Inverted Duty Refund: A Circular Cannot Override Section 54(3)

Inverted Duty Refund explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.

The credit accumulated lawfully. The notification restricting it came later. The department's position was that the date of the application, not the date of accumulation, decided the entitlement — and that position came from a circular.

"A refund claim filed after the date of a notification cannot be denied for unutilized ITC accumulated prior to the notification's effective date. Circulars cannot override or curtail statutory rights under Section 54(3) of the CGST Act." — Assistant Commissioner of Central Taxes v. Gemini Edibles and Fats India Ltd. [(2025) 143 GSTR 644 (Supreme Court)] / [(2025) 143 GSTR 636 (Andhra Pradesh High Court)].

The facts

The assessee manufactured and distributed "edible oils and specialty fats". "The inputs used in the manufacturing process (like crude palm oil, sunflower oil, etc.) attracted higher GST rates compared to the tax on their outward supplies, which led to accumulation of unutilized ITC in the electronic credit ledger."

A textbook inverted duty structure, and "As per Section 54(3)… a refund of unutilized ITC is allowed where credit accumulates due to an inverted duty structure."

"The Assessee filed refund claims for such accumulated ITC for periods prior to 18-07-2022."

The three instruments

• Section 54(3), CGST Act — "Provides for refund of unutilized ITC on account of inverted duty structure."
• Notification No. 9/2022-Central Tax (Rate) dated 13.07.2022 — "Introduced restrictions but explicitly effective from 18.07.2022."
• Circular No. 181/13/2022-GST dated 10.11.2022 — "Interpreted the notification to deny refunds if the application is filed after 18.07.2022, even for prior periods."

The gap between the second and third is the whole case. The notification changed the position from a date; the circular applied that change to applications filed after that date, regardless of when the credit arose.

The two positions

The assessee: section 54(3) "permits refund of any unutilized ITC due to an inverted duty structure, irrespective of when the refund application is filed"; the notification "applies prospectively from 18.07.2022"; the circular "improperly imposed a retrospective restriction, which is beyond the scope of delegated legislation"; and "The accumulated ITC was a vested right and cannot be extinguished merely because the application for refund was made after the cut-off date."

The Revenue: the notification read with the circular "clarifies that refund claims filed after 18.07.2022 are subject to revised rules, regardless of the period of accumulation", and "The administrative clarity provided by the Circular was essential for uniform application across jurisdictions."

The decision

The Andhra Pradesh High Court: the notification "applies only from 18.07.2022"; "ITC accumulated before that date remains refundable under Section 54(3), regardless of when the application is filed"; and consequently "Circular No. 181/13/2022-GST, to the extent it denied refunds filed after 18.07.2022 for earlier accumulation, was held ultra vires."

The Supreme Court, by order dated 09.05.2025, "dismissed the SLP filed by the Revenue and declined to interfere."

The three propositions the dismissal upholds:

• "Refund rights under Section 54(3) exist as long as the ITC was validly accumulated under law."
• "Prospective notifications cannot be interpreted to curtail past entitlements."
• "Circulars cannot override statutes or notifications that are prospectively applicable."

Reading the result correctly

The entitlement is fixed when the credit accumulates, not when the form is filed. A refund application is the machinery for recovering a right that already exists; a later change to the machinery does not reach back and remove the right.

And a circular's place in the hierarchy is settled by this. A circular binds the department in its administration of the law; it cannot enlarge a restriction beyond what the notification imposed, and where it does, it is ultra vires to that extent — the phrase matters, because the rest of the circular survives.

Two limits on how far this travels. Section 54(1)'s two-year limitation from the relevant date is untouched — this ruling concerns the substantive restriction, not the time limit for applying. And a dismissal of an SLP is a refusal to interfere; it leaves the High Court's judgment standing rather than laying down a fresh Supreme Court test.

Key takeaways

• Section 54(3) entitlement attaches when credit accumulates, not when the application is filed.
• Notification No. 9/2022-CT(R) dated 13.07.2022 took effect on 18.07.2022 and is prospective.
• Circular No. 181/13/2022-GST read it as barring applications filed after 18.07.2022 for earlier periods.
• The Andhra Pradesh High Court held the circular ultra vires to that extent.
• The Supreme Court dismissed the Revenue's SLP on 09.05.2025.
• Prospective notifications cannot curtail past entitlements; circulars cannot override statutes.
• Accumulated credit is a vested right, not extinguished by a later filing date.
• The two-year limitation under section 54(1) is unaffected by this ruling.

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Disclaimer: Positions stated as on 5 September 2026, based on Assistant Commissioner of Central Taxes v. Gemini Edibles and Fats India Ltd. [(2025) 143 GSTR 644 (SC)] / [(2025) 143 GSTR 636 (AP)], section 54 of the CGST Act, 2017, Notification No. 9/2022-Central Tax (Rate) and Circular No. 181/13/2022-GST, as summarised in the ICAI compilation Significant Judicial and Advance Rulings in GST (Second Edition, February 2026).