Overview of latest Gujarat High Court Judgment on Refund of Unutilised ITC
Dive into the intricacies of the recent Gujarat High Court judgment on refund of unutilised Input Tax Credit (ITC) under Section 54(3) of the CGST Act. Explore the implications of inverted duty structure, changes in Rule 89(5) pre and post-amendment, and Departmental Clarifications. Understand the nuances of claiming refunds in cases of zero-rated supplies and high input tax credit accumulation.
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REFUND OF UNUTILISED ITC An Overview of the latest Gujarat High Court Judgement in VKC Footsteps 1
Sec 54(3) of CGST Act (3) unutilised input tax credit at the end of any tax period : Subject to the provisions of sub-section (10), a registered person may claim refund of any Provided that no refund of unutilised input tax credit shall be allowed in cases other than (i) zero rated supplies made without payment of tax; (ii) the rate of tax on output supplies (other than nil rated or fully exempt supplies), except supplies of goods or services or both as may be notified by the Government on the recommendations of the Council. where the credit has accumulated on account of rate of tax on inputs being higher than 2
Inverted Duty Structure An inverted duty structure is a situation when the tax on inputs is higher than that on output leading to an accumulation of credit. Value Rate 18% 5% ITC 18 10 8 Purchase Value - 100 Sale Value - 200 ITC accumulation 3
Rule 89(5) of CGST Rules (Pre-amendment) "(5) In the case of refund on account of inverted duty structure, refund of input tax credit shall be granted as per the following formula - Maximum Refund Amount = {(Turnover of inverted rated supply of goods) x Net ITC Adjusted Total Turnover} - tax payable on such inverted rated supply of goods Explanation.- For the purposes of this sub rule, the expressions Net ITC and Adjusted Total turnover shall have the same meanings as assigned to them in sub-rule (4)." Net ITC means input tax credit availed on inputs and input services during the relevant period other than the input tax credit availed for which refund is claimed under sub-rules (4A) or (4B) or both; 4
Rule 89(5) of CGST Rules (Post-amendment) Notification No. 21/2018-C.T., dated 18-4-2018 Net ITC shall mean input tax credit availed on inputs during the relevant period other than the input tax credit availed for which refund is claimed under sub-rules (4A) or (4B) or both; Notification No. 26/2018-C.T., dated 13-6-2018 with effect from 1st July 2017, in rule 89, for sub-rule (5), the following shall be substituted; Effectively the revised formula did not allow refund for input services and this was also given retrospective effect. 5
Departmental Clarification Circular 79/53/2018-GST dated 13.12.2018 Section 2(59) of the CGST Act defines inputs as any goods other than capital goods used or intended to be used by a supplier in the course or furtherance of business. Thus, inputs do not include services or capital goods. Therefore, clearly, the intent of the law is not to allow refund of tax paid on input services or capital goods as part of refund of unutilized input tax credit. In order to align the CGST Rules with the CGST Act, Notification No. 26/2018-CT was issued. Both the law and the rules clearly prevent the refund of tax paid on input services and capital goods as part of refund of input tax credit accumulated on account of inverted duty structure. 6
VKC Footsteps vs UOI Input and Input Service are both part of Input Tax and Input Tax Credit. Legislature had provided under the Act that a registered person may claim refund of any unutilised input tax , which the Rule cannot restrict. Thus, Rule 89(5) is ultravires Section 54(3). 7
How to calculate Inverted Rate Structure Refund entitlement S.No. Details As per amended provisions As per Gujarat HC decision Total turnover in a tax period Rs.1,00,00,000 Rs.1,00,00,000 1 Turnover of goods having Inverted Rate Structure Rs.50,00,000 Rs.50,00,000 2 GST payable on the above @ 5 % Rs.2,50,000 Rs.2,50,000 3 ITC availed in a tax period - Inputs Rs.6,00,000 Rs.6,00,000 4 ITC availed in a tax period - Input Services Rs.2,00,000 Rs.2,00,000 5 ITC availed in a tax period - Total Rs.8,00,000 Rs.8,00,000 6 Refund entitlement formula [(2) / (1)]*(4) - (3) [(2) / (1)]*(6) - (3) 7 Refund entitlement amount Rs.50,000 Rs.1,50,000 8 8
Miscellanea Limitation to file the refund claim Orders already passed writ or appeal??? Supplementary claims Momentary or perpetual ??? 9
Swamy Associates Chennai . Coimbatore . Bengaluru . Hyderabad . Pune . Delhi THANKS www.swamyassociates.com 10
