Bombay High Court: Right to Refund of Unutilised ITC Accrues on Relevant Date
Once Accrued, Refund Right Cannot Be Retrospectively Taken Away
Court Clarifies Sections 54(1) and 54(3) of CGST Act
By Our Legal Correspondent
Mumbai, March 2026:
In a significant judgment, the Bombay High Court has ruled that the right to claim refund of accumulated unutilised Input Tax Credit (ITC) under Section 54(1) read with Section 54(3) of the Central Goods and Services Tax Act, 2017 accrues on the relevant date. Once accrued, such a right cannot be retrospectively taken away by subsequent amendments or notifications.
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The ruling provides clarity to taxpayers facing disputes over refund claims, especially exporters and businesses dealing with inverted duty structures.
Background of the Case
The petitioner, a manufacturing company, had filed refund claims for accumulated ITC due to an inverted duty structure. The department rejected the claims citing retrospective amendments and restrictive notifications.
The company challenged the rejection before the Bombay High Court, arguing that once the right to refund accrues on the relevant date, it cannot be nullified by later changes in law.
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Court’s Observations
- Accrual of Right: The right to refund accrues on the relevant date when conditions under Section 54 are satisfied.
- No Retrospective Nullification: Subsequent amendments or notifications cannot extinguish accrued rights.
- Speaking Orders Required: Authorities must pass reasoned orders when rejecting refund claims.
- Natural Justice: Taxpayers must be given fair opportunity to present their case.
Legal Framework
Section 54 – Refunds Under CGST Act
- Section 54(1): Provides for refund of tax, interest, or any other amount paid.
- Section 54(3): Allows refund of unutilised ITC in cases of zero‑rated supplies or inverted duty structure.
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Relevant Date
- Defined under Section 54(14) for different categories of refund claims.
- Marks the point when the right to refund accrues.
Judicial Principles
- Accrued rights cannot be taken away retrospectively unless explicitly provided by law.
- Courts emphasize fairness and protection of taxpayer rights.
Larger Implications
- For Exporters: Provides certainty in claiming refunds of accumulated ITC.
- For Businesses: Protects against retrospective denial of refund rights.
- For Tax Authorities: Reinforces the need for reasoned orders and adherence to natural justice.
- For GST Regime: Strengthens trust in the system by ensuring stability of accrued rights.
Conclusion
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The Bombay High Court’s ruling is a landmark in GST jurisprudence. By holding that refund rights accrue on the relevant date and cannot be retrospectively nullified, the court has provided relief to taxpayers and reinforced the principle of fairness in tax administration. This judgment is expected to guide future disputes on ITC refunds across India.
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