Kolkata held that Section 54(3)(ii) permits refund where ITC has accumulated because the rate of tax on inputs is higher than the rate of tax on output supplies. The Tribunal observed that the statute uses the expression "inputs" in plural and does not distinguish between principal and ancillary inputs. Accordingly, the Department could not restrict its comparison to bulk tea and packaged tea while ignoring the packing materials which were also eligible inputs. The Tribunal further held that packing materials, including labels, cartons and plastic containers, qualify as inputs under Section 2(59) of the CGST Act. Once ITC on such inputs is eligible, the same can form part of the refund under Section 54 unless specifically excluded by the statute. The Tribunal also held that Circular No. 135/5/2020-GST was inapplicable since it concerned cases involving reduction in GST rate on the same goods over a period of time, whereas bulk tea and packaged tea in the present case both attracted GST at 5%. The Revenue's appeal was accordingly dismissed.

BTA's COMMENT:

The decision reiterates that for determining eligibility of refund under the inverted duty structure, all eligible inputs contributing to accumulation of ITC are required to be considered. The statute does not permit the Department to distinguish between principal and ancillary inputs while applying Section 54(3)(ii). Accordingly, where packing materials or other eligible inputs attract a higher rate of tax than the output supply, the resulting accumulation of ITC can qualify for refund. The ruling also reinforces that a CBIC circular cannot curtail a refund entitlement specifically available under the CGST Act. Circular No. 135/5/2020-GST was held inapplicable on the facts of the case, and the Tribunal relied upon the principle that circulars issued under Section 168 are intended for uniform implementation of the Act and cannot add to or restrict the statutory provisions.

Case Reference- Pr. Commissioner CGST & CX, Siliguri v. North Bengal Tea & Allied, Appeal No. APL/32/KLK/2026, GSTAT Kolkata, decided on 03 September 2026.

Author- Shristy Pathak

Edited by- Madhurima Bose