Refund of all unutilised ITC on Inputs – Refund under Inverted duty structure

Inverted duty structure – Inputs procured at lower rate eligible for refund

The CBIC has received representations in relation to processing the refund of unutilized ITC on account of inverted tax structure on the approach of the departmental GST officers as under:

The officers were denying the refund of ITC of GST paid on inputs which are procured at equal/ lower rate of GST than the rate of GST on outward supply

The officers were not including the amount of ITC on inputs procured at equal/ lower rates while calculating the maximum refund amount as per Rule 89(5) of the CGST Rules.

The CBIC has clarified as under:

The amount of eligible refund in case of refund on account of inverted duty structure is determined as per Rule 89(5) as under:

Maximum refund amount = {(Turnover of inverted rated supplies) * Net ITC/ Adjusted Total Turnover} – Tax payable on such inverted rated supplies

While calculating the amount of refund as per the formula specified above, the amount of Net ITC should include the ITC of GST paid on inputs procured at equal/ lower rate of GST than the rate of GST on outward supply.

The eligibility of refund under Section 54(3) is not determined on the basis of rate of tax applicable to inputs as the tax rate on output supplies being less than the rate of inputs is the actual reason for accumulation of ITC and consequent refund.

Inverted duty structure – No Refund of ITC on input services and capital goods

The CBIC has reiterated the intent that the CGST Rules and law clearly prevent the refund of tax paid on input services and capital goods as part of refund of input tax credit accumulated on account of inverted duty structure.

Accordingly, a refund application in related to inverted duty structure is eligible to be filed only in respect of inputs and not in relation to input services or capital goods.

DISCLAIMER: The views expressed are strictly of the author and VJM & Associates LLP. The contents of this article are solely for informational purpose. It does not constitute professional advice or recommendation of firm. Neither the author nor firm and its affiliates accepts any liabilities for any loss or damage of any kind arising out of any information in this article nor for any actions taken in reliance thereon.

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