In re M/s. AFS Group (GST AAR Tamil Nadu)
The Appellate Authority for Advance Ruling, Tamil Nadu, examined an application filed by M/s. AFS Group, a GST-registered entity acting as a consultant to manufacturers of 100% Cotton Yarn (HSN 5205). The applicant stated that its clients manufacture and supply cotton yarn taxable at 5% GST, while their input goods and services—such as packing materials, spares, lubricants, and job work—attract higher GST rates ranging from 12% to 18%. This rate differential results in accumulation of input tax credit (ITC).
The application sought an advance ruling on whether the applicant’s clients were eligible to claim a refund of accumulated ITC under Section 54(3)(ii) of the CGST Act, 2017, arising from an inverted duty structure where the tax rate on inputs exceeds that on output supplies. The applicant relied on statutory provisions, CBIC Circular No. 125/44/2019-GST, and judicial precedents to argue that ITC on inputs, including indirectly used goods such as stores, spares, and packing materials, qualifies as “Net ITC” and is refundable where such accumulation arises due to higher input tax rates.
The applicant paid the prescribed application fees and confirmed that there were no pending proceedings on the issue, as no adverse remarks were received from the jurisdictional tax authorities. During the personal hearing, the authorized representative reiterated the written submissions and furnished supporting documents, including circulars, judicial orders, and refund-related orders. In response to queries from the Members, the representative clarified that the applicant itself was not a manufacturer but a consultant to cotton yarn manufacturers, that the clients were not exporters, and that the issue of refund had already been taken up by the Department, with orders passed against which appeals had been filed.
