REFUND OF UNUTILISED ITC… - PowerPoint Presentation

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REFUND OF UNUTILISED ITC…

An Overview of the latest Gujarat High Court Judgement in VKC Footsteps

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Sec 54(3) of CGST Act

(3) Subject to the provisions of sub-section (10), a registered person may claim refund of any

unutilised

input tax credit at the end of any tax period :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) where the credit has accumulated on account of rate of tax on inputs being higher than 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.

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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

ITC

Purchase Value - 100

18%

18Sale Value - 2005%10ITC accumulation8

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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;

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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 13-6-2018with 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.

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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.

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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

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Total turnover in a tax period

Rs.1,00,00,000

Rs.1,00,00,000

2

Turnover of goods having Inverted Rate Structure

Rs.50,00,000

Rs.50,00,000

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GST payable on the above @ 5 %

Rs.2,50,000

Rs.2,50,000

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ITC availed in a tax period - Inputs

Rs.6,00,000

Rs.6,00,000

5ITC availed in a tax period - Input ServicesRs.2,00,000Rs.2,00,0006ITC availed in a tax period - TotalRs.8,00,000Rs.8,00,0007Refund entitlement formula[(2) / (1)]*(4) - (3)[(2) / (1)]*(6) - (3)8Refund entitlement amountRs.50,000Rs.1,50,000

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Miscellanea

Limitation to file the refund claim

Orders already passed – writ or appeal???

Supplementary claims

Momentary or perpetual ???9

THANKS

Swamy Associates

Chennai . Coimbatore . Bengaluru . Hyderabad . Pune . Delhi

www.swamyassociates.com

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