A refund of the accumulated input tax credit is available to the assessee wherein the accumulation is due to the fact that the rate of tax on inputs is higher than that of the rate of tax on outputs. The mechanism for calculation of the maximum refund amount is provided in rule 89(5) of CGST Rules, 2017. As per the said rule 89(5) of CGST Rules, 2017, “Net ITC” would only include the input tax credit availed on inputs and not of input services. However, recently, the Hon’ble Gujarat High Court in case of M/s VKC Footsteps India Pvt Ltd reported in 2020-TIOL-1273-HC-AHM-GST has pronounced that formulae given in explanation to rule 89(5) of CGST Rules, 2017 allowing only ITC of ‘inputs’ in “NET ITC” is a violation of section 54(3) of CGST Act, 2017. “Net ITC” should mean “input tax credit” availed on “inputs” and “input services” as defined under the Act. Thus, now the applicant will be eligible to claim a refund of input services in case of an inverted duty structure.
Of course, it is still to be seen whether the Department accepts this Order or files a petition before the Hon’ Supreme Court. Nevertheless, the Hon’ Gujarat High Court has correctly appreciated the prevailing law and has granted relief to the assessee. Now the bigger question that arises is that “Will the assesses be able to file refund for the differential amount that will arise due to adding of ITC of input services in NET ITC for the period for which refund has already been claimed?” If yes, then from which period can they file the refund application?
In my opinion, a supplementary refund application for the prior periods should be filed under the “Others Category” accompanied by all of the supporting documents. Thereafter, the assessee can debit the said amount from electronic credit ledger by filing FORM DRC-03. This can be done after the proper officer scrutinizes the application.
Regarding the time period from which the refund can be filed, it must be noted that section 54(1) provides that refund claim must be filed before the expiry of two years from the relevant date. The “Relevant date” is mentioned in explanation to section 54 of the CGST Act, 2017. Clause (e) of the explanation mentions the relevant date in case of a refund of an unutilized input tax credit. It was substituted vide Section 23 of the Central Goods and Services Tax (Amendment) Act, 2018 (No. 31/2018), dated 29-08-2018.
For the period 01.07.2017 to 28.08.2018, ‘relevant date’ means
“(e) in the case of refund of unutilised input tax credit under sub-section (3), the end of the financial year in which such claim for refund arises;”
From 29.08.2018, relevant date means
(e) in the case of refund of unutilised input tax credit under clause (ii) of the first proviso to sub-section (3), the due date for furnishing of return under section 39 for the period in which such claim for refund arises
Prior to the amendment, the relevant date from which the time period of two years would start in case of inverted duty structure was the end of F.Y in which such claim for refund arises. The last day for claiming refund under erstwhile provisions for F.Y 2017-18 was 31st March’2020. Interestingly, all the due dates falling between 20th March’2020 till 30th August 2020 have been extended till 31st August’2020 vide notification no. 35/2020 as amended vide notification no. 55/2020 – CT dt. 27.06.2020. It is a well-settled law under the erstwhile regime that the limitation period will apply as per the law that was prevailing doing the relevant period. The following judicial pronouncements support this contention:
In the case of the Commissioner of Central Excise, Coimbatore Versus M/s Pricol Limited 2015 (3) TMI 735 – MADRAS HIGH COURT, has held in Para 12 of the Order that, “12. Section 11-A of the Central Excise Act, as it stood prior to amendment with effect from 12.5.2000, relates to recovery of duties not levied or not paid or short-levied or short-paid or erroneously refunded, within the period prescribed from the relevant date. The present case pertains to 1998 at which point of time the period of limitation fixed for issuance of show cause notice was six months. The said period of six months was amended to one year by Section 97 of the Finance Act 2000 (10 of 2000) with effect from 12.5.2000. Therefore, for all purposes, any period prior to 12.5.2000, for the purpose of recovery of duties not levied or not paid or short-levied or short-paid or erroneous refund, the time for issuance of show cause notice is only six months from the relevant date.”
SARDA ENERGY AND MINERALS LTD Vs COMMISSIONER OF CENTRAL EXCISE AND SERVICE TAX RAIPUR 2020-TIOL-1129-CESTAT-DEL, “CX – Issue is whether the taking of cenvat credit by the appellant, a manufacturer, on invoices received along with the goods during the period August, 2013, January, 2014 to July, 2014 and credit taken during November, 2014 to January, 2015, whether the same is hit by amendment in Rule 4(7) of CCR by insertion of the 6th Proviso w.e.f. 01/09/2014 vide Notification No. 21/2014- CE NT dated 11th July, 2014.
Held: Similar issue arose before this Tribunal, in the coordinate Bench decision in the case of M/s VOSS EXOTECH AUTOMOTIVE PVT. LTD. -2018-TIOL-985-CESTAT-MUM wherein it has been held that the said amendment has got only prospective effect and no retrospective effect can be given, and, accordingly for the goods and invoices received prior to 1st September, 2014/11th July 2014, the Cenvat Credit can be taken, being a vested right – Proviso inserted by Notification No. 21/2014- CE(NT) will have prospective effect only – impugned order is set aside and appeal is allowed with consequential benefit: CESTAT [para 9, 10]”
Thus, according to my opinion, a refund for an inverted duty structure can be filed from July’17. The assessee should file refund applications for the differential amount from July 2017 before 31st August 2020.