Calcutta High Court: Stereo Systems in E-Rickshaws Eligible for GST ITC Refund
Court says inputs need not be directly used in manufacturing to qualify for refund
Ruling offers relief to e-rickshaw manufacturers facing inverted duty structure
By Our Legal Correspondent
New Delhi: January 05,2026:
In a landmark decision, the Calcutta High Court has held that stereo systems installed in e-rickshaws qualify as “inputs” under GST law, making them eligible for refund of unutilized Input Tax Credit (ITC) under Section 54(3) of the CGST/WBGST Act.
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The ruling came in the case of Hooghly Motors Pvt. Ltd. vs State of West Bengal, where the petitioner, an e-rickshaw manufacturer, sought refund of ITC accumulated due to an inverted duty structure. The Court clarified that inputs need not be directly used in the manufacturing process itself, if they are supplied as part of the final product during business.
Background of the Case
- The petitioner manufactured e-rickshaws (popularly known as “TOTO”) and installed stereo systems/loudspeakers in them.
- Due to an inverted duty structure (higher tax on inputs than on output supplies), the petitioner accumulated unutilized ITC.
- The GST authorities rejected the refund claim, arguing that stereo systems were not “inputs” directly used in manufacturing.
- The Calcutta High Court overturned this decision, granting refund of approximately ₹8 lakh.
Court’s Observations
- Definition of Inputs
- Section 2(59) of the CGST Act defines “input” as any goods used in the course or furtherance of business.
- Stereo systems, though not raw materials, were supplied as part of the final product.
- Refund Under Section 54(3)
- The statute does not mandate that inputs must be used directly in manufacturing.
- Goods supplied as part of the final product qualify for ITC refund.
- Business Reality Considered
- The Court emphasized that GST law must reflect commercial reality.
- Stereo systems enhanced the value of e-rickshaws and were integral to the product offered to customers.
Wider Legal Context
- Section 54(3) of GST Act: Allows refund of unutilized ITC in cases of inverted duty structure.
- Inverted Duty Structure: Occurs when tax on inputs is higher than tax on output supplies, leading to accumulation of ITC.
- Judicial Precedents: The ruling aligns with earlier judgments that interpret “inputs” broadly to include goods supplied as part of the final product.
Why This Judgment Matters
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- Relief for Manufacturers: E-rickshaw makers can now claim ITC refunds on accessories like stereo systems.
- Clarifies Law: Confirms that inputs need not be raw materials; they can be any goods supplied as part of the final product.
- Encourages Industry Growth: Strengthens financial viability of small and medium manufacturers.
- Reduces Litigation: Provides clarity for GST authorities and businesses, reducing disputes.
Wider Impact
- E-Rickshaw Industry: Boosts profitability for manufacturers facing inverted duty structures.
- Tax Administration: Authorities must now assess ITC claims considering business realities.
- Policy Makers: May revisit GST rates to reduce inverted duty structures in the automobile sector.
- Consumers: Could benefit from better-equipped e-rickshaws at competitive prices.
Expert Views
Tax experts welcomed the ruling, noting that:
- It prevents harsh denial of ITC refunds on technical grounds.
- It recognizes the unique nature of automobile manufacturing, where accessories form part of the final product.
- It reinforces the principle that GST law must balance compliance with fairness.
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Conclusion
The Calcutta High Court’s ruling that stereo systems in e-rickshaws qualify as inputs eligible for ITC refund is a milestone in GST jurisprudence. By granting refund under Section 54(3), the Court reaffirmed that inputs need not be directly used in manufacturing, if they are supplied as part of the final product.
This judgment strengthens the position of e-rickshaw manufacturers, protects small businesses from financial strain, and ensures that GST law is applied with fairness and practicality.
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