refund of capital goods under inverted duty

[satbir singhwahi]

Sir

department has paid refund for inverted duty structure for july 17, which includes refund on capital goods. How to rectify in books .Pls guide the procedure.

[satbir singhwahi]

Sir

pls guide

[Yash Jain]

Sir,

First of all inverted duty refund should be taken only against raw material/stores used in production of such goods. Refund of ITC paid on capital goods is generally a risky play.

As for books it's simple, reverse the cost of machine and book refund income to the extent of depreciation taken on ITC in FY 2017-18. - This option if ITC is capitalized

Reverse the Input tax credit to the extent of refund received (Refer your ECL, the amount is reversed on date of refund application) - This must be standing in your reconciliation if you have not passed the entry of reversal - This option if ITC is availed

Regards

AI Summary

Inverted duty refund: treat capital goods ITC cautiously and reverse corresponding ITC or capitalised cost entries.
Refunds under inverted duty should relate to raw materials; refunding ITC on capital goods is risky. If ITC was capitalised, reverse the capitalised cost and recognise refund income to the extent of depreciation claimed on that ITC. If ITC was availed, reverse the Input Tax Credit to the extent of the refund received (per the electronic credit ledger on the refund application date) and ensure reconciliation if the reversal entry was not recorded.