Refund of ITC on capital goods in case of export of services under cover of LUT

[Archna Gupta]

Dear experts

One company is in business of export of services (no domestic supplies). initially it exported services on payment of IGST. It utilised ITC at the time of payment of IGST on export of services. Later it applied for LUT and after that all supplies were done under LUT without payment of IGST. Since then it has huge balance of ITC in its credit ledger. ITC includes ITC on Inputs, Input services and capital goods (approx 40 lacs). As per Rule 89, the company can claim refund of ITC on Inputs and input services only and the accumulated balance of ITC on capital goods will remain as it is. Please suggest what action can be suggested to company to save it from loss of ITC on capital goods.

Please reply.

Regards

[Rajagopalan Ranganathan]

Madam,

Ask your client to take up the matter with GST Council for providing suitable remedy.

Previously under Central Excise Regime,the capital goods can be used for manufacture of excisable goods meant for both home clearance and export. It is the presumption that quantum of inputs and input services used for the manufacture of excisable goods is much more then the capital goods and hence the cenvat credit.availed on capital goods can be used for payment of duty on home consumption. Therefore you have to take up the matter with authorities concerned.

[Alkesh Jani]

Sir/Madam,

In my point of view, you can file refund claim under Rule 89(3) of CGST Rules, 2017 read with Section 54 (1) of GST Act,2017. However, till date the same is not available on portal but may be in future.

Our experts may correct me if mistaken.

[Archna Gupta]

Dear Alkesh ji

Under Rule 89 in case of export we can claim refund of unutilised ITC on Inputs and input services only and not on capital goods.

[Alkesh Jani]

Sir/Madam,

For more clarity let me reproduced the relevant rules of CGST Rules:-

"89 (1) Any person, except the persons covered under notification issued under section 55, claiming refund of any tax, interest, penalty, fees or any other amount paid by him, other than refund of integrated tax paid on goods exported out of India, may file an application electronically in FORM GST RFD-01 through the common portal, either directly or through a Facilitation Centre notified by the Commissioner"

"89 (3) Where the application relates to refund of input tax credit, the electronic credit ledger shall be debited by the applicant by an amount equal to the refund so claimed"

However, the refund claim filed by you for the input tax credit for the goods exported by you either on payment of IGST or without payment of tax under bond or LUT is under Rule 96 & 96A of the CGST Rules,2017.

I hope now it may be clear for your. our experts may correct me if mistaken.

[Alkesh Jani]

Moreover, as there is no domestic sales, therefore, Explanation No. (ii) of 89(2) of CGST Rules, is not applicable in your case and you are eligible for refund.

[KASTURI SETHI]

There is Board's circular on "Fabrics" which disallows refund on capital goods. Issue is not free from doubt.

[Shankar Patil]

Yes I agree, for Accumulated Credit , refund of CG credit not permitted ; but if one pays IGST then claim refund , then no such restrictions of Rule 89

AI Summary

Refund of Input Tax Credit on capital goods restricted for exports under LUT, limiting ITC to inputs and input services.
The question is whether accumulated ITC that includes credit on capital goods can be refunded where exports of services are made under bond/LUT after earlier exports were made on payment of IGST. Contributors note that refund mechanisms typically allow recovery of unutilised ITC on inputs and input services but not on capital goods when supplies are under LUT; alternatives discussed include filing refund applications when portal functionality permits, paying IGST and then claiming refund, or seeking policy relief from the GST Council.