Refund of Unutilized GST ITC: Gujarat HC upholds Priorly Granted Refund u/s.54(3) to Patanjali Foods [Read Order]
The Gujarat High Court, in its ruling struck down the demand order of ₹1,70,07,091 and penalty therein observing the legality of the refund availed by the Patanjali Foods
![Refund of Unutilized GST ITC: Gujarat HC upholds Priorly Granted Refund u/s.54(3) to Patanjali Foods [Read Order]](https://www.taxscan.in/wp-content/uploads/2025/03/Refund-Unutilized-GST-ITC-Gujarat-HC-Priorly-Granted-Refund-Patanjali-Foods-taxscan.webp "Refund of Unutilized GST ITC: Gujarat HC upholds Priorly Granted Refund u/s.54(3) to Patanjali Foods [Read Order]")
The Gujarat High Court recently ruled in favor of Patanjali Foods Ltd. (Patanjali), upholding the refund of unutilized Input Tax Credit ( ITC ) amounting to ₹1,70,07,091 which was initially granted but later sought to be recovered by the revenue. The Petitioner, Patanjali Foods is a prominent manufacturer and seller of edible oil who applied for ITC refund after noting that the rate of...
The Gujarat High Court recently ruled in favor of Patanjali Foods Ltd. (Patanjali), upholding the refund of unutilized Input Tax Credit ( ITC ) amounting to ₹1,70,07,091 which was initially granted but later sought to be recovered by the revenue.
The Petitioner, Patanjali Foods is a prominent manufacturer and seller of edible oil who applied for ITC refund after noting that the rate of tax on output supplies made by the petitioner exceeds the rate of tax on input supplies. Subsequently, Patanjali applied for a refund under the inverted duty structure provision of Section 54(3) of the GST Act.
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The refund was granted by the authorities on January 12, 2024. However, on April 25, 2024, a notice was issued under Section 73 of the GST Act alleging that the refund had been erroneously granted and sought recovery of the amount, along with interest under Section 50 of the GST Act coupled with a penalty of ₹17,00,709. The petitioner challenged this demand, arguing that the refund had already attained finality and could not be arbitrarily withdrawn.
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However, an Order-in-Original was passed on 10 September, 2024 confirming the demand and penalty there against which the present Petition has been lodged.
Uchit N. Sheth, appearing for Patanjali Foods contended that the government's reliance on Circular No. 181/13/2022-GST dated November 10, 2022, which restricted refunds under the inverted duty structure for certain goods, was unlawful.
The Petitioner prayed that the Gujarat High Court strike down the impugned para 2(2) of Circular no. 181/13/2022-GST dated 10.11.2022 contending that the circular attempted to apply the restriction retrospectively, despite the notification itself being prospective in nature, effective from July 18, 2022.
Since Patanjali Foods’ refund application pertained to the period of February-March 2021, the restriction could not apply. He also emphasized that the authorities had not filed an appeal against the refund order, making its withdrawal legally untenable.
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Whereas, Deepak N Khanchandani and Hetvi H Sancheti appearing for the Respondents defended the recovery action, asserting that the refund had been wrongly granted and was subject to reassessment under Section 73(10) of the GST Act. It was further contended that the review mechanism of the refund order is an internal mechanism of the Department for safeguarding revenue loss against erroneous refund.
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A division bench comprising Justice Bhargav D. Karia and Justice D.N. Ray observed that an artificial classification of assessees based on the date of refund application was discriminatory and violated Article 14 of the Constitution. The Bench held that the circular could not override statutory provisions, and since the refund was lawfully sanctioned before the restriction took effect, its recovery was unjustified.
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Consequently, the Gujarat High Court struck down Paragraph 2(2) of the Circular No. 181/13/2022-GST dated November 10, 2022, ruling that it was ultra vires Section 54 of the GST Act and could not be applied retrospectively.
Additionally, the Court quashed the impugned Order-in-Original holding that once the refund sanction order dated January 12, 2024 attains finality, no subsequent show cause notice revoking the benefits of a quasi-judicial order could be instated.
To Read the full text of the Order CLICK HERE
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