Shivaco Associates vs. Joint Commissioner of State Tax – Circular Cannot Override the GST Act (Calcutta HC, 2022)

⚖️ Shivaco Associates vs. Joint Commissioner of State Tax – Circular Cannot Override the GST Act (Calcutta HC, 2022)

📌 Background

The landmark case of Shivaco Associates vs. Joint Commissioner of State Tax (Calcutta High Court, 2022) addressed a crucial issue under the GST regime — whether a CBIC circular can restrict refund of Input Tax Credit (ITC) expressly allowed under Section 54(3) of the CGST Act, 2017.

Shivaco Associates, engaged in purchasing bulk LPG (Liquified Petroleum Gas) and bottling it into cylinders for supply to commercial and domestic consumers, faced refund rejection under the inverted duty structure.

Shivaco Associates claimed refund for the period October–December 2018, arguing that the rate of tax on inputs (18%) exceeded that on outputs (5%). However, the Revenue rejected the claim citing Circular No. 135/2020-GST, leading to this pivotal litigation.

Key facts:

• Prior to January 2018, GST rate on LPG for both commercial and domestic supplies was 18%.
• By Notification dated 28.06.2018, the rate of GST on domestic LPG supply was reduced from 18% to 5%.
• As inputs continued to attract 18% GST while output supply of domestic LPG was at 5%, significant ITC accumulation arose.
• Shivaco Associates filed a refund claim for the period October 2018 – December 2018.
• The claim was rejected by the Revenue, relying on Circular No. 135/2020-GST dated 31.03.2020, which stated that refund under Section 54(3)(ii) is not permissible where input and output supplies are the same.

This rejection was challenged before the Calcutta High Court.

❓ Point of Dispute

Whether a circular issued by CBIC can restrict or take away a statutory benefit of refund of unutilized ITC expressly provided under Section 54(3) of the CGST Act, 2017.

📑 Submissions by the Assessee

• Circular is clarificatory, not binding: A circular cannot override statutory provisions. Since the Act allows refund, the benefit cannot be denied by a restrictive interpretation introduced in the circular.
• Input and output not identical: The bulk LPG purchased was processed, bottled, and repacked into cylinders of varying capacities before supply to end consumers. Hence, it cannot be said that the inputs and outputs are the same.
• The legislative intent under Section 54(3) is clear: refund must be granted wherever input tax exceeds output tax, without imposing additional conditions.

📑 Submissions by the Revenue

• Same goods, no refund: The LPG purchased in bulk and the LPG sold to consumers remained the same commodity. Merely bottling did not alter its identity. Thus, no value addition occurred, and refund of ITC was not admissible.
• Legislative intent: The Legislature consciously did not differentiate between situations where inputs and outputs are same. Hence, refund cannot be claimed simply because tax on inputs is higher.
• Reliance was placed on Circular No. 135/2020, which barred refund in such cases.

⚖️ Legal Principles and Court’s Analysis

1. Authority of Circulars
   • Circulars are issued for the purpose of ensuring uniform implementation of the Act.
   • However, a circular cannot supplant, override, or restrict statutory provisions.
   • Section 54(3) does not impose any condition that refund is barred where inputs and outputs are identical.
2. Interpretation of Section 54(3)
   • The provision clearly states that refund of unutilized ITC shall be allowed where rate of tax on inputs is higher than the rate of tax on output supplies.
   • The law does not carve out an exception excluding cases where the input and output goods are the same.
3. Circular Creates “Class within Class”
   • By restricting refund in such cases, the circular effectively created a new classification not intended by the Legislature.
   • This amounted to curbing benefits legally available under the Act.
4. Judicial Precedent on Circulars
   • Courts have consistently held that circulars are binding on the department, but not on taxpayers, where they impose restrictions contrary to statutory law.

🏛️ Court’s Conclusion

The Calcutta High Court allowed the petition of Shivaco Associates, holding:
• Circular No. 135/2020-GST cannot override Section 54(3) of the CGST Act.
• Refund denial based on such circular is illegal and ultra vires.
• Shivaco Associates was entitled to refund of accumulated ITC under the inverted duty structure.

Accordingly, the refund rejection order was quashed.

✅ Practical Impact

The Shivaco Associates case has far-reaching implications for taxpayers under the GST law. Businesses facing similar refund denials based on circulars can rely on this judgment to challenge arbitrary restrictions.

🔑 Key Takeaways

1. Section 54(3) prevails over circulars – refund cannot be curtailed by departmental instructions.
2. Inputs and outputs being same is irrelevant – refund must be allowed if input tax exceeds output tax.
3. Circulars cannot create classifications not envisaged in law.
4. Businesses can challenge refund rejections where denial is solely based on circulars.

📢 Why This Case Matters

The Shivaco Associates ruling (Calcutta HC, 2022) reaffirms a fundamental principle: circulars cannot override statutory provisions. It strengthens the rights of taxpayers by ensuring that legitimate refunds under GST cannot be denied on arbitrary grounds.

This judgment protects industries operating under inverted duty structures and safeguards the spirit of GST as a non-cascading, credit-based tax system.

🔍 SEO Meta Details

• Meta Title: Shivaco Associates vs. Joint Commissioner – Circular Cannot Override GST Act (Calcutta HC, 2022)
• Meta Description: Calcutta HC in Shivaco Associates (2022) held that Circular No. 135/2020 cannot override Section 54(3) of the CGST Act. Refund of ITC under inverted duty structure allowed even if input and output are the same.

Target Keywords: Shivaco Associates GST case, Circular 135/2020 refund, inverted duty structure refund, Section 54(3) ITC refund, circular vs statute GST.