Refund u/s 54

[NARENDER YARRAGORLA]

My client recently constructed Cotton process Mill and acquired Plant and Machinery. On the Plant and machinery, he has paid ₹ 50.00 lakhs as GST. As he is dealing with cotton and buying raw cotton from farmers, he liable to pay GST under RCM u/s 9(3). So he is liable to pay to tax under RCM on Cotton purchases every month and claims ITC as usual. In the situation major portion of ITC on Plant & Machinery becoming idle. Can we claim ITC on Plant and Machinery as refund U/s 54? If there is no possibility to claim ITC, then how to over come the situation?

[KASTURI SETHI]

In this scenario, refund cannot be claimed. There is no such provision. As per Section 16 of CGST Act, ITC of tax paid on the purchase of goods or services, is required to be used in the course or furtherance of business.

How to overcome this ordeal ?

The basic purpose of policy of RCM is to account for the purchases in the books of account by the supplier and the buyer and thus curb leakage of revenue.

There may be so many such instances being faced by the tax payers/assessees.Matter should be raised before GST Council by Trade and Industry Association.

[NARENDER YARRAGORLA]

Thank u sir for your response

[Shilpi Jain]

Agree. There is no possibility of refund more so because it is a capital goods credit. The law has given a step motherly treatment for CG credit when it comes to refund!!

You can use it on discharging GST on your outward supply, claim refund in case of exports or SEZ supplies, made with payment of tax.

[KASTURI SETHI]

I agree with Madam Shilpi Jain's view regarding usage of credit of capital goods for export purpose and,thereafter, claim refund/rebate.

[NARENDER YARRAGORLA]

Now the client wants to start labor supply business in his region, can he utilizes the ITC on P&M to pay outward tax on labor supply?

[KASTURI SETHI]

Yes. ITC availed on plant & machinery can be used for supplying taxable outward supply of man power supply (labour supply).

[NARENDER YARRAGORLA]

Thank u sir

[SOWMYA CA]

Sir, given the fact that ITC on the Plant and Machinery incurred ₹ 50 lakhs lapses within september of the subsequent year, it better is weigh the option of capitilising the machinery with the GST portion and claiming depreciation on it if the ITC on it is not going to get utilised within the year.

AI Summary

Input tax credit on capital goods not refundable; usable against taxable outward supplies or exports, or capitalise instead.
Refund is not available for ITC on plant and machinery where reverse charge applies; such ITC must be used in the course or furtherance of business. Unutilised capital goods credit can be applied against taxable outward supplies (including manpower services), used for export/SEZ supplies with payment of tax to claim rebate, or capitalised into the asset and claimed as depreciation. Industry representation to policy forums is a recommended route for systemic relief.