GST refund

[YUWRAJ KOTHARI]

A Pvt. Ltd. Co. running restaurant, wants to trade separately in Masala product through E-Commerce platform, but this business division if register as separate business vertical, can it claim ITC/claim refund because of inverted tax structure.

[YAGAY and SUN]

Yes, a private limited company running a restaurant can register a separate business vertical for trading in masala products through an e-commerce platform, provided it fulfills certain conditions under GST laws.

Here’s a breakdown of how it works:

1. Separate Business Vertical Registration:

• The company can register its masala trading business as a separate business vertical under GST. According to GST law, a business vertical is defined as a distinguishable part of the business that is involved in providing different types of goods or services, having separate accounts and management.
• Once registered as a separate business vertical, the masala trading business can be treated as a distinct entity for GST purposes, and the tax implications for that division will be separate from the restaurant's operations.

2. Claiming Input Tax Credit (ITC):

• The key question here is whether the masala trading business can claim Input Tax Credit (ITC) on purchases made in the event of an inverted duty structure (where tax paid on inputs is higher than the tax collected on output supplies).
• If the masala trading business faces an inverted tax structure (where the GST rate on the products it purchases is higher than the GST rate on the goods sold), it can claim a refund of the unutilized ITC.
• The refund of unutilized ITC can be claimed under Section 54 of the CGST Act, as long as the business meets the conditions laid out for the refund process.

3. Refund under Inverted Duty Structure:

• Refund of unutilized ITC is available when the supply of the output goods (in this case, masalas) is taxable at a lower rate than the inputs.
• The process for claiming such a refund involves filing the necessary forms and meeting the conditions stipulated by the GST Act, including the requirement that the unutilized ITC is not used in a manner inconsistent with GST regulations (e.g., it hasn’t been set off against output tax liability).

4. Conditions for Refund:

• The e-commerce platform through which the masala products are sold should be registered under GST.
• The masala trading business (as a separate business vertical) must maintain proper records, including the input tax credits claimed and output taxes collected.
• The business should not be engaged in the supply of exempt or non-taxable goods or services, as that would disqualify it from claiming ITC on inputs.

Conclusion:

The company can claim ITC and/or a refund for the masala trading division under an inverted tax structure, provided it complies with the relevant GST provisions. The key is to treat the masala trading division as a separate business vertical and ensure proper GST registration and accounting practices are followed.

[Sadanand Bulbule]

With due respect to the opinion posted by the expert, inverted duty structure [IDS] is applicable when the input tax rate exceeds the output tax rate. However in trading business, the rate of tax on inward supply and outward supply of the same goods remains  unchanged or does not vary. Even then, there might be natural accumulation of ITC due to less outward supply compared to inward supply of the same goods In this scenario, what is role of IDS & refund?

Plz clarify.

[Sadanand Bulbule]

Also refer Para No. 4 of the CBIC Circular No.173/05/2022-GST dated 06/07/2022

[YAGAY and SUN]

1. M/s. Malabar Fuel Corporation v. Assistant Commissioner Central Tax & Central Excise [2024 (1) TMI 1203 - KERALA HIGH COURT] allowed the writ petition and held that, Assessee is entitled to claim refund under Inverted Duty Structure even in case of same inward and outward supplies.

2. INDIAN OIL CORPORATION LIMITED VERSUS COMMISSIONER OF CENTRAL GOODS AND SERVICES TAX & ORS. - 2023 (12) TMI 361 - DELHI HIGH COURT

[Sadanand Bulbule]

Happy Holi Sir.

Thank you for expanding your clarification by way of the Delhi HC ruling on the subject under discussion. Despite, the authorities are unwilling to come out of the hangover of Circular No. 173/05/2022 dated 06/07/2022. That's the big hitch in the way of seeking smooth refund under Section 54[3]. Any way the said ruling acts as an umbrella during the mid day summer for the sweating taxpayers.

[Shilpi Jain]

Why would there be an inverted duty structure in this case where the masala selling division is registered separately?

AI Summary

Input Tax Credit refund under inverted duty structure can be claimed for a separate business vertical subject to compliance.
Registering the masala trading activity as a separate business vertical permits independent GST treatment; if inputs attract higher tax than outputs, the vertical may claim refund of unutilized Input Tax Credit under the refund provisions. Eligibility requires separate GST registration, distinct accounts and records, sale through a registered e commerce platform, absence of exempt supplies that would disqualify ITC, and compliance with filing and evidentiary conditions. Recent high court decisions support refund claims even when inward and outward supplies are the same, but departmental guidance may constrain procedural acceptance.