ITC Refund for same period | Third Proviso to section 54(3) | IDS | EXPWP

[Nikunj Kishorbhai Tosar]

A few articles/experts view says that where IGST refund claimed on export with payment of tax, ITC refund is restricted under inverted duty structure for the same refund period considering the third proviso to section 54(3).

However, ITC refund on export under LUT is granted along with IGST Refund of export with payment of tax for same refund period eventhough the third proviso is also applicable to it.

Para 40 of the Circular 125/44/2019 - Interpretation:

“The third proviso to sub-section (3) of section 54 of the CGST Act states that no refund of input tax credit shall be allowed in cases where the supplier of goods or services or both avails of drawback in respect of Central tax. It is clarified that if a supplier avails of drawback in respect of duties rebated under the Customs and Central Excise Duties Drawback Rules, 2017, he shall be eligible for refund of unutilized input tax credit of Central tax/ State tax/ Union Territory tax / Integrated tax/ Compensation cess. It is also clarified that refund of eligible credit on account of State tax shall be available if the supplier of goods or services or both has availed of drawback in respect of Central tax.”

In my view, refund is restricted as follows:

Sr	Drawback benefit availed	Refund of accumulated ITC available
1	Duties rebated under the Customs and Central Excise Duties Drawback Rules, 2017,	Yes, Refund of IGST/CGST/SGST/UTGST/Cess component available
2	Central Tax	No, refund of SGST component available

 There is no such restriction that if IGST Refund claimed on account of export with payment of tax then refund of unutilized ITC cannot be made  as per the  interpretation given in the said circular.

Your guidance on this matter will be highly appreciated.

AI Summary

Section 54(3) third proviso: IGST refund with export payment doesn't automatically bar unutilised ITC; drawback restricts central tax only Where a supplier claims IGST refund on export with payment, the third proviso to section 54(3) does not automatically bar refund of unutilized ITC for the same period; circular 125/44/2019 clarifies that availing drawback under the Customs and Central Excise Duties Drawback Rules, 2017 does not preclude refund of unutilized ITC (IGST/CGST/SGST/UTGST/cess). The proviso only operates where drawback has been availed in respect of Central tax-then refund of the Central tax component of ITC is restricted, while the State/UT component may still be refundable.