Uniform “Relevant Period” Must Apply to Entire Rule 89(4) Refund Formula: Madras High Court Ruling
Background of the Dispute
In Sea 6 Energy Private Limited Vs Assistant Commissioner of Central Taxes (Madras High Court), the Madras High Court examined the manner in which refund of accumulated Input Tax Credit (ITC) is to be computed under Rule 89(4) of the CGST Rules, 2017, specifically focusing on the meaning and use of the term “relevant period”.
The assessee, Sea 6 Energy Private Limited, is engaged in manufacturing and selling biostimulants and potash. Its operations are seasonal and it exports zero-rated goods. These exports entitle the assessee to claim refund of accumulated ITC where supplies are made without payment of tax under bond or Letter of Undertaking.
For March 2025, the assessee filed a refund claim for accumulated ITC attributable to zero-rated supplies. The adjudicating authority sanctioned the refund only in part. The balance having been rejected, the assessee approached the High Court by way of a writ petition challenging the order dated 24.06.2025.
The core legal issue before the Court was the proper interpretation and application of the term “relevant period” in the refund formula under Rule 89(4) and whether the assessee could apply this term differently for turnover and ITC within the same formula.
Facts Leading to the Writ Petition
Nature of Business and Refund Claim
- The assessee is a seasonal manufacturer of biostimulants and potash.
- It exports zero-rated goods without payment of tax.
- For March 2025, it filed a refund application for accumulated ITC arising on account of zero-rated exports.
- The refund was partly allowed, with a portion of the claim rejected.
Challenge Before the High Court
The assessee questioned the order dated 24.06.2025.
Through its counsel, it reiterated the grounds contained in the writ affidavit and sought:
- Setting aside of the impugned order.
- Direction to grant full refund as originally claimed.
The Department, represented through standing counsel, filed a detailed counter affidavit opposing the writ petition and supported the manner in which the refund had been computed.
Legal Framework: Rule 89(4) of CGST Rules, 2017
The High Court reproduced and examined Rule 89(4) of the CGST Rules, 2017, which lays down the formula for determining the refund of ITC in the case of zero-rated supplies made without payment of tax. The Rule defines the expressions used in the formula as follows:
Refund Amount = (Turnover of zero-rated supply of goods + Turnover of zero-rated supply of services) × Net ITC ÷ Adjusted Total Turnover
The Rule then clarifies the meaning of each component:
“Refund amount”
- Defined as the maximum amount of refund that can be granted.
“Net ITC”
- Means ITC availed on inputs and input services during the relevant period,
- Excluding ITC for which refund is claimed under sub-rules
(4A)or(4B)or both.
“Turnover of zero-rated supply of goods”
- Means the value of zero-rated supply of goods made during the relevant period without payment of tax under bond or Letter of Undertaking, or
- The value which is 1.5 times the value of like goods domestically supplied by the same or similarly placed supplier, as declared by the supplier,
- Whichever is lower,
- Excluding supplies for which refund is claimed under sub-rules
(4A)or(4B)or both.