Delhi High Court grants relief to Indian Oil Corporation (IOC); asks govt to pay denied input tax credit

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In what could be a boon for fertiliser, cooking oil, acrylic yarn, and traders of goods incurring costs on packing materials, apart from OMCs, the Delhi High Court ruled in favor of Indian Oil Corporation (IOC) Limited on 5th December regarding their claim for a refund of accumulated Input Tax Credit under the GST regime due to the inverted duty structure.

This judgment not only clarifies the interpretation of the inverted duty structure provisions but also paves the way for a transparent GST system for all businesses operating in the country. The dispute was about the accumulated ITC of IOC due to certain inputs having a higher tax rate than the final product’s tax rate.

Despite this clear case of an inverted duty structure, the Revenue Department initially denied the refund, citing the similarity in tax rates for bulk and bottled LPG.

The matter was before Justice Vibhu Bhakru and Justice Amit Mahajan, where IOC Limited —the petitioner was contesting against Respondents—Central GST Commissioner and others. IOC, through the petition, wanted to claim pending credit worth over ₹15 crore along with interest.

However, the Delhi High Court rejected this narrow interpretation, highlighting that the Circular relied upon by the Revenue department exceeded the powers of the Central Board of Indirect Taxes and Customs and could not override the clear provisions of the CGST Act. Not just this, the court further said that the use of the plural “inputs” in Section 54(3)(ii) of the Act was interpreted to encompass all inputs used in the production process and not just the principal one.

Further, the court criticised the Revenue department’s selective focus on bulk LPG, highlighting that the higher tax rates on other crucial inputs were the actual reason for the accumulated ITC.

The court’s interpretation of the language of the rules under the Act has clarified that the Inverted duty structure (IDS) provision is not limited to situations where only the principal input and output have different tax rates.

The court had a view that instead, it applies to any scenario where the overall input tax rate exceeds the output tax rate, regardless of individual component rates.

Experts say that the judgment has much wider implications and will help many other industries such as fertiliser, Vanaspati and Cooking Oil, acrylic yarn, traders of goods incurring costs on packing materials, etc.

“This broader interpretation significantly expands the scope of the IDS provision and ensures fairer treatment for businesses in diverse sectors. This is a landmark judgment not only granting IOC the rightful refund but also sets a positive precedent for all businesses operating under the GST regime, such as manufacturers of fertiliser, Vanaspati and Cooking Oil, acrylic yarn, traders of goods incurring costs on packing materials, etc.,” one of the expert said.

“By clarifying the interpretation of the IDS provision and promoting a consistent application of the law, this judgment paves the way for a fairer and more transparent GST system. This will ultimately benefit businesses across all sectors, leading to improved cash flow, enhanced competitiveness, and a more equitable tax environment. Additionally, the judgment strengthens India’s attractiveness for foreign investors by promoting tax transparency and predictability, encouraging capital inflow, and further fueling economic growth,” he added.

To be seen is how these industries react to this development and what is the view of the center on the relief to the industry.

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