The Madras High Court examined the issue of whether the petitioners are qualified for a refund of all unused ITC (input tax credits) that each of them has accumulated as a consequence of being subject to an inverted duty structure.
Facts in a case
The petitioners were all employed in sectors with higher tax rates on input supplies (goods and/or services) than on output supplies.
As a consequence of the registered person’s inability to fully offset the tax owing on output supply with the available ITC, there was a buildup of unused ITC.
The petitioners claimed that regardless of whether they paid tax at a higher rate than that on output supplies to acquire input goods and/or services, they were nevertheless entitled to a refund of the whole unused ITC.
On the other side, the Union of India and the Tax Department contended that refunds of unused ITC were only acceptable for the sum of credit obtained as a consequence of buying input supplies at a higher rate than was required to pay for output supplies.
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