Refund of unutilized Input Tax Credit allowed after excluding exempt supplies under Rule 42(1) CGST Rules 2017

The Commissioner (Appeals) CGST, Jaipur allowed the appellant's appeal regarding refund of unutilized Input Tax Credit accumulated due to export of goods and services. The case involved reversal of ITC on exempted supplies of MEIS Scrips/Licence worth Rs. 8,69,740 during August 2018, which were exempted under Notification No. 35/2017-C.T. The appellant had availed ITC of Rs. 14,362 on consultancy services used exclusively for exempted supply and Rs. 50,438 on common services. Under Rule 42(1) of CGST Rules, 2017, the appellant was required to reverse Rs. 16,313 as ITC attributable to exempted supplies, which was subsequently paid. The appeal was allowed to the extent of excluding exempt supplies (other than zero-rated supplies) from Adjusted Total Turnover.

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Issues Involved:
1. Rejection of refund claim for the amount of Rs. 1,37,750/-.
2. Wrong availment of Input Tax Credit (ITC) amounting to Rs. 31,067/-.
3. Non-reversal of proportionate ITC on exempted sales for the month of August 2018.

Issue-wise Detailed Analysis:

1. Rejection of Refund Claim for Rs. 1,37,750/-:
The appellant, M/s Aakriti Manufacturing Private Limited, filed for a refund of unutilized Input Tax Credit (ITC) accumulated due to the export of goods and services without payment of tax. The adjudicating authority rejected the refund claim of Rs. 1,37,750/- (Rs. 1,27,694/- as tax and Rs. 10,056/- as interest) on the grounds that the appellant did not reverse proportionate ITC on exempted sales for August 2018, as required under Section 17(2) of the CGST Act, 2017.

The appellant argued that the adjudicating authority did not provide any reason for disallowing the refund and failed to consider their detailed submissions. The appellant also contended that the exempt supplies (MEIS Scrips/Licence) were not required to be included in the Adjusted Total Turnover for calculating the refund amount. They had availed ITC on consultancy services used exclusively for exempted supplies and other services used for both taxable and exempt supplies. The appellant recalculated the ITC attributable to exempt supplies and reversed the excess credit amounting to Rs. 16,313/-.

2. Wrong Availment of Input Tax Credit (ITC) Amounting to Rs. 31,067/-:
The appellant accepted the wrong availment of ITC amounting to Rs. 31,067/- due to ITC not being reflected in GSTR 2A. They withdrew this claim vide a letter dated 01.06.2020. The adjudicating authority, in its order, acknowledged the appellant’s acceptance of the wrong ITC claim and withdrawal of the same.

3. Non-reversal of Proportionate ITC on Exempted Sales for August 2018:
The adjudicating authority calculated the proportionate ITC to be reversed on exempted sales using the formula: Rs. 1,27,694/- = Rs. 8,69,740/- / Rs. 22,91,2407 x Rs. 33,63,958/-. The appellant argued that the exempt supply value of Rs. 8,69,740/- (MEIS Scrips/Licence) should not be included in the Adjusted Total Turnover for calculating the refund. They provided a detailed calculation of the ITC attributable to exempt supplies and reversed the excess credit of Rs. 16,313/-.

The appellate authority reviewed the legal provisions under Section 17(2) and Rule 42 of the CGST Act and Rules, respectively. It was found that the appellant’s calculation of ITC attributable to exempt supplies was correct. The Net ITC for August 2018 should have been Rs. 34,14,938/- (Rs. 34,31,251 - Rs. 16,313), and the refund amount should have been Rs. 33,47,964/- instead of Rs. 33,63,958/-. The excess refund of Rs. 15,993/- was already deposited by the appellant with interest.

Conclusion:
The appeal was allowed to the extent of excluding the value of exempt supplies other than zero-rated supplies in the Adjusted Total Turnover. The rejection of the refund claim for Rs. 1,37,750/- was set aside, and the appellant’s recalculated refund claim was accepted. The appeal was disposed of accordingly.

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