Lapse of ITC under inverted duty structure for fabric companies

[Kanishk Manglik]

Hi, this is case is regarding entity dealing in fabric under inverted duty structure.

Background: Initially since July 2017 the accumulated ITC due to inverted duty structure in case of supply of fabrics was not allowed. However As per notification no 20/2018-Central tax (Rate) dated 26.7.2018 the Refund of such ITC was allowed from Aug 2018. This notification followed by circular no 56/30/2018-GST dated 24.08.2018 also talked about Lapse of the ITC which has been accumulated till 31.07.2018 in order to be eligible for refund from Aug 2018. This accumulated ITC up to 31.07.2018 was required to be lapsed in the 3B return of August 2018.

Query: Now in my case the ITC has not been reversed in the return of august for whatever reason. Now i want to comply with the notification and reverse the ITC. Whether i shall be liable to interest for not reversing the ITC timely. The ITC is in my credit ledger only and has not been utilized against discharging outward Liability.

[Shilpi Jain]

There is no interest liability as there is no short payment of tax. Another reason forno interest is that the circular requiring reversal of credit can be challenged and I think is in fact challenged also. So if you want to reverse, do it under protest without interest so that whenever there is a favorable decision it can be taken back.

[KASTURI SETHI]

As per Circular No. 94/13/2019-GST, dated 28-3-2019 (serial no.3), interest is payable. Pl. peruse the circular as amended from time time.

[Rakesh Chitkara]

there is a Gujarat High Court ruling in this regards in the matter of Garden Silk Mills -  where this reversal is challenged as this notification has issued by deriving power under section 54 of the CGST Act and as per law there is no such powers delegate by virtue of this section. Secondly when there is non utilization of the input tax credit than there should not be any question of levy of interest on the same as the balance in the credit ledger is as good as in the custodian of the government only.

[KASTURI SETHI]

Here refund is conditional. If the condition of reversal is not fulfilled, issuance of SCN is certain.

[Shilpi Jain]

One more point which I would like to bring is that circular which is non-est law i.e. is not in line with the law is as good as it does not exist. So even though the circular states interest is to be paid it is not necessary as the law does not support this proposition.

However, you could take a call based on the amount involved and by doing a cost benefit analysis.

[KASTURI SETHI]

Circulars are binding on the department but not on the assessee. Moreover, non-utilisation of credit is not in picture but condition of reversal is the issue. Agree to the extent of 'under protest' as advised by Madam Shilpi Jain.

[ABHISHEK TRIPATHI]

Dear Kanishk Ji,

NN 20/2018, NN 5/2017 and Circular No. 56/30/2018 was challenged, to the extent of refund of inverted duty structure, in Shabnam Petrofils Pvt. Ltd. V. UOI =2019 (8) TMI 159 - GUJARAT HIGH COURT. Hon’ble Gujarat High Court struck down the notification, to the extent of the challenge.

Now, the above matter is pending before the Hon’ble Supreme Court.

Hon’ble Gujarat High Court was right while saying that vide a notification issued under 54(3)(ii), the government cannot lapse the accumulated credit. That is beyond the powers of 54(3)(ii).

In any case, if these notifications are gone, will you able to take a refund of the accumulated credit? The answer maybe No. But you don’t have to reverse the accumulated credit.

I am of a strong view that notification de-notifying [u/s. 54(3)] from 01.08.2018, cannot put the condition of reversing credit for availing the refund of accumulated credit.

AI Summary

Debate on GST Forum: Is Interest Payable for Non-Reversal of ITC in 2018? Section 54 CGST Act Disputed. A discussion on the Goods and Services Tax (GST) forum addresses the issue of accumulated Input Tax Credit (ITC) under the inverted duty structure for fabric companies. A participant seeks advice on whether interest is payable for not reversing ITC in August 2018, as required by a notification. Responses vary, with some suggesting no interest is due since the ITC wasn't utilized, while others cite legal challenges and court rulings, such as the Gujarat High Court's decision in Garden Silk Mills, which questioned the government's authority under section 54 of the CGST Act. The discussion highlights the complexity of compliance and the potential for legal challenges.