Calcutta High Court Rules GST Refund Circulars Cannot Retrospectively Curtail Accrued Right to Claim ITC Refund

In a significant judgment, the Calcutta High Court has clarified the legal position regarding the retrospective application of GST circulars restricting refund of unutilised input tax credit (ITC) arising from an inverted duty structure. The petitioner, a supplier of goods including edible oil, had applied for a refund of accumulated unutilised ITC for May 2021, citing that the tax rate on inputs exceeded that on outward supplies. The refund application, filed on June 16, 2023, was rejected by the GST authorities on the basis of Central and State circulars issued in November 2022, which clarified that restrictions imposed by a notification dated August 23, 2022, would apply to all refund applications filed on or after July 18, 2022.

The appellate authority upheld the rejection, prompting the petitioner to approach the High Court. The petitioner argued that the circulars could not retrospectively curtail the statutory right to claim a refund that had already accrued under Section 54(1) of the West Bengal Goods and Services Tax Act, 2017 (and the corresponding Central Act). It was contended that once the right to claim a refund had accrued upon filing the return under Section 39, and the statute prescribed a two-year period for making such a claim, an executive circular could not retrospectively reduce this period or extinguish the accrued right.

The petitioner relied on several High Court decisions, including those of the Andhra Pradesh, Allahabad, Rajasthan, and Gujarat High Courts, all of which held that refund applications filed within the statutory period could not be denied on the basis of subsequent circulars. The petitioner also cited a Supreme Court order declining to interfere with the Andhra Pradesh High Court’s view.

The respondents, representing the CGST and SGST authorities as well as the Union of India, did not strongly contest the petitioner’s submissions.

Justice Om Narayan Rai, after considering the statutory provisions and judicial precedents, held that the relevant date for the refund claim was June 20, 2021 (the due date for filing the return for May 2021), and the refund application filed on June 16, 2023, was within the two-year period prescribed by Section 54(1) of the Act. The Court emphasized that while limitation laws generally apply retrospectively, an exception exists where a provision curtails an existing period of limitation for an accrued cause of action. In such cases, the accrued right cannot be taken away by a subsequent executive circular with retrospective effect.

The Court found that the consistent view of various High Courts was that refund applications made within the statutory period, even if after the issuance of the circulars, could not be denied if the right to claim refund had already accrued. The Court saw no reason to depart from this settled position.

Accordingly, the Calcutta High Court set aside the orders of the adjudicating and appellate authorities rejecting the refund claim. The Court directed the proper officer to reconsider the petitioner’s refund application on its merits, uninfluenced by the impugned circulars, and to dispose of the application expeditiously, preferably within six weeks.

The judgment reinforces the principle that executive circulars cannot retrospectively curtail statutory rights that have already accrued, particularly in the context of GST refund claims under Section 54(1) of the Act.