Retrospective Refund Restrictions Quashed: Adani Wilmar Ruling

For businesses operating under an inverted duty structure, GST refunds are essential for survival. But what happens if the government issues a "clarification" that suddenly takes away your right to a refund for a period that's already passed? The Calcutta High Court has reached a definitive conclusion: Your legal right to a refund cannot be stolen by a retrospective circular.

"19. It is settled law that although, ordinarily, law of limitation applies retrospectively, yet there are certain exceptions to the rule. One such exception is that a provision that curtails the existing period of limitation would be inapplicable to accrued causes of action. In the present case, the cause of action (i.e. cause of action to apply for refund) accrued to the petitioner on the date the petitioner filed its return. Such right to claim refund would continue till the expiry of the period mentioned in Section 54(1) of the said Act of 2017. The same could, therefore, not have been curtailed by an executive circular by giving it retrospective effect."

A taxpayer's right to a benefit, such as a refund, is often a "vested right" once the conditions for that benefit have been met. Executive circulars are meant to "explain" or "clarify" the law; they cannot rewrite it. If a statute (the CGST Act) provides a clear window for claiming a refund, an administrative instruction issued by the tax department cannot slam that window shut for a period that has already concluded.

Key Takeaways

• Refund rights accrue on the relevant date and cannot be curtailed by retrospective circulars.
• Executive circulars cannot override the CGST Act or statutory limitation periods.
• Taxpayers can challenge refund rejections based solely on retrospective clarifications.

Who This Applies To

Businesses claiming GST refunds under inverted duty structures or facing circular-based restrictions.

The Facts

The case involved M/s Adani Wilmar Limited, a supplier of edible oils, who applied for a refund of accumulated ITC due to an inverted duty structure for the month of March 2022. The application was filed on April 17, 2024, well within the statutory two-year period. However, the GST authorities rejected the claim, citing a Central Circular (No. 181/13/2022-GST) issued on November 10, 2022. This circular claimed that a new restriction on refunds (imposed in July 2022) would apply retrospectively to all applications filed after July 18, 2022, even if the refund related to an earlier period.

The Law

• Section 54(1) of the CGST Act, 2017: This section states that a taxpayer has two years from the "relevant date" to claim a refund.
• Section 54, Explanation 2(e): Defines the "relevant date" for inverted duty structure refunds as the due date for filing the GSTR-3B return for that period.
• Vested Rights Doctrine: The principle that substantive rights accrued under a statute cannot be taken away retrospectively without express legislative authority.

Arguments

The petitioner argued that their right to the refund was "locked in" the moment they filed their return in April 2022. Since they had two years to claim it under the law, a later circular issued in November 2022 could not take that right away. The Revenue argued that the circular was merely clarificatory and because the actual application for refund was made in April 2024 (after the circular), the new restrictions must apply.

The Calcutta High Court held that the right to claim a refund is a statutory one that accrues the moment the tax return is filed. This right is protected for the full two-year period mentioned in Section 54(1). An executive circular, which is a form of subordinate legislation, cannot overrule the clear mandate of the Act passed by the legislature. The court referred to consistent rulings from the High Courts of Gujarat (Patanjali Foods Ltd.), Allahabad (Vaibhav Edibles Pvt. Ltd.), Rajasthan (Shree Arihant Oil & General Mills), and Andhra Pradesh (M/s Priyanka Refineries Pvt. Ltd.) to emphasize national consistency in GST law. The Court quashed the rejection orders and directed the department to process the refund on its merits.

Practical Impact

Refund rejections based on retrospective circulars can be challenged where statutory timelines were met.