2019 (7) TMI 1229 - AAR - GST

Refund of Input Tax Credit on Inverted Duty Structure Not Permitted by AAR

The Authority for Advance Ruling (AAR) ruled that Notifications 21/2018 and 26/2018 do not allow for the refund of Input Tax Credit (ITC) availed on input ... Refund of unutilised input tax credit - inverted duty structure - definition of 'input' - Net ITC - applicability of subordinate legislation - advance ruling jurisdiction under Section 97Refund of unutilised input tax credit - inverted duty structure - definition of 'input' - Net ITC - Whether Notification No. 21/2018 and Notification No. 26/2018 apply to the applicant and permit refund of input tax credit availed on input services under the inverted duty structure. - HELD THAT: - The Authority examined Section 54(3) (refund of unutilised input tax credit) and Rule 89(5) as substituted by Notification No. 21/2018, made retrospective by Notification No. 26/2018. Section 2(59) defines 'input' as goods (other than capital goods) used in the course or furtherance of business, and Section 2(63) defines 'input tax credit' as credit of input tax. The amended Rule 89(5) and the definition of 'Net ITC' in the notifications confine the refund computation to ITC on inputs (goods) and exclude ITC on input services. The Authority held that the notifications prescribe the method for carrying out Section 54(3) and must be read with the Act; the subordinate rules do not impermissibly override the statute but implement the legislative scheme. Applying these provisions, the Authority concluded that the notifications apply to the applicant and do not allow refund of ITC availed on input services (whether whole or part).Notifications No. 21/2018 and No. 26/2018 apply and, in view of the definition of 'input' and the definition of 'Net ITC', do not permit refund of ITC availed on input services.Advance ruling jurisdiction under Section 97 - method of calculation of refund - Whether the Authority will determine the numerical application of the amended refund formula to the applicant's factual financial example. - HELD THAT: - Section 97(2) prescribes the categories of questions on which an advance ruling may be given, including applicability of a notification and admissibility of input tax credit, but does not include queries concerning the method of calculation or numerical computation of refund amounts. The Authority found that the applicant's second question concerned the formulaic calculation and numerical application of the refund formula, which falls outside the matters on which an advance ruling may be given under Section 97. Accordingly, the Authority declined to answer that question. [Paras 5]The question on the numerical application of the refund formula does not fall within Section 97(2) and is not answered by this Authority.Final Conclusion: The Authority ruled that Notifications No. 21/2018 and No. 26/2018 apply to the applicant and, having regard to the statutory definition of 'input' and the definition of 'Net ITC', do not allow refund of ITC on input services; the separate query seeking numerical application of the amended refund formula was not answered as it falls outside the advance ruling jurisdiction under Section 97. Issues Involved:1. Applicability of Notification 21 and 26 regarding refund of ITC availed on input services.2. Application of Notification 21 and 26 in a scenario with specific financial data.Detailed Analysis:Issue 1: Applicability of Notification 21 and 26 regarding refund of ITC availed on input servicesThe applicant sought clarity on whether Notifications 21/2018 and 26/2018 allow for the refund of unutilized Input Tax Credit (ITC) availed on input services under the inverted duty structure as per Section 54(3) of the CGST Act. The applicant argued that Section 54(3) does not explicitly restrict the refund of ITC on input services and that the subordinate legislation (rules) should not override the main enactment (CGST Act).The Authority for Advance Ruling (AAR) observed that Section 54(3) of the CGST Act allows for a refund of unutilized ITC where the rate of tax on inputs is higher than the rate of tax on output supplies. However, the term 'inputs' as defined in Section 2(59) of the CGST Act refers only to goods and not services. Furthermore, Rule 89(5) of the CGST Rules, amended by Notifications 21/2018 and 26/2018, prescribes a formula for calculating the maximum refund amount, which only considers ITC on inputs (goods) and excludes ITC on input services.The AAR concluded that the notifications are valid and enforceable as they are within the framework of the CGST Act and do not conflict with the main provisions. Therefore, the notifications do not allow for the refund of ITC availed on input services.Issue 2: Application of Notification 21 and 26 in a scenario with specific financial dataThe applicant provided a financial scenario to understand how the amended formula under Notifications 21/2018 and 26/2018 would apply. The financial data included revenue streams and input tax credit details, showing a net balance of unutilized ITC.The AAR noted that the applicant's second query pertains to the methodology of calculating the refund, which is not covered under the provisions of Section 97(2) of the CGST Act. Section 97(2) specifies the types of questions that can be addressed by an advance ruling, such as the classification of goods or services, applicability of notifications, and admissibility of ITC, among others. The calculation of refund amounts does not fall within these categories.As a result, the AAR refrained from addressing the second query, stating that it does not fall within its jurisdiction under Section 97 of the CGST Act.Order:1. The AAR ruled that Notifications 21/2018 and 26/2018 do apply to the applicant and do not allow for the refund of ITC availed on input services.2. The AAR did not answer the second query regarding the application of the refund formula to specific financial data, as it is outside the scope of Section 97 of the CGST Act.Conclusion:The AAR concluded that the applicant is not entitled to a refund of ITC on input services under the inverted duty structure as per the applicable notifications. The query regarding the calculation of the refund amount was not addressed due to jurisdictional limitations.