Calculation of Lapse of Credit for fabrics- Circular No. 56/30/2018 dated 24-08-2018 -354/290/2018-TRU

The Tax Research Unit of CBIC has issued a circular to address the controversy arising due to lapse of credit in respect of fabrics vide Notification 20/2018 dated 26-7-18. The circular deals with calculation of ITC to lapse, impact of lapse of ITC on exports, input services and capital goods and also deals with situations of fabrics where tax rate on inputs is not higher than outward supplies like cotton and silk. It was decided in 28th GST Council meeting to remove restriction for grant of refund on fabrics prospectively and simultaneously lapse the accumulated ITC, lying unutilized, for the past period, after the payment of GST for the month of July, 2018 [Para 3 of Circular]  The major highlights of the Circular are as under

1 Whether all ITC lying unutilized after payment of tax up to July 2018 shall lapse ? No. ITC relating to following shall not lapse:

1.     Capital Goods

2.     ITC

3.     Zero Rated Supplies

4.     Stock as on 31-07-2018

2 Whether unutilized ITC in respect of services and capital goods shall also be disallowed ? No. (Refer Para 6, 8,10.1)
3 Implication to fabrics like cotton and silk where there was no inverted duty rate stricture ? The formula for calculation of ITC to lapse takes care that no ITC for which inverted duty rate structure is not applicable does not get covered. [Para 12]
4 Whether Accumulated ITC in respect of exports shall also be made to lapse ? No. Formula under Rule 89(4) and Rules 89(5) takes care that refund of ITC on exports is allowed and attributable ITC does not get lapsed.[Para 13]
5 Whether government has power to lapse credit ? It flows inherently from power to deny refund of accumulated ITC [para 9]
6 How to calculate amount of ITC to Lapse ? Following Formula under Rules 89(5) shall apply mutatis mutandis for calculation of Maximum ITC to lapse as it applies to calculation of Maximum ITC eligible for refund [Para 10]


{(Turnover of inverted rated supply of goods÷ Adjusted Total Turnover) x

Net ITC} – tax payable on such inverted rated supply of goods.

Period to be captured is 01-07-2017 to 31-07-2017 [Para 10]

7 If ITC calculated as per formula is 5 lacs but actual ITC is Rs. 10 lacs, how much ITC shall lapse ? Rs. 5 lacs.{para 10], because formula gives maximum amount to lapse
8 If ITC calculated as per formula is 5 lacs but actual ITC is Rs. 3 lacs, how much ITC shall lapse ? Rs. 3 lacs, because formula gives only the maximum amount that can lapse.[Para 10]
9 IT total ITC is Rs. 42 lacs, and ITC on manmade fabrics is 25 lacs and ITC on cotton fabrics (not covered by inverted duty) is 10 lacs. Turnover of cotton fabrics is 2 crores and turnover of manmade fabrics is 5 crores. Tax Rate is 5%. How much ITC shall lapse ? Total ITC =42 lacs

Total Turnover=7 lacs

Tax payable on MMF fabrics= 5% of 5 crores= 25 lacs

ITC to lapse= 42 x (5/7)-25= 5 lacs

10 Whether ITC on stock shall lapse ? While calculating Net ITC for calculation of ITC to lapse, ITC attributable to inputs in finished goods shall be excluded. It shall reduce the amount of ITC to lapse and thus ITC attributable to stock as on 31-07-2017 shall not lapse [Para 11]
11 When the ITC shall lapse ? ITC to lapse shall be provided in GSTR-3B for August 2018 to be filed in September by providing the amount in columns 4B(2) of the return [ITC amount to be reversed for any reason (others)] [Para 14]
12 When shall amount of ITC to lapse shall be verified ? At the time of filing of first refund on account of inverted duty rate structure on fabrics. A detailed calculation sheet shall be furnished.[Para 14]

Calculation of Net ITC, Turnover of Inverted Duty Rated Supplies and Adjusted Turnover for the purpose of calculation of ITC to lapse

Calculation of Net ITC
Total ITC from 01-07-2017 to 31-07-2017 Xxxxx
Less: Xxxxx
ITC for supplies received @ 01.%[40/2017-CTR 7 41/2017-ITR] Xxxxx
ITC on Capital goods Xxxxx
ITC on Services Xxxxx
ITC on stock as on 31-07-2018 Xxxxx
ITC on other Inputs and Input services used in making zero rated supplies where supplier has claimed benefit of deemed exports/advance authorization on one part of inputs. Xxxxx
Net ITC Xxxxx
Turnover of Inverted Duty Rated Supplies
Total Turnover from 01-07-2017 to 31-07-2017 Xxxx
Less: Turnover not covered by Inverted Duty Rate Xxxx
Less : Zero Rated  Supplies Xxxx
Net turonver of Inverted Duty Rated Supplies
Adjusted Total Turnover
Total Turnover 01-07-2017 to 31-07-2017 Xxxx
Less: Value of Exempt Supplies (Other than zero rated supplies) Xxxx
Less: Zero rated supplies against inputs received under Concessional Tax of 0.1%, Deemed Exports and Advance Authorization Xxxx
Net Adjusted Total Turnover Xxxx

ITC relating to inputs contained in stock to be determined as per Point no. 7 of ITC-01 [Para 11]

For Calculation of ITC on Stock as on 31-07-2018, information to be prepared under following heads:

  1. GSTIN of Supplier
  2. Invoice No. and Date
  3. Description of Inputs
  4. Unit Quantity Code
  5. Quantity
  6. Value (As adjusted by credit/debit note)
  7. Amount of ITC claimed

Checkout The New Tax Audit Limit here

Author Bio

More Under Goods and Services Tax

One Comment

Leave a Comment

Your email address will not be published. Required fields are marked *

Search Posts by Date

June 2021