Supreme Court Upholds Retrospective Relief for IDS Refunds
The Supreme Court’s dismissal of Revenue’s SLP on the amended Rule 89(5) refund formula marks a significant relief for exporters under the inverted duty structure (IDS). This decision allows retrospective application of the beneficial formula, ensuring fair refund of accumulated Input Tax Credit (ITC) on inputs.
What is Rule 89(5) Refund?
Rule 89(5) of the CGST Rules, 2017 prescribes the formula to calculate refund of ITC in cases of IDS—when the tax rate on inputs is higher than on outputs.
Prior to amendment, the formula excluded ITC on input services, leading to partial refunds and litigation.
What Changed in Rule 89(5)?
✅ Pre-amendment position (before 05.07.2022):
Only ITC on inputs (goods) was eligible for refund.
✅ Post-amendment formula (after 05.07.2022):
Refund allowed on input + input services, improving the formula’s fairness.
This amendment came via Notification No. 14/2022-CT, dated 05.07.2022, following legal and trade pushback.
SC Ruling: Retrospective Benefit Valid
📌 Case: Union of India vs. Baker Hughes Asia Pacific Ltd
In this case, the Gujarat High Court had earlier ruled that the amended Rule 89(5) applies retrospectively, benefiting exporters whose refunds were wrongly denied.
The Revenue filed an SLP (Special Leave Petition) challenging this interpretation.
However, the Supreme Court dismissed the SLP, upholding the Gujarat High Court’s view.
Why This Matters
This judgment paves the way for pending IDS refund claims to be reopened or allowed, even if they relate to periods before 05.07.2022.
✅ Who benefits:
- Exporters under IDS
- Businesses in textiles, fertilisers, footwear, pharma, etc.
✅ Key outcomes:
- Enhances working capital liquidity
- Reduces litigation
- Brings parity between input goods and services
Legal Reference and Timeline
| Date | Event |
|---|---|
| 23.03.2023 | Gujarat HC: Amended Rule 89(5) to apply retrospectively |
| 05.07.2022 | Notification 14/2022-CT amended Rule 89(5) |
| July 2024 | Revenue files SLP |
| July 2025 | SC dismisses SLP, upholding HC order |
Expert Insight
Many exporters had their claims rejected solely because ITC on input services was excluded. This SC ruling reinforces substantive justice over technicality, supporting the broader goal of tax neutrality under GST.
Tip: If your IDS refund was rejected earlier for excluding input services, you can now file a rectified claim or appeal.
How to File Revised IDS Refund Claims?
- Review old refund rejections where input service ITC was excluded.
- Recompute refund using the amended formula (including input services).
- File rectification/appeal with jurisdictional GST officer referencing this SC ruling.
- Attach Gujarat HC order copy and SC dismissal reference for legal support.
- Maintain proper invoices and ITC ledger reconciliation.
Internal Link
➡️ Read: GST Refund under IDS – Complete Guide on Rule 89(5)
External Link
🔗 Notification No. 14/2022-CT dated 05.07.2022 – CBIC
FAQs
Q1. Can I file refund claim for FY 2020–21 using the amended Rule 89(5)?
Yes, based on the SC’s dismissal of the SLP, retrospective application is now valid.
Q2. Is input service ITC now allowed in IDS refund?
Yes, after the 2022 amendment and this ruling, both input goods and services are eligible.
Q3. What if my claim was already rejected earlier?
You can file for rectification or appeal citing this Supreme Court ruling.
Summary
The Supreme Court has upheld retrospective application of the amended Rule 89(5) refund formula under GST. This allows exporters to claim IDS refunds on input services too, benefiting past claims and reducing litigation.
Final Words
This ruling offers a much-needed correction in GST refund processing under IDS. Exporters and MSMEs should act fast to revisit older claims and ensure they claim their rightful refunds.