Refund of unutilised ITC under Inverted duty structure

When the tax paid on input supply (ITC) is more than the output tax liability then ITC accumulated. Such accumulation will have to be carried over to the next financial year till such time as it can be utilised by the registered person for payment of output tax liability. However, the GST Law permits refund of unutilised ITC in the following two scenarios:

• Zero rated supplies made without payment of tax
• Inverted duty structure

In the present article we would discuss provisions and procedure related to refund of unutilised ITC under Inverted duty structure.

1. Refund of unutilised ITC under Inverted duty structure: Section 54(3) of the CGST Act, 2017, permits the refund of ITC where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies (other than nil rated or fully exempt supplies), except supplies of goods or services or both as may be notified by the Government.
2. Ineligible supplies: Section 54(3), ibid, states that in respect of notified goods and/or services no refund of unutilised input tax credit shall be allowed. List of such goods and services is given under notification number 5/2017-CT (RATE), dated 28-06-2017 and notification number 15/2017-CT (RATE), dated 28-06-2017 respectively.
3. The detail of such notified goods and services have been given hereunder:

SUPPLIES OF GOODS IN RESPECT OF WHICH NO REFUND OF UNUTILISED INPUT TAX CREDIT SHALL BE ALLOWED

 

S. No.	Tariff item, heading, sub-heading or Chapter	Description of Goods	Remarks
-1	-2	-3	-3
1	5007	Woven fabrics of silk or of silk waste	(i)     Refund of input tax credit accumulated on supplies received on or after the 1st day of August, 2018 would be allowed. (ii)   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.
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 textile materials
6B	5801	Corduroy fabrics
6C	5806	Narrow woven fabrics, other than goods of heading 5807; narrow fabrics consisting of warp without weft assembled by means of an adhesive (bolducs)]
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
14	8607	Parts of railway or tramway locomotives or rolling-stock; such as Bogies, bissel-bogies, axles and wheels, and parts thereof
15	8608	Railway or tramway track fixtures and fittings; mechanical (including electro-mechanical) signalling, safety or traffic control equipment for railways, tramways, roads, inland waterways, parking facilities, port installations or airfields; parts of the foregoing

 

SUPPLIES OF SERVICES IN RESPECT OF WHICH NO REFUND OF UNUTILISED INPUT TAX CREDIT SHALL BE ALLOWED

S. No.

Description of services

1

Supply of services specified in sub-item (b) of item 5 of Schedule II of the Central Goods and Services Tax Act i.e. construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration has been received after issuance of completion certificate, where required, by the competent authority or after its first occupation, whichever is earlier.

 

4. How to calculate eligible amount of refund: As per Rule 89(5) of CGST Rules, 2017, the formula for calculation of Maximum refund Amount is as follows:-

Refund Amount = (Turnover of zero-rated supply of goods + Turnover of zero-rated supply of services) x Net ITC ÷Adjusted Total Turnover

Where, Net ITC shall mean input tax credit availed during the relevant period other than the input tax credit availed for which refund is claimed under Rule 89(4A) or 89(4B) or both;

“Adjusted Total Turnover” means the sum total of the value of-

• the turnover in a State or a Union territory, as defined under clause (112) of section 2, excluding the turnover of services; and
• the turnover of zero-rated supply of services determined in terms of clause (D) above and non-zero-rated supply of services,

excluding-

• the value of exempt supplies other than zero-rated supplies; and
• the turnover of supplies in respect of which refund is claimed under Rule 89(4A) or 89(4B) or both, if any,

during the relevant period.‘

Here, “Relevant period” means the period for which the claim has been filed.

The common portal calculates the refundable amount as the least of the following amounts:

1. The maximum refund amount as per the formula in rule 89(5) of the CGST Rules formula is applied on the consolidated amount of ITC, i.e. Central tax + State tax/Union Territory tax +Integrated tax;
2. The balance in the electronic credit ledger of the applicant at the end of the tax period for which the refund claim is being filed after the return in FORM GSTR-3B for the said period has been filed; and
3. The balance in the electronic credit ledger of the applicant at the time of filing the refund application.

5. Time limit for claiming refund: As per Section 54(1) of the CGST Act, 2017, any person claiming refund of any tax and interest, if any, paid on such tax or any other amount paid by him, may make an application before the expiry of two years from the relevant date in such form and manner as may be prescribed.

Here, “Relevant Date” means the due date for furnishing of return under section 39 for the period in which such claim for refund arises.

6. Documents required : List of all statements/declarations/undertakings/certificates and other supporting documents to be provided along with the refund application has been given in Annexure-A of Circular Number 125/44/2019-GST dated 18-11-2019 read with Circular No.135/05/2020-GST dated 31-03-2020 issued by CBIC. As per said circulars for claiming refund following documents/statements are required to be uploaded for claiming GST refund:

Declaration/Statement/Undertaking/ Certificates to be filled online	Supporting documents to be additionally uploaded
Declaration under second and third proviso to section 54(3)	Copy of GSTR-2A of the relevant period
Declaration under section 54(3)(ii)	Statement of invoices as Annexure-B 125/44/2019-GST dated 18-11-2019 read with Circular No. 135/05/2020-GST dated 31-03-2020 i.e. ITC register containing detail of inward supplies.
Undertaking in relation to sections 16(2)(c) and section 42(2)	Self-certified copies of invoices entered in Annexure-B whose details are not found in GSTR-2A of the relevant period
Statement 1 under rule 89(5)
Statement 1A under rule 89(2)(h)
Self-declaration under rule 89(2)(l) if amount claimed does not exceed two lakh rupees, certification under rule 89(2)(m) otherwise

7. Procedure for claiming refund:

The procedure for filing of refund application is completely online and user friendly. A gist of procedure for filing refund application is given below:

• For filing refund application, firstly we have to login on GST portal using user ID and password.
• Click the Services >Refunds > Application for Refund
• The Select the refund typepage is displayed. Select the Refund on account of ITC accumulated due to Inverted Tax Structure option and click on create button.
• The Refund on account of ITC accumulated due to Inverted Tax Structurepage will displayed.
• Fill all the necessary detail and submit all the prescribed documents.
• On successful filing of refund application an Application Reference Number (ARN)receipt is downloaded and ARN is sent on your registered e-mail address and mobile phone number.