In re Hemanth Kumar B S (M/s. Hanuman Fashion) (GST AAR Karnataka)
The Authority for Advance Ruling (AAR), Karnataka examined an application filed by a garment manufacturer engaged in the business of producing readymade garments. The applicant sells most of its products through e-commerce platforms such as Myntra, Flipkart, and Meesho. In the course of these sales, the applicant pays approximately 30% of the selling price as e-commerce operator charges and avails input tax credit (ITC) on those charges. According to the applicant, around 95% of its output supplies are taxed at 5%, while the remaining supplies attract GST at 12%.
The applicant stated that it had accumulated input tax credit due to an inverted duty structure, where the rate of tax on inputs is higher than the rate applicable to its output supplies. Because of the formula prescribed for refund claims under the inverted duty structure category, the applicant stated that it could claim a refund of only ₹20,43,082. However, the applicant calculated the total accumulated input tax credit at ₹55,24,971 (₹1,45,40,464 minus ₹90,15,493) and sought clarification on how to claim refund of the full amount.
In the advance ruling application, the applicant raised three main questions. First, it sought guidance on how to claim refund of the entire accumulated ITC, including input services, instead of the amount determined by the formula under the inverted duty structure provisions. Second, it asked whether the full amount of refund could be claimed under the category “refund on any other ground,” since such a claim would not involve application of the formula used for inverted duty refunds. Third, the applicant requested the authority to suggest the best possible solution to address its refund-related concern.
