ITC accumulation on account of higher GST rate on supplies recived rather than reduced gst rate levied on supplies manufactured by us

[Navid Mukadam]

Esteemed Experts

I am inquiring about the fact that we are in the supply of veterinary products, and the GST rate on supplies has been reduced from 12% to 5%. This has resulted in a reduction in our liability, which can be offset by the ITC that is available in our ledger and currency. payment

However, the accumulation of ITC in the electronic ledger will be influenced by the 18% GST on supplies received from the vendor.

Therefore, the appropriate course of action for this ITC is to determine whether it should be reversed or refunded.? 

please provide a detailed view

[Sadanand Bulbule]

This is a clear case of Inverted Duty Structure [IDS]. Since your output supply (veterinary products) is now taxed at 5% but your inputs are coming with GST at 12%/18%, ITC accumulation is bound to happen.  You don’t have to reverse this ITC. Credit taken is correct as long as goods/services are used for business.  The option available is to apply for refund of unutilised ITC under Section 54(3) of CGST Act read with Rule 89(5). Veterinary products are not under the restricted category, so refund should be admissible. This is the classic situation stems due to reduction of rate of tax in pursuance of GST-02. Hence the taxpayers may adopt either of the options available to them. There is nothing to fret about the stock of accumalated ITC. It is as intact as cash in the safe locker. 

[KASTURI SETHI]

  No reversal is required in this scenario. Such accumulated ITC will not lapse. Such accumulation  is due to reduction of rate of tax and NOT due to full exemption. 

[Sadanand Bulbule]

 Plz refer CBIC Circular No. 135/05/2020 - GST, dated the 31st March, 2020

 

[Shilpi Jain]

Apply for refund in respect of this inverted duty structure scenario. 

Latest press release regarding GST 2.0 also provides faster provisional refunds in this kind of scenario from 1st Nov onwards.

 

AI Summary

No ITC reversal where veterinary product supply rated 5% and inputs taxed higher; refund under Section 54 allowed Output supply of veterinary products was re-rated from 12% to 5% while inputs are taxed at higher rates, creating accumulated input tax credit (an inverted duty structure). The consensus view: no reversal of ITC is required while inputs are used for the business and the accumulation does not lapse; the taxpayer may instead seek refund of unutilised ITC under the GST refund provisions applicable to inverted duty situations. Administrative guidance and recent GST refund measures also facilitate provisional refunds for such cases; stocks of ITC remain claimable until properly refunded or utilised.