GST ITC refund (for exempt output)

[Yash Jain]

We are manufacturer and trader.

For mfg, we buy input goods(5%) and output is taxable (5%) and exempt.

Due to rule 42, we do itc reversal also.

We are accumulating huge inputs and even after reversal and setoff for sales, ITC is left.

Can we claim ITC refund .? What will be procedure and under which section we can claim

[Himansu Sekhar]

No refund provision exists for your case. But please check your processes for the huge accumulation of credit when apparent value addition is there. Input and output are having same rate. Salary, electricity consumption, misc charges mist jave been incurred.please check rule 42 properly.

[KASTURI SETHI]

ITC can be accumulated only if rate of tax on inputs (inward supply) is higher than that of outward supply. In the scenario explained by you, a huge accumulation of ITC is a very serious matter. Such situation indicates that either value addition is incorrect or amount of ITC reversed is incorrect. Instead of thinking about refund claim (which is not admissible) in this scenario, examine both aspects as advised by Sh.Himansu Sekhar Ji.

For fool-proof exercise, you are advised to consult an C.A. or C.M.A.

[Yash Jain]

Sorry for mis interpretation, the amount is not huge and not recurring all the time.. it's nearly 1lakhs rupees.

Reversals are correct as per the sales, but due to other goods trading activity, turnover is being increased, while exempt t/o and common credit remain unchanged.

So the reversal ratio is reduced.

[KASTURI SETHI]

O.K. Sir. But refund is not admissible under Section 54 of CGST Act. The basic condition for taking ITC is that it must be used in the course of business or furtherance of business. You are well-conversant with GST Acts. I find no need to delve into depth.

[Ganeshan Kalyani]

Selling price would be more than the purchase price. So the GST payable would be more than the input tax credit. So GST input tax will not be in balance. Some input may be parked in your books which could be ineligible credit like rent-a-car, works contract service etc. Also check your GSTR 2A which will show the credit available to you and compare with the books.

[Himansu Sekhar]

1 lakh is not a big amount. As suggested by Ganesh kalyani ji and kasturi sir, value addition aspect to he taken into account.

[KASTURI SETHI]

Yes. ITC of Rupee one lakh does not fall in the category of 'a huge accumulation' as mentioned in the query by the querist. Such amount can be easily used sooner or later in the course of business or furtherance of business..

AI Summary

Input tax credit refund not available for accumulated credit from exempt supplies; verify ITC reversal and eligibility.
Refund of accumulated input tax credit arising from a mix of taxable and exempt supplies is not admissible under Section 54; instead verify correct ITC reversal under Rule 42 and assess whether accumulation reflects incorrect value addition, improper reversal calculation, or inclusion of ineligible credits. Modest or non recurring balances may be absorbed in future taxable supplies, but taxpayers must reconcile inward credits, exclude ineligible items, and seek professional advice to correct reporting and reversal procedures rather than seek refund relief.