The Rajasthan High Court, Jodhpur Bench, delivered a significant ruling concerning the refund of Input Tax Credit (ITC) under the inverted duty structure for the period before July 18, 2022. The court addressed the case of Shree Arihant Oil and General Mills, which had purchased mustard oil and subsequently applied for a refund of ITC accrued before the specified date. The application was rejected by the tax department based on a CBIC Circular that restricted refunds to applications filed before July 18, 2022.

The court examined whether the refund of accumulated ITC could be denied solely on the grounds of the application being filed after the notification date. It concluded that the notification issued on July 13, 2022, which disallowed such refunds, operates prospectively and does not affect ITC accrued before July 18, 2022. The court emphasized that refund applications could be submitted within the statutory two-year period outlined in Section 54, and denying them due to later filing was unjustifiable.

Read More: GSTN has issued an advisory on new IMS changes effective 01 Oct 2025 – including option to keep specified documents, such as credit notes, pending for a tax period; Option to put remarks, and several other updates

The court declared the CBIC Circular dated November 10, 2022, as arbitrary and beyond statutory authority, thereby violating Article 14. The circular was quashed to the extent that it restricted refunds, reaffirming that once ITC is accrued, it becomes an indefeasible right. Consequently, the court directed the tax department to process the petitioner's refund application filed on January 4, 2023, within three months, disregarding the quashed circular.