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 ?

[Atul Mehrotra]

Request the experts to share their opinion about this.

[Shilpi Jain]

Refund should be eligible as there is no condition for refund under inverted duty structure that the output tax has to be paid on more than the cost.

[YAGAY andSUN]

In our view, before applying for refund due to inverted duty structure, you need to go through the Valuation Rules as goods are being sold on loss.

[DeepakArya DGA]

Please check whether this contract is hit by N.No. 15/Central tax(Rate). If Yes, refund in such case will not be allowed in case of inverted duty structure.

AI Summary

Inverted duty structure refund: claimant seeks unutilised input tax credit where inputs taxed higher than outputs, despite sale at loss. Refund is claimed under the inverted duty structure where the domestic consortium partner pays higher tax on imports and supplies the same goods to the client at a lower GST rate and at a contractual loss; key issues are entitlement to refund of unutilised input tax credit, potential recharacterisation or valuation adjustments because the goods are sold at a loss or between related parties, and possible bar under specific notifications disallowing inverted-duty refunds for certain contract supplies.