Refund under inverted structure

[Guest]

Dear sir,

Understand that, There is time limitation for claiming refund under inverted structure refund as 2 years from from the end of tax period for which the refund is sought.

Our case, falling under inverted duty structure. Whereby for refund eligibility, the input services and capital goods will not considered.

Considering the formula under rule 89(5), our ITC on inputs is very less considering the inverted duty liability. Resulting, the refund eligibility is arrived to nil..

Though we have excess ITC on services, the textile industry not in a position to use it.

This is an undue hardship faces the industry and working capital also badly impacting.

My question.

a. Any remedy available to overcome this issue.

B.after the period of 2 years, whether the ITC can be carry forwarded for future adjustment.

C. Pls share the outcome of the rajantan high court on the writ petition filed on 89(5).

D. How to resolve the WC issues.

Your reply will be more helpful for taking the final decisions.

With rwgards

Natarajan

[KASTURI SETHI]

Dear Querist,

Point-wise reply is as under:-

(a) Remedy either through litigation or representation to GST Council.

(b) No.

(c) Writ petition on this issue is still pending with Gujarat High Court.

Constitutional validity of Rule 89(5) of GST Rules, 2017 challenged - Gujarat High Court issues notice

The Gujarat High Court Bench comprising Hon’ble Mr. Justice Akil Kureshi and Hon’ble Mr. Justice B.N. Karia on 27-9-2018 issued notice in the R/Special Civil Application No. 14980 of 2018 filed by Scorpio Enterprise (Scorpio Enterprise v. Union of India). = 2018 (9) TMI 1766 - GUJARAT HIGH COURT The petitioner has challenged the vires of amended Rule 89(5) of the Central Goods and Services Rules, 2017 which has been given retrospective effect. Essentially, by virtue of impugned rule, in case of inverted tax structure of Service Tax, the assessee; such as the petitioner, are not be able to claim refund of the differential Service Tax. One of the main arguments of the petitioner in this case is that the Central Goods and Services Tax Act, 2017 recognizes granting of refund and the Government cannot frame rules which deprive a person of such benefit/refund.

[Scorpio Enterprise v. Union of India - 2018 (19) G.S.T.L. J75 (Guj.)]

(d) Pl. elaborate.

[Guest]

Dear sir,

Thanks for the reply sir..

The question no.4 :

The working capital issues faced by the industry..

Further in the reply to question 3, you have replied after the expiry of 2 years the refund eligibility will elapse. My doubt, even the refund eligibility get elapsed, will it not allow the dealer to carry forward the balance of ITC in books..if could elaborate further it we would be great help.

Also advice it is right time to opt for writ petition.

With regards

Natarajan

[KASTURI SETHI]

As per Section 54(3) of CGST Act, 2017, you may claim refund of unutilised input tax credit at the end of any tax period and as per Explanation (2)(e) to Section 54(14) relevant date is the end of financial year. In other words you cannot accumulate for more than two years. You can claim at the end of every financial year. So restriction is here for accumulation also. So it cannot be carried forwarded.

Regarding filing writ petition, you can challenge the formula under Rule 89(5) in order to get refund of unutilized input service credit and capital goods credit.

[Guest]

Dear sir,

Like to bring to your notice that, explanation to section 54(3) got amended w.e.f. 01st Feb 2019.

Whereby the relevant date for applying refund got amended as, the due date for furnishing of return under sec 39 for the period in which such claim for refund arises .( Instead of end of financial year).

The impact being the time limit got reduced..

Natarajan

AI Summary

Refund under inverted duty structure: limited refund and non carryforward of unutilised input tax credit after prescribed period. Rule 89(5) restricts refunds in inverted duty structures by excluding input services and capital goods credits from the refund formula, leaving unutilised service credit; Section 54 and its explanations confine the relevant date and period for claiming refunds, preventing indefinite accumulation or carryforward, and taxpayers may challenge Rule 89(5) judicially while administrative representation is an alternative.