CLAIMING REFUND OF UNUTILIZED ITC

[SAFETAB LIFESCIENCE]

Dear Experts,

We have more amount of unutilized ITC in Electronic Credit Ledger accumulated over a period from inception of GST. It is almost 4 times of our average monthly ITC receipts and GST payable. Most of our ITC are at 18% and our out put GST is 12%.

The Government is not allowing to include ITC taken on Capital Goods and Services and allowing only inputs ITC bills for refund under inverted duty structure.

As per refund rules and formula, we are eligible only a megar amount and our balance in electronic credit ledger is about 8 times of refund elegible.

What is the way or solution to get refund accumulated ITC due to Capital goods and Service. Please guide us

[KASTURI SETHI]

Refund on 'services' is allowed. Refund on 'Capital Goods' is restricted. See Notification No.21/2018-CT dated 18.4.18 and also Notification No.26/18-CT dated 13.6.18. The word, 'services' has been added retrospectively w.e.f. 1.7.17.

[SAFETAB LIFESCIENCE]

Dear Sir,

We could not able to read Notification No. 21/2018-CT dt. 18.04.2018 and 26/2018-CT dt. 13.06.2018. Can you please send to our mail [email protected]

[KASTURI SETHI]

Rule 89(5) of CGST Rules retrospectively w.e.f. 1.7.17

[(5) In the case of refund on account of inverted duty structure, refund of input tax credit shall be granted as per the following formula :-

Maximum Refund Amount = {(Turnover of inverted rated supply of goods and services) x Net ITC ÷ Adjusted Total Turnover} - tax payable on such inverted rated supply of goods and services.

Prior to retrospective amendment formula was as under :-

Maximum Refund Amount = {(Turnover of inverted rated supply of goods) x Net ITC ÷ Adjusted Total Turnover} - tax payable on such inverted rated supply of goods.

[Nandan Khambete]

I humbly disagree. As per Rule 89(5) , Net ITC is defined to include only "inputs" and neither of input services and capital goods.

Hence ITC accumulated due to input services and Capital goods cannot be claimed as refund under inverted duty structure.

[KASTURI SETHI]

Dear Sh. Nandan Khambete Ji,

You are absolutely right Sir. Refund on input services is not allowed. Board vide Circular No. 79/53/2018-GST dated 31.12.18 has clarified. Relevant para is extracted below for convenience of the querist:-

Refund of accumulated ITC of input services and capital goods arising on account of inverted duty structure :

Refund of accumulated ITC of input services and capital goods arising on account of inverted duty structure:

"14. Section 54(3) of the CGST Act provides that refund of any unutilized ITC may be claimed 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). Further, section 2(59) of the CGST Act defines inputs as any goods other than capital goods used or intended to be used by a supplier in the course or furtherance of business. Thus, inputs do not include services or capital goods. Therefore, clearly, the intent of the law is not to allow refund of tax paid on input services or capital goods as part of refund of unutilized input tax credit. Accordingly, in order to align the CGST Rules with the CGST Act, notification No. 26/2018-Central Tax dated 13.06.2018 was issued wherein it was stated that the term Net ITC, as used in the formula for calculating the maximum refund amount under rule 89(5) of the CGST Rules, shall mean input tax credit availed on inputs during the relevant period other than the input tax credit availed for which refund is claimed under sub-rules (4A) or (4B) or both. In view of the above, it is clarified that both the law and the related rules clearly prevent the refund of tax paid on input services and capital goods as part of refund of input tax credit accumulated on account of inverted duty structure."

[KASTURI SETHI]

Also see decision of AAR, Karnataka Re : N.Ranga Rao & Sons Pvt. Ltd. reported as 2019 (30) GSTL.141 (AAR-GST) = 2019 (11) TMI 162 - AUTHORITY FOR ADVANCE RULING, KARNATAKA.

Application for refund of unutilized input tax credit relatable to services rejected.

AI Summary

Refund of unutilized ITC limited to inputs; input services and capital goods excluded under inverted duty refund rules.
Refund claims for unutilized input tax credit under the inverted duty structure are limited to ITC on inputs; credit attributable to input services and capital goods is excluded. The Net ITC used in the statutory refund formula is defined to include only input goods, and rulemaking and circulars clarify that refunds do not cover tax paid on input services or capital goods.