Refund of accumulated Input tax credit to fabric manufacturer and fabric processor in textile sector on account of inverted duty structure has been disallowed initially. Such dis-allowance was in pursuant to power vested under section 54(3), department issued Notification No. 5/2017-Central tax (Rate) dated 28th June, 2017 wherein it specified list of items on which no refund will be allowed on ground of inverted duty structure.
List of all relevant circulars and notification in this case.
- Notification No.5/2017-Central Tax (Rate) dated 28th June 2017
- Notification No. 20/2018-Central Tax (Rate) dated 26th July 2018
- Circular 56/30/2018-GST dated 24.08.2018
- Circular no. 94/12/2019-GST dated 28th March, 2019
1. List of item where Refund of ITC to fabric manufacturer disallowed on account of inverted duty structure
|S. No.||Tariff item, heading, sub- heading or Chapter||Description of Goods|
|1.||5007||Woven fabrics of silk or of silk waste|
|2.||5111 to 5113||Woven fabrics of wool or of animal hair|
|3.||5208 to 5212||Woven fabrics of cotton|
|4.||5309 to 5311||Woven fabrics of other vegetable textile fibres, paper yarn|
|5.||5407, 5408||Woven fabrics of manmade textile materials|
|6.||5512 to 5516||Woven fabrics of manmade staple fibres|
|6A#.||5608||Knotted netting of twine, cordage or rope; made up fishing nets and other made up nets, of |
|6C#.||5806||Narrow woven fabric, other than goods of heading 5807; narrow fabric consisting of warp without weft assembled by means of an adhesive.|
|7.||60||Knitted or crocheted fabrics [All goods]|
|8.||8601||Rail locomotives powered from an external source of electricity or by electric accumulators|
|9.||8602||Other rail locomotives; locomotive tenders; such as Diesel-electric locomotives, Steam locomotives and tenders thereof|
|10.||8603||Self-propelled railway or tramway coaches, vans and trucks, other than those of heading 8604|
|11.||8604||Railway or tramway maintenance or service vehicles, whether or not self-propelled (for example, workshops, cranes, ballast tampers, trackliners, testing coaches and track inspection vehicles)|
|12.||8605||Railway or tramway passenger coaches, not self-propelled; luggage vans, post office coaches and other special purpose railway or tramway coaches, not self-propelled (excluding those of heading 8604)|
|13.||8606||Railway or tramway goods vans and wagons, not self-propelled|
*inserted in the month of sep 2017, # inserted in the month of Nov 2017
2. Refund of accumulated ITC to fabric manufacturer and Textile job worker
Notification no. 5/2017 was further amended by N/No. 20/2018-Central tax (Rate) dated 26th July, 2018 which provided list of certain items on which refund on account of inverted duty structure was allowed on inward supplies received with effect from 1st August, 2018. However, refund was available subject to condition that accumulated Input Tax Credit (“ITC”) lying unutilised in balance on 31st July, 2018 on inwards supplies received upto 31st July, 2018 shall lapse.
Notification No. 20/2018-Central Tax (Rate) dated 26th July, 2018 inserted following text to Notification No. 5/2017
(i) nothing contained in this notification shall apply to the input tax credit accumulated on supplies received on or after the 1st day of August, 2018, in respect of goods mentioned at serial numbers 1, 2, 3, 4, 5, 6, 6A, 6B, 6C and 7 of the Table below; and
(ii) in respect of said goods, the accumulated input tax credit lying unutilised in balance, after payment of tax for and upto the month of July, 2018, on the inward supplies received up to the 31st day of July 2018, shall lapse.”.
3. Lapse of accumulated ITC as on 31st July 2018 to fabric manufacturer
Alongwith notification No. 20/2018, department also issued circular
56/30/2018-GST dated 24.08.2018 wherein clarification was provided with respect to provisions for lapsing of input tax credit accumulated on account of inverted duty structure on fabric for period upto 31st July 2018 as per notification no- 20/2018 dt. 26th July 2018.
Clarification provided in the circular about Refund of ITC to fabric manufacturer was as follows:
- In terms of amendment notification, the input tax credit only on account of inverted duty structure lying in the balance after payment of GST for the month of July (on purchase made on or before the 31st July 2018) shall lapse.
- Determination of ITC amount to be lapse shall be as per formula given u/s 89(5) of CGST rules. Such amount shall be determined for the months from July 2017 till July 2018.
- Stock as on 31st July 2018: In case a manufacture, whose accumulated ITC is liable to lapse in terms of said notification, has certain stock lying in balance as on 31st July 2018, the Input tax credit involved in inputs contained in such stock (including inputs lying as such) may be excluded for determination of net ITC for the purpose of applying the said formula.
- No effect will on balance ITC availed on Input services and capital goods. i.e. Such ITC shall not lapse.
- Reversal in GSTR-3B: This amount shall, upon self-assessment, be furnished by such person in his GSTR-3B return for the month of August 2018. The amount shall be furnished in column 4B(2) of the return. Verification of accumulated ITC amount so lapsed may be done at the time of filing of first refund by such person. Therefore detailed calculation sheet in respect of accumulated ITC lapsed shall be prepared by the taxable person and furnished at the time of filing of first refund claim on account of inverted duty structure.
4. Validation issue while filling refund application by Fabric manufacturer
In pursuant to notification no. 20/2018, registered persons made an attempt to claim refund on account of inverted duty structure for the month of August, 2018 or any such month in which reversal has been made (“relevant period”).
However, when registered person filed application for refund in form GST RFD-01A for the relevant period under heading “Refund claim of unutilized ITC on account of accumulation due to inverted tax structure”, such registered person was not able to claim refund of entire amount due to validation check on GST portal.
Such validation prevented the amount of ITC claimed in form GST RFD-01A from being higher than ITC availed in GSTR-3B minus value of ITC reversed of such relevant period as per the circular on Refund of ITC to fabric manufacturer.
E.g. Mr. A was required to reverse ITC to the extend of INR 1,00,000 as per notification 20/2018. In the month of August, 2018, Mr. A was eligible to claim ITC of INR 5,00,000. Accordingly, while filing GSTR-3B for the month of August, 2018, Mr. A claimed ITC of INR 5,00,000 and made reversal of INR 1,00,000. Mr. A is eligible to claim refund of INR 5,00,000 due to inverted duty structure, however, he was allowed to enter upto INR 4,00,000 in refund application in form GST RFD-01A due to validation check.
5. How fabric manufacturer can claim refund of eligible ITC for the period up to July 2018?
As this is one time issue which will arise while filing refund application of the period in which registered person has made reversal as per notification no. 5/2018, department allowed registered person to file refund application for such period in form GST RFD-01A under category “Any other” instead of “refund of unutilized ITC on account of accumulation due to inverted tax structure”.
6. What all documents are required to be submitted while filing refund application under “Any other” category?
Registered person is required to accompany refund application with all statements, declarations, clarifications, undertaking and any other document which are statutorily required to submit while filing application under ” refund claim of unutilized ITC on account of accumulation due to inverted tax structure”.
7. What is the procedure of granting refund post filing refund application?
Upon receipt of such refund application, proper officer will himself compute the admissible refund amount as per formula given under Rule 89(5) of Central Goods and Service Tax Rules, 2017 (“CGST Rules”) in the manner provided under circular No. 56/33/2018-GST dated 04.09.2018.
Post computation of refund amount if proper officer is satisfied that applicant has submitted all required documents and he is entitled to claim refund then he will request the taxpayer to debit such amount in his electronic credit ledger through form GST DRC-03.
Upon debit of such amount in electronic credit ledger, proper officer shall grant the refund amount through order in form GST RFD-06.
8. Under which category refund application should be filled by fabric manufacturer?
All refund application in form GST RED-01A on account of inverted duty structure for subsequent period should be filed under category ” refund of unutilized ITC on account of accumulation due to inverted tax structure”
9. If registered person has not yet reversed ITC as per notification 20/2018 then what should he do?
Department has clarified that if registered person has not yet made reversal as per notification no. 20/2018 then he is required to make such reversal in form GST DRC-03 instead of GSTR-3B.
GST DRC-03 is an intimation given for payment made on voluntarily basis or payment made against show cause notice or statement.
10. What are penal consequences if reversal of ITC after due date of return for the month of August, 2018
If registered person fails to make necessary reversal by the due date of GSTR-3B for the month of August, 2018 then he would be liable to pay interest as per section 50(1) of CGST Act on amount reversed belatedly.
Interest shall be computed for the period starting form due date for filing of GSTR-3B for the month of August, 2018 till the date of reversal of ITC either through GSTR-3B of subsequent period or through GST DRC-03, as the case may be.
11. In above mentioned case, would registered person be eligible to claim refund of ITC?
If registered person makes reversal of ITC after due date of filing of GSTR-3B for the month of August, 2018, he will still be entitled to claim refund of GST on account of inverted duty structure for the period from 01.08.2018. However, refund will be granted post reversal of ITC either through GSTR-3B of any subsequent period or through GST DRC-03 alongwith payment of applicable interest.