Refund on Inverted duty structure

[Prasenjit Pal]

A foreign company( F) and an indian company( D) together formed a consortium to execute a govt works contract services ( client-C). D imports materials from F and supplies them to C on cost basis with no value addition . D has to pay IGST on Import @ 18% and bills to Client on behalf of F(as F does not have any GST Regn) as per the Agreement on milestone basis @ 12%. So it ia case of Inverted duty structure and D is supposed to get Refund.

The fact is as per Agreement entered between consortium and client ,selling price of D to F is fixed as below:

say cost of material to D(import price) = 100(mat cost)+5(BCD) = 105 . GST paid on RCM basis on 105=18.90.(available as ITC). D has to sell the goods as it is to client(C) at ₹ 100(inclusive of GST). So effectively B is seeling it as a cost of ₹ 89.29(100/112*100). , tax charged to C=10.71. So D is selling goods to C at a loss and claiming credit from the Dept of Refund of ₹ 8.19(18.90-10.71). .

query: wheather there will be any problem for grant of refund under inverted rate to D ?

AI Summary

Indian Company Seeks Tax Refund Due to Inverted Duty Structure, Faces Valuation Rule Challenges and Notification Restrictions. A consortium formed by a foreign company and an Indian company is executing a government works contract. The Indian company imports materials from the foreign partner, paying IGST at 18%, and supplies them to the client at a reduced rate of 12%, resulting in an inverted duty structure. The Indian company seeks a refund for the tax difference. Responses suggest that a refund should be eligible as there are no conditions requiring output tax to exceed cost, but caution is advised regarding valuation rules and potential restrictions under specific tax notifications.