2020 (2) TMI 854 - AAR - GST

Input Tax Credit Lapse Clarified: Inverted Duty Structure Scope Limited

IN RE : UTTRANCHAL FILAMENT (INDIA)

The Authority for Advance Ruling concluded that Notification No. 20/2018-Central Tax (Rate) pertains to the lapse of input tax credit specifically related ... Input Tax Credit (ITC) - Interpretation of statute - meaning of word 'lapse' in Notification No. 20/2018-Central Tax (Rate) - Whether the meaning of word 'lapse' in Notification No. 20/2018-Central Tax (Rate) would mean lapse for refund or lapse for utilization of input tax credit for payment of output tax liability? - HELD THAT:- The refund is not available to accumulated input tax credit due to inverted duty structure in respect of specified inputs which remain unutilized. The inverted duty structure means rate of tax on inputs being higher than the rate of tax on the output supplies of such goods. Also vide notification dated 26-7-2018 proviso to Notification No. 5/2017-Central Tax (Rate), dated 28-6-2017 was inserted vide which applicability of notification dated 28-6-2017 was rescinded to the extent of input tax credit accumulated on supplies received on or after the 1st day of August, 2018, in respect of goods mentioned at Serial Numbers 1, 2, 3, 4, 5, 6, 6A, 6B, 6C and 7 supra. The notifications had been issued under clause (ii) of the proviso to subsection (3) of Section 54 of the Act. Section 54 of the Act provides for refund of accumulated credit on inputs on account of inverted duty structure, i.e., GST rate on inputs being higher than the GST rates on finished goods. However, proviso (ii) to Section 54(3) provides that in respect of notified goods, the refund of such accumulated input tax credit shall not be allowed. Notification No. 5/2017-Central Tax (Rate), dated 28-6-2017 has been issued in terms of this provision and it inter alia prescribes that refund of accumulated ITC on account of inverted duty structure shall not be allowed in respect of goods - the proviso has to be read with the principal part of the notification. A comprehensive reading of amended notification makes it clear that the proviso seeks to lapse only such input tax credit which is the subject matter of principal notification, i.e. accumulated credit on account of inverted duty structure in respect of notified goods. Thus in terms of amended notification, the input tax credit on account of inverted duty structure lying in balance after payment of GST for the month of July (on purchases made on or before the 31st July, 2018) shall lapse. We observe that the proviso has to be read with the principal part of the notification. A comprehensive reading of amended notification makes it clear that the proviso seeks to lapse only such input tax credit which is the subject matter of principal notification, i.e. accumulated credit on account of inverted duty structure in respect of notified goods. Thus in terms of amended notification, the input tax credit on account of inverted duty structure lying in balance after payment of GST for the month of July (on purchases made on or before the 31st July, 2018) shall lapse. The said notifications are exclusively dealt with the refund of accumulated input tax credit on account of inverted duty structure Only. When a requisite notification has been issued under a particular section, the provisions of said section spring into operation and an assessee, who is covered by the provisions of that section, is entitled to seek benefits thereunder. Notification No. 20/2018-Central Tax (Rate) dated 26-7-2018 deals with refund of inverted duty structure only. Issues involved:- Interpretation of the meaning of the word 'lapse' in Notification No. 20/2018-Central Tax (Rate) regarding refund or utilization of input tax credit for payment of output tax liability.Analysis:Issue (A): Interpretation of the meaning of the word 'lapse' in Notification No. 20/2018-Central Tax (Rate) regarding refund or utilization of input tax credit for payment of output tax liability.- Legal Provisions: The notification under consideration, along with related amendments, deals with the refund of accumulated input tax credit due to an inverted duty structure, where the rate of tax on inputs is higher than that on output supplies.- Interpretation: The proviso to Section 54(3) of the Act specifies that for notified goods, the refund of accumulated input tax credit shall not be allowed. The notifications in question focus on the lapse of input tax credit on account of an inverted duty structure for specific goods.- Analysis: The amended notification clarifies that only the input tax credit related to the inverted duty structure, remaining unutilized after GST payment till July, will lapse. The notifications are limited to dealing with the refund of accumulated input tax credit due to an inverted duty structure exclusively.- Conclusion: The Authority for Advance Ruling held that Notification No. 20/2018-Central Tax (Rate) dated 26-7-2018 pertains to the refund of input tax credit specifically related to an inverted duty structure, emphasizing the restricted scope of the notifications in question.This detailed analysis provides a comprehensive understanding of the legal judgment and the specific issue addressed by the Advance Ruling Authority in the context of the interpretation of the word 'lapse' in Notification No. 20/2018-Central Tax (Rate).