CBIC Circular on refunding unutilised ITC under Rule 89(5) is not prospective: Supreme Court dismisses Revenue Petition with ₹10,000 costs

Introduction

The issue of refunding unutilised Input Tax Credit (ITC) under the inverted duty structure has long been contentious under GST. A key dispute arose around the July 2022 amendment to Rule 89(5), which corrected the refund formula to include both inputs and input services. While the amendment sought to remove anomalies, the Central Board of Indirect Taxes and Customs (CBIC), through Circular No. 181/13/2022-GST dated 10th November 2022, clarified that the benefit would apply only prospectively. This triggered litigation across the country, as taxpayers claimed the amendment was clarificatory and hence retrospective.

The matter has now been settled at the highest judicial level. The Supreme Court, while dismissing the Revenue’s Special Leave Petition (SLP) in Union of India & Ors. v. Tirth Agro Technology Pvt. Ltd. with ₹10,000 costs, has effectively upheld the Gujarat High Court’s view that the amendment is retrospective in nature and that the CBIC circular cannot restrict refunds to a prospective date. This ruling comes as a major relief for businesses that had pending or earlier claims of ITC refunds under the inverted duty structure.

FACTS

The Gujarat High Court had held that the July 5, 2022 amendment to Rule 89(5) (refund formula for inverted duty structure) is clarificatory/curative and therefore applies retrospectively to all refund claims filed within the limitation period — and it quashed CBIC Circular No. 181/13/2022-GST (10-11-2022) to the extent it said the amendment is only prospective.
The Supreme Court has now dismissed the Union of India’s SLP against that Gujarat HC view, noting the issue already stood concluded, and slapped ₹10,000 costs (to be deposited with the AOR Association). Case involved Union of India & Ors. v. Tirth Agro Technology Pvt. Ltd. (order dated July 10, 2025). Result: the HC view stands; the CBIC circular’s “prospective only” stance can’t be enforced.
Earlier, the SC had already dismissed the SLP in Union of India v. Ascent Meditech Ltd. on March 28, 2025, which the Gujarat HC had relied upon. The Tirth Agro SLP dismissal specifically flags that earlier dismissal.

What changed in Rule 89(5) and why this matters

Before 05-07-2022: the refund formula effectively excluded input services from “Net ITC”, curtailing refunds in inverted duty cases.
Notification 14/2022-CT (05-07-2022): amended the Rule 89(5) formula so that both input goods and input services are factored proportionately in determining the refundable ITC.
CBIC Circular 181 (10-11-2022): said this benefit applies only to refund applications filed on/after 05-07-2022 (i.e., prospective). Courts have now rejected that view.

What the Courts have said (key milestones)

Ascent Meditech Ltd. v. UOI (Guj. HC, Dec 20, 2024):
- Held: the 05-07-2022 amendment is clarificatory/curative → retrospective application.
- Quashed CBIC Circular 181 to the contrary; directed recomputation under the amended formula for claims within limitation.
UOI v. Ascent Meditech Ltd. (SC, Mar 28, 2025):
- SLP dismissed; Gujarat HC view left undisturbed.
Tirth Agro Technology Pvt. Ltd. v. UOI (Guj. HC; followed Ascent) → UOI & Ors. v. Tirth Agro (SC, July 10, 2025):
- SLP dismissed with ₹10,000 costs; SC noted non-disclosure of earlier dismissal in Ascent Meditech. Net result: Circular 181’s prospective stance cannot be insisted upon; amended formula applies to eligible claims even if filed before 05-07-2022 (provided they are within limitation).

Practical takeaways for taxpayers

Who benefits now?
- Taxpayers under inverted duty structure who:
  - filed refund claims before 05-07-2022 and those claims were pending on that date; or
  - had refunds already sanctioned under the old formula and have filed/are filing rectification/differential refund within the statutory two-year window under Section 54.
What to seek:
- Recomputation of refund using the post-05-07-2022 formula (including proportionate input services) for all eligible tax periods falling within limitation.
How to proceed (checklist):
1. Map periods where IDS refunds were claimed/sanctioned using the old formula.
2. Verify limitation under Section 54 for each period; if within time, prepare rectification/differential refund applications with workings per amended Rule 89(5).
3. Attach: prior refund orders, computation sheets (old vs new), ITC ledgers, GSTR-1/3B extracts, and a legal note citing Ascent Meditech (Guj. HC), SC dismissals (Mar 28 & Jul 10, 2025), and CBIC Circular 181 being inapplicable prospectively.
If the department cites Circular 181:
- Point out it has been read down/quashed to the extent of prospectivity by HCs and the SLPs have been dismissed by SC; hence field formations cannot deny recomputation merely on the circular.

Nuances & cautions

Non-speaking SLP dismissals: While an SLP dismissal without a detailed judgment isn’t a precedent on ratio, here the combination of (i) HC judgments on merits, (ii) SC dismissal in Ascent Meditech, and (iii) SC dismissal with costs in Tirth Agro has led authorities and practitioners to treat the retrospective application as the prevailing position. Keep your pleadings anchored to these orders.
Two-year limitation still governs: Relief flows only where the claim/rectification is within Section 54 timelines (compute “relevant date” carefully).
Rate-based exclusions (e.g., certain Ch. 15 & 27 goods from 18-07-2022) remain prospective as per the same Circular — this part wasn’t the controversy here.

Citations & source docs

SC: UOI & Ors. v. Tirth Agro Technology Pvt. Ltd., SLP (C) Diary No. 33088/2025, order dated July 10, 2025 (SLP dismissed with ₹10,000 costs).
SC: UOI v. Ascent Meditech Ltd., SLP dismissed March 28, 2025.
Gujarat HC: Ascent Meditech Ltd. v. UOI (judgment Dec 20, 2024).
CBIC Circular 181/13/2022-GST (10-11-2022) — para clarifying prospective only application (now inoperative to that extent due to above rulings).
Background explainers and case notes.

Bottom line for your headline

“SC closes the door on CBIC’s ‘prospective only’ stand for Rule 89(5) refunds; retrospective recomputation allowed for claims within limitation; Revenue’s SLP dismissed with ₹10,000 costs.”

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