Refund denied for input tax credit on inverted duty structure due to retrospective rule change.

The application seeking a refund of accumulated input tax credit on both inputs and input services under an inverted duty structure was rejected. The amendment to Rule 89(5) by Notification No. 21/2018-Central Tax excluded input services from the definition of "Net ITC" retrospectively from July 1, 2017. The ruling stated that the applicant's issue was already adjudicated by the jurisdictional authority and was appealable under the CGST Act, making the application not maintainable.

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Issues Involved:
1. Eligibility to claim refund of accumulated input tax credit (ITC) on both inputs and input services under an inverted duty structure.
2. Applicability of Notification No. 21/2018-Central Tax dated April 18, 2018, and Notification No. 26/2018-Central Tax dated June 13, 2018.

Issue-wise Detailed Analysis:

1. Eligibility to Claim Refund of Accumulated ITC on Both Inputs and Input Services:
- The applicant, a manufacturer of incense sticks and related products, contended that they are eligible to claim a refund of unutilized ITC on both inputs and input services due to an inverted duty structure.
- The applicant highlighted Section 54(3)(ii) of the GST Act, which allows for a refund of unutilized ITC when the tax rate on inputs is higher than the output supplies, except for notified supplies.
- The applicant argued that Rule 89 of the CGST Rules prescribes the method for seeking refunds in such scenarios, and initially, the definition of "Net ITC" included both inputs and input services.
- However, Notification No. 21/2018-Central Tax dated April 18, 2018, amended Rule 89(5) to define "Net ITC" as only the ITC availed on inputs, excluding input services. This amendment was made retrospective from July 1, 2017, by Notification No. 26/2018-Central Tax dated June 13, 2018.
- The applicant argued that this amendment placed an unreasonable restriction on claiming refunds for input services, which was not the intention of the lawmakers, and thus, Rule 89(5) is ultra-vires to Section 54(3) of the CGST Act.

2. Applicability of Notification No. 21/2018-Central Tax and Notification No. 26/2018-Central Tax:
- The applicant sought clarification on whether these notifications apply to their case, given that their refund claims for input services were rejected by the jurisdictional authority based on these notifications.
- The applicant argued that the term "inputs" in Section 54(3) should include both inputs and input services. They also questioned whether the retrospective amendment could apply to supplies made before the amendment.
- The applicant contended that Section 97(2)(b) of the CGST Act allows for seeking advance rulings on the applicability of notifications, and thus their application should be considered admissible.

Findings and Discussion:
- The authority considered the submissions and noted that the application primarily concerns the applicability of the notifications.
- Notification No. 26/2018-Central Tax amended Rule 89(5) to exclude input services from the definition of "Net ITC," effective from July 1, 2017.
- Section 97(2) of the CGST Act lists the questions on which advance rulings can be sought, including the applicability of notifications.
- The authority noted that the applicant's refund claims for input services were already rejected by the jurisdictional authority, making the issue appealable under Section 107 of the CGST Act.
- The authority for advance ruling is not the appropriate forum for questioning the vires of the rules or for issues that are appealable under the Act.

Ruling:
- The application was rejected as it was not maintainable for the reasons cited, including the fact that the issue was already adjudicated by the jurisdictional authority and is appealable under the CGST Act.

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