INVERTED DUTY STRUCTURE

[BARUN MUKHERJEE]

Respected sir,

One of my clients manufacturing e-rickshaws where the rate of tax on inputs purchased is more than the rate of tax on outward supplies so the said taxpayer is eligible to get refund under inverted duty structure. And the taxpayer is also engaged to resale of batteries on which tax rate is 28% and also sale the same at the rate of 28%. Now my question is that when we calculate maximum refund amount as per rule 89(5) which figure will be considered as net input tax credit. Is there shown total input as raw materials purchased for manufacturing of e- rickshaws and batteries purchased for trading purpose or only considered raw materials purchased for manufacturing purpose….?

[Padmanathan KV]

It seems the Department has started taking up this issue nation-wide. So far there is no clarification on this and the matter has to be litigated.

A. Dept view seems to be there there is no inverted rate when traded and hence it should be excluded. While on first blush it appears corrent, it might not be so:

B. The "Net ITC" and "Turnover of inverted rated supply of goods and services" does not exclude traded goods per se. If traded goods turnover is excluded from "net ITC" and "Turnover of inverted rated supply of goods and services", the results would be skewed as "adjusted turnover" includes traded goods.

Thus, if refund is calculated in this manner then there will still be some accumulation of inverted ITC. This interpretation seems to be against provisions of section 54(3).

[BARUN MUKHERJEE]

Thank you sir..

[Shilpi Jain]

There is some high court decision in this regard.

Indian Oil Corporation Ltd - 2023 (12) TMI 361 - DELHI HIGH COURT Delhi High Court - W.P.(C) 10222/2023 & CM No. 39561/2023 decided on 05.12.2023 Indian Oil Corporation Ltd

Inverted tax structure refund cannot be denied just because the main input and output have the same tax rate. Where the rate of tax chargeable on inputs other than LPG, are admittedly higher than the rate of GST chargeable on the bottled LPG, the same cannot be ignored for refund on account of inverted tax structure even though the rate of tax for bulk LPG and bottled LPG may be the same. Circular No.135/05/2020 has no application where ITC, refund of which is sought, has accumulated on account of rate of taxes on certain inputs being higher than tax chargeable on the output supply, notwithstanding that the one of the main input and output is chargeable at the same rate of tax. Circular No. 135/05/2020 “cannot supplant or implant any provision which is not available in the Act”.

[Ehjaz CA]

Sir I have same query but in my case my client is purchasing e bike (2 wheeler) at 5 % gst without battery, than purchasing batteries at 18% gst and installing the same in two wheeler, the installtion is done by certified mechanic which takes 30 mins for each installation. after that he sales the vehicle at 5% to customer , so he also has accumulated gst due to this inverted duty structure so can he claim refund on only the batteries cost gst part under inverter duty structure?

AI Summary

Inverted duty structure: refund entitlement may include ITC on higher tax inputs despite similar rate traded components. The question is whether ITC on batteries purchased for resale or fitted into manufactured vehicles must be included in the Net Input Tax Credit when computing inverted duty refunds. The department's practice to exclude traded goods would reduce net ITC and skew adjusted turnover, potentially leaving accumulated inverted credit contrary to refund provisions. Judicial guidance affirms refund entitlement where accumulation arises from certain higher tax inputs and holds that administrative circulars cannot supplant statutory refund rights.