Rajasthan High Court – Jodhpur
Arawali Engineers vs Union Of India (2026:Rj-Jd:17161-Db) on 13 April, 2026
[2026:RJ-JD:17161-DB]
HIGH COURT OF JUDICATURE FOR RAJASTHAN AT
JODHPUR
D.B. Civil Writ Petition No. 10937/2021
Arawali Engineers, F-669, Basni Phase-Ii, Marudhar Industrial
Area, Jodhpur, Rajasthan.
----Petitioner
Versus
1. Union of India, Through Secretary, Department Of
Revenue, Ministry of Finance, Government of India, New
Delhi.
2. The Additional Commissioner (Appeals), CGST And
Central Excise Duty Commissionerate, G-105, Road No.
5, New Jodhpur Industrial Area Near Diesel Shed,
Jodhpur.
3. The Assistant Commissioner, Central Goods And Service
Tax Division-A, O2E/1, Subhash Enclave, Op. Af Central
School No. 1, Abhaygarh Scheme, Jodhpur.
----Respondents
For Petitioner(s) : Mr. Anil Bhansali
For Respondent(s) : Mr. Kuldeep Vaishnav
Mr. Nilesh Choudhary
HON'BLE MR. JUSTICE ARUN MONGA
HON’BLE MR. JUSTICE SUNIL BENIWAL
Order (Oral)
13/04/2026
Per: Arun Monga, J.
1. The present writ petition is directed against the order dated
14.10.2020 passed by the Assistant Commissioner (CGST),
Jodhpur, whereby the refund claims of the petitioner came to be
rejected, as well as the Order-in-Appeal dated 26.02.2021 passed
by the Additional Commissioner (Appeals), Jodhpur, whereby the
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appeal preferred by the petitioner against the said rejection was
dismissed, affirming the order of the adjudicating authority.
2. Brief facts of the present case are that the petitioner is a
registered person under the Central Goods and Services Tax Act,
2017 (hereinafter, “Act of 2017”) holding GSTIN No.
08AABFA4724G1ZS, and is engaged in the business of
manufacturing utensils. The rate of tax on inputs, namely steel
patta, and input services such as job work is 18%, whereas the
rate of tax on output supplies (utensils) is 12%, resulting in
accumulation of unutilized input tax credit on account of an
inverted duty structure. During the financial year 2019-20, such
unutilized input tax credit accumulated for the four quarters
amounted to Rs.11,76,757/-, Rs.23,27,504/-, Rs.3,37,201/-, and
Rs.13,61,718/- respectively.
2.1 In accordance with Section 54 of Act of 2017, the petitioner
filed applications in prescribed form GST RFD-01 seeking refund of
the aforesaid unutilized input tax credit within the stipulated time.
However, the respondent No. 3 issued show-cause notices dated
12.10.2020 for all four quarters, proposing to restrict the eligible
input tax credit by excluding input services from the computation
of “Net ITC.” The petitioner submitted detailed replies on
13.10.2020, objecting to the proposed restriction.
2.2 Subsequently, the respondent No. 3 rejected the refund
claims vide orders dated 14.10.2020, holding that the petitioner
had wrongly included input tax credit on input services in the
computation of “Net ITC” in contravention of Rule 89(5) of the
CGST Rules, 2017 and had also claimed credit on certain items
allegedly not qualifying as inputs.
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2.3 Aggrieved thereby, the petitioner preferred appeals under
Section 107 of Act of 2017 before respondent No. 2, which came
to be dismissed vide order dated 26.02.2021. The appellate
authority upheld the interpretation that under amended Rule
89(5), “Net ITC” is confined to input goods only. The petitioner’s
claim, being one of refund arising out of inverted duty structure,
was thus denied to the extent of input services.
2.4 Hence, the present writ petition.
3. Learned counsel for the petitioner submits that under Section
54(3) of the Act of 2017, a registered person is entitled to refund
of unutilized input tax credit where accumulation arises from an
inverted duty structure, namely, where the tax on inputs exceeds
that on output supplies. It is undisputed, even by the
respondents, that the petitioner falls within this category. The
accumulated balance reflected in the electronic credit ledger for FY
2019-20 establishes such entitlement. Rejection of the refund
claim is, therefore, contrary to the statute and unsustainable.
3.1. It is further contended that the respondents wrongly denied
the claim on the assumption that it included ITC on input services.
The turnover, output tax liability, and ITC figures clearly show that
the output tax liability on inverted duty turnover exceeds the ITC
on input services, leaving no scope for refund of input service
credit. Denial on this basis effectively restricts utilization of validly
availed ITC without statutory authority.
3.2. Learned counsel for the petitioner also submits that the Act
does not contemplate any distinction between ITC on goods and
input services once credit is validly availed, as all such credit
merges into a common electronic credit ledger. The respondents,
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therefore, fundamentally misconstrued the statutory scheme in
treating the claim as one for refund of input service credit,
whereas it was a claim for accumulated credit due to an inverted
duty structure. The impugned orders thus deserve to be quashed.
4. Learned counsel for the respondents opposes the petition. He
submits that the appellate order, as on the date it was passed,
was according to the then prevailing position of law and warrants
no interference.
5. Heard learned counsel for the parties and perused material
available on record.
6. At the outset, it transpires that the issue involved in the present
writ petition is no longer res integra and stands conclusively
settled by the Hon’ble Supreme Court in Union of India v. VKC
Footsteps India Pvt. Ltd.1, whereby the finding given by Gujarat
High Court in VKC Footsteps India Pvt. Ltd. vs. Union of
India2 holding that Explanation (a) to Rule 89(5) of the CGST
Rules was ultra vires Section 54(3) of the CGST Act, and directing
inclusion of input services within “Net ITC” for refund purposes,
was set aside. The Apex Court in fact upheld the view taken by
Madras High Court in Tvl. Transtonnelstroy Afcons Joint
Venture v. Union of India 3, wherein it was categorically held
that Section 54(3)(ii) does not violate Article 14 and that
restricting refund to unutilized ITC on input goods, while excluding
input services, constitutes a valid classification and a permissible
legislative policy.
1
. AIR 2021 SC 4407
2
. C/FA/39335/2018
3
. CW Case No. 11470/2019
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7. On a court query, learned counsel for the respondent submits
that at the time of rejection of the claim of the petitioners, the
Department had proceeded on the premise of the judgment
rendered by the Gujarat High Court dated 24.07.2020 in VKC
Footsteps India Pvt. Ltd. vs. Union of India, (supra).
8. He submits that the view taken by the Gujarat High Court
was later clarified by the Supreme Court in Union of India vs.
VKC Footsteps (supra). In light thereof, he fairly states that if
the petitioner approaches the department, the competent
authority shall now accordingly pass fresh order by considering
the applicability of Supreme court judgment, ibid.
9. In course of hearing, learned counsel for the petitioner has
submitted a computation of refund in terms of Rule 89 (5) r/w
Section 54(3) RGST and states that the same is in accordance
with Supreme Court’s judgment. The computation chart as
referenced above is reproduced herein below for ready reference:
Ratio Output tax
Inverted of on ITC on
TAX Refund Refund
duty Total IDT/T ITC on NET ITC Inverted Input REFUND
Quarter PAYABLE Claimed denied
turnover Turnover (3) otal Inputs (5) (6) duty Services DUE (10)
(9) (11) (12)
(2) Turno Turnover (8)
ver (4) (7)
Apr
2019 -
44065861 48247909 0.914 5791630 5293550 5287903 1286555 4001348 1288273 1176757 1176757
June
2019
Jul
2019 -
29038189 32522772 0.893 5237796 4677352 3484583 1453397 2031186 2645417 2327504 1374691
Sep
2019
Oct
2019 -
38799948 45690758 0.850 5156151 4382728 4655993 724294 3931699 446931 337201 337201
Dec
2019
Jan
2020 -
30526896 33550075 0.910 5259052 4785737 3663227 290461 3372766 1412395 1361718 322556
Mar
2020
10. Be that as it may, in view of the aforesaid statement made
by the learned counsel for the respondents, we are not going into
the merits of the computation and the fresh decision is left open
to be rendered by the competent authority after going through the
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Union of India vs. VKC Footsteps (supra). However, it is
expected that in case the competent authority disagrees with the
computation chart, supra, a speaking order shall be passed giving
specific reasons thereof, as expeditiously as possible.
11. With the aforesaid observations and directions, the present
petition stands disposed of.
10. All pending application(s) also stand disposed of.
(SUNIL BENIWAL),J (ARUN MONGA),J
Ashutosh-58
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