Refund of accumulated ITC due to lower rate of GST on finished goods

[MohanLal tiwari]

Dear Experts,

One of supplier is supplying goods of HSN 8607 @5% GST but almost all inputs required are @ 18%. Now, his ITC is getting accumulated. Please advise whether refund of such accumulated ITC amount is available keeping in mind that during Pre-GST, there was clear provision for not claiming any set-off of Cenvat credit arises due to above.

[KASTURI SETHI]

Extract of FAQs issued by the Board

Q 10. Can any taxable person claim refund of any unutilized ITC at the end of the tax period?

Ans. No, only the following taxable persons can claim refund of unutilized ITC:

(i) Persons undertaking exports (including other zero-rated supplies). [Exception: No refund will be allowed on the goods exported out of India where such goods are subjected to export duty [second proviso to Section 54(3)];

(ii) Credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on outward supplies (other than cases of nil-rated or fully exempted supplies)

Q 11. Is there any condition to claim refund of unutilised ITC?

Ans. Yes. No refund of input tax credit shall be allowed if the supplier of goods or services claims refund of the output tax paid under the IGST Act,

[YAGAY andSUN]

Inverted duty structure: 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. In such cases also, refund can be applied under Section 54 of the CGST Act, 2017 read with Rule 89 of the CGST Rules, 2017. It should be noted that no refund of unutilised input tax credit is allowed in cases where the goods exported out of India are subjected to export duty. Further, no refund of input tax credit is allowed, if the supplier of goods or  services or both avails of drawback in respect of central tax or claims refund of the integrated tax paid on such supplies.

[CSSANJAY MALHOTRA]

No ITC Refund available of Accumulated credit due to inverted duty structure in relation to your product under HSN 8607 except in case of exports out of India or SEZ supplies.

Refer to Notification No.5/2017-Integrated Tax (Rate) dated 28.06.07

[KASTURI SETHI]

I support the views of Sh.CS Sanjay Malhotra, Sir.

[Ganeshan Kalyani]

Yes, 8607 is mentioned in the Notification refered by Sri Sanjay Sir. Refund of ITC is not allowed.

AI Summary

Inverted duty structure: refund of accumulated input tax credit permitted where input tax exceeds output tax, subject to specified exclusions. Refund of accumulated input tax credit is permitted for an inverted duty structure-where input tax rates exceed output rates-subject to refund procedure and exclusions. Refunds are available for zero-rated supplies and credit accumulation from higher input rates, but are barred where exported goods attract export duty, where the supplier claims refund of output tax under IGST, where drawback or IGST refund is claimed, or where a notification expressly excludes particular goods.