Your raw material and your finished product can be taxed at the exact same GST rate — and you can still be sitting on a legitimate inverted duty refund. The GSTAT's Kolkata bench just confirmed why, in a ruling that has real relevance for anyone whose packaging costs more, tax-wise, than the product inside it.
Higher GST on Packaging Material Qualifies for Inverted Duty Refund, Rules GSTAT Kolkata
The Goods and Services Tax Appellate Tribunal (GSTAT), Kolkata bench, has ruled that taxpayers accumulating unutilised input tax credit because of higher GST rates on packaging materials are entitled to a refund under the inverted duty structure — even where the primary raw material and the final finished product are taxed at the same, lower rate. The ruling came in The Pr. Commissioner CGST & CX, Siliguri Commissionerate v. M/s Tea Linker, in which the Tribunal dismissed a Revenue appeal in full.
The Facts: Tea In, Tea Out, But the Packaging in Between
M/s Tea Linker, a Siliguri-based tea packaging business, procures tea in bulk and sells it on in branded consumer packs, pouches, and sachets. Both the bulk tea it buys and the packaged tea it sells attract a 5% GST rate — same commodity, same rate, no rate inversion there. The packaging materials it uses to get from one to the other — cartons, containers, pouches — attract a higher 12% GST rate.
That gap between input tax (12% on packaging) and output tax (5% on packaged tea) meant unutilised credit kept building up in the company's electronic credit ledger. Tea Linker claimed a refund of ₹59,26,077 under the inverted duty structure provision — Section 54(3)(ii) of the CGST Act — for the period October 2021 to March 2022. The adjudicating authority sanctioned nearly all of it: ₹59,24,669.
The Department's Objection
Revenue's argument was that the input and output supplies were, at bottom, the same commodity — tea, taxed at 5% both ways — and that paragraph 3.2 of CBIC Circular No. 135/5/2020-GST barred refunds where input and output goods carry an identical rate. On that reading, the fact that packaging carried a higher rate was beside the point, because the "real" input-output comparison was tea-to-tea, not packaging-to-tea.
The first appellate authority rejected that argument and upheld the taxpayer's refund. The Revenue then escalated the matter to the Kolkata bench of the GSTAT.
What the Tribunal Held
The GSTAT ruled entirely in the taxpayer's favour, on three distinct grounds.
1. The statute doesn't distinguish between "main" and "ancillary" inputs. Section 54(3)(ii) uses the word "inputs" in the plural, and draws no legislative line between a principal raw material and a secondary or ancillary supply used in the process. Packaging material squarely meets the definition of "inputs" under Section 2(59) of the CGST Act — so credit accumulation arising from a higher rate on packaging alone is enough to satisfy the statutory test for an inverted duty structure. Nothing in the section requires that every input be compared to the output, or that the rate inversion arise from the primary raw material specifically.
2. Circular No. 135/5/2020-GST simply didn't apply to these facts. The Tribunal read paragraph 3.2 of the circular for what it was actually designed to address: situations where credit accumulates purely because the same commodity saw its GST rate reduced over time — an input taxed at a higher rate in the past against an output now taxed lower, purely due to a rate change. That's a different fact pattern from Tea Linker's case, where bulk tea and packaged tea were consistently taxed at 5% throughout — there was no temporal rate reduction at play at all. The circular's factual premise simply didn't match the situation, so it couldn't be invoked to deny the refund.
3. A circular cannot override what the statute grants. Relying on the Delhi High Court's ruling in Indian Oil Corporation Ltd., the Tribunal reiterated a foundational principle: circulars issued under Section 168(1) exist to promote administrative uniformity in how field officers apply the law — they are an interpretive aid, not a substitute for the statute. A circular cannot impose restrictions that cut down a right Parliament has expressly conferred under Section 54(3). If the circular and the statute point in different directions, the statute wins.
| Item | GST Rate |
|---|---|
| Bulk tea (input) | 5% |
| Packaged tea (output) | 5% |
| Packaging material (cartons, pouches, containers) | 12% |
Why this distinction matters: The Revenue's approach effectively asked: "did the rate on the core commodity go down?" The Tribunal's approach asked the question the statute actually poses: "is there an input taxed higher than the output, causing credit to pile up?" Packaging is every bit as much an "input" as the raw material — the law doesn't rank inputs by importance.
Why This Ruling Matters Beyond Tea
This fact pattern — a raw material and finished product taxed identically, but packaging or other ancillary inputs taxed higher — isn't unique to tea. It shows up across FMCG, food processing, pharmaceuticals, and consumer goods generally, wherever the packaging (cartons, laminates, plastic containers, printed pouches) sits in a higher GST slab than the product it wraps. Businesses in exactly this situation have often faced the same departmental objection Tea Linker did: that because the core commodity's rate didn't change, there's supposedly no "real" inversion.
The GSTAT's reasoning closes that argument off. As long as an eligible input — packaging included — is taxed at a rate higher than the output, and credit is accumulating as a result, Section 54(3)(ii) is satisfied on its own terms, independent of what's happening with the core raw material's rate.
The takeaway: an inverted duty refund doesn't require the finished product's rate to be lower than the primary raw material's. If any eligible input — including packaging — is taxed higher than the output, that alone can support a refund claim under Section 54(3)(ii), and a CBIC circular cannot be read to cut down that statutory right.
This post summarizes the GSTAT Kolkata bench ruling in The Pr. Commissioner CGST & CX, Siliguri Commissionerate v. M/s Tea Linker, based on publicly reported details as of September 2026. It is a general informational overview and not legal or tax advice — refer to the official order and consult a qualified tax professional for guidance specific to your facts.