Introduction:

Section 54 of the Central Goods and Services Tax Act (CGST) contains provisions regarding refund of Goods and Services Tax. As per Section 20 of the Integrated Goods and Services Tax Act (IGST) the provisions of the CGST Act relating to refund shall, mutatis mutandis, apply in relation to integrated tax as they apply in related to central tax as if they are enacted under IGST Act. Section 54(3) of CGST Act and Section 15 of the IGST Act cover the situations in which a person may claim refund of GST. This article discusses refund due to inverted duty structure faced by renewable energy industry.

Eligibility to claim Refund due to inverted duty structure

Inputs subject to tax at a higher rate than the rate applicable on outward supplies of goods or services commonly known as ‘inverted duty structure’ could result in a situation where the registered person has accumulated input credit. Under the provisions of the first proviso to sub-section 3 of Section 54 of the CGST Act a registered person may claim refund of unutilised input credit where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on outward supplies, other than nil rated or fully exempt supplies.

Hence refund of unutilised input credit is not allowed when the outward supply is nil rated or fully exempt. Refund is also not allowed in the cases of supplies of goods or services as may be notified by the Government.

Supply of goods/services not eligible for refund due to inverted duty structure

The Central Government has in exercise of the powers conferred by clause (ii) of the proviso to sub-section (3) of Section 54 notified the following supplies of goods/services as ineligible for refund due to inverted duty structure:

1. Vide Central Tax (Rate) Notification 5/2017 dt. 28.06.2017 the Central Government has notified that no refund of unutilised input tax credit shall be allowed in case of output supply of the following goods:

Sl.No Tariff item, heading, sub-heading or Chapter Description of goods
1  5007  Woven fabrics of silk or of silk waste
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
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

2. Vide Central Tax (Rate) Notification 15/2017 dt. 28.06.2017 the Central Government has notified that no refund of unutilised input tax credit shall be allowed in case of supply of services specified in sub-item (b) of item 5 of Schedule II of the CGST Act (i.e., in the case of 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).

3. Vide Central Tax (Rate) Notification 29/2017 dt. 22.09.2017 the Central Tax (Rate) Notification 15/2017 has been amended to include supply of Corduroy fabrics falling under Tariff heading no.5801

Procedure for Application for refund:

1. Any person claiming refund of unutilised input credit on account of inverted duty structure may file an application electronically in Form GST RFD-01 through the common portal, either directly or through a Facilitation Centre notified by the Commissioner as per the provisions of Rule 89(1).

2. The application shall be accompanied by a statement containing the number and the date of the invoices received and issued during a tax period in a case where the claim pertains to refund of any unutilised input tax credit under Section 54(3) where the credit has accumulated on account of the rate of tax on the inputs being higher than the rate of tax on output supplies, other than nil-rated or fully exempt supplies as per the provisions of Clause h of sub-rule 2 of Rule 89.

3. A declaration to the effect that the incidence of tax, interest, or any other amount claimed as refund has not been passed on to any other person, in a case where the amount of refund claimed does not exceed two lakh rupees (Rule 89(2)(l)

4. A Certificate in Annexure 2 of Form GST RFD-01 issued by a Chartered Accountant or a cost accountant to the effect that the incidence of tax, interest or any other amount claimed as refund has not been passed on to any other person, in a case where the amount of refund claimed exceeds two lakh rupees

5. The Electronic credit ledger shall be debited by the applicant by an amount equal to the refund claimed.

As per the provisions of Section 54(7) the refund the order for refund shall be issued within sixty days from the date of receipt of application complete in all respects.

Amount of Refund

Sub-rule 5 of Rule 89 contains provisions regarding the amount that can be claimed as refund on account of inverted duty structure. The refund of input tax credit shall be granted as per the following formula –

Maximum Refund Amount = {(Turnover of inverted rated supply of goods) x Net ITC ÷ Adjusted Total Turnover} – tax payable on such inverted rated supply of goods

“Net ITC” means input tax credit availed on inputs and input services during the relevant period;

“Adjusted Total turnover” means the turnover in a State or a Union territory, as defined under clause (112) of section 2, excluding the value of exempt supplies other than zero-rated supplies, during the relevant period;

Processing Refund Application:

As per the provisions of Rule 90 (2) the application for refund, other than claim for refund from electronic cash ledger, shall be forwarded to the proper officer. The proper officer shall, within a period of fifteen days of filing of the refund application, scrutinize the application for its completeness and where the application is found to be complete in terms of sub-rule (2), (3) and (4)of rule 89, an acknowledgement in FORM GST RFD-02 shall be made available to the applicant through the common portal electronically, clearly indicating the date of filing of the claim for refund and the time period of sixty days for passing the refund order shall be counted from such date of filing.

Where any deficiencies are noticed, the proper officer shall communicate the deficiencies to the applicant in FORM GST RFD-03 through the common portal electronically, requiring him to file a fresh refund application after rectification of such deficiencies.

When the application for Refund can be filed:

Section 54(3) provides that a registered person may claim refund of any unutilised input tax credit at the end of any tax period. Section 2(106) defines tax period to mean the period for which the return is required to be furnished.

Time Limit for filing refund application:

Section 54(1) provides that 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. Explanation 2 to Section 54 defines relevant date in the case of refund of unutilised input tax credit as the end of the financial year in which such claim for refund arises. Hence the refund claim must be filed within two years from the expiry of the financial year in which the claim for refund arises.

About the Author: S.Bhuvaneswari is a CA, CPA(USA), DIIT(ICAI) and currently working as Sr.General Manager (Finance) in Renewsys India Private Limited.

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9 Comments

  1. Mufeed says:

    But in some other articles it is saying that relevant date means “Date on which Ship or Air craft in which goods are loaded, leaves India”. Kindly please clarify about this mam

  2. Mayur Pankhaniya says:

    Dear Madam,
    your article has cleared many doubts…but there is still some unsolved queries that i am not able to solved, for which i need your guidance…
    1. After availing maximum refund, how the remaining credit of the particular month will receive??
    2. To whom, the manual application will be filed?? jurisdiction officer or GHATAK???
    3.

  3. Sai Naveen says:

    Can any one explain what is exact meaning of “TURNOVER OF INVERTED RATED SUPPLY OF GOODS” with example.
    I have one client bussiness is supply of oil, ITC and they have taken 5% margin on OilOutput GST is 5% . For supply of Oil they have used packing materials GST rate is 18% that’s why Unutilized ITC arises. Can any one Explain Inverted duty structure is applicable to my client or not.

  4. Naveen Jain says:

    Dear Mam, it will be very nice of you if you please clear the following doubt regarding refund as early as possible
    i am a manufacturer exporter of ready made garments actually i have made all my exports with payment of tax declaring on shipping bills. my total exports are Rs.2.00 Cr and net ITC Is Rs.1500000 lakh. Rs.10lakh i will get through customs as the export made with payment of tax. now my balance itc is Rs.5.00Laks which is accumulated due to input rates are higher than the output rates. my question is can i file mannual refund application in RFD01A under inverted duty structure for Rs.5.00 lakh. if yes , please send me the format of Statement 1 and if no then how can i claim the accumulated ITC of Rs.5.00 Lakh.
    your early as sincere reply will be highly appreciated. you can reach me through my e mail id naveenisha@gmail.com.

  5. S. Ganesh kumar says:

    Thank you. Your information was very help ful please inform me the following doubt details kindly. In a month, if i had a turn over of 10 crores.and i paid an input tax of 5% i. e 50lakhs. But if sales are of 8 crores to an exporter with an output tax of 0.1%, i. e 80 thousands and 2 crores at 5%sales i. e 10 lakh total balance of input is 39.2 lacs then how can i claim a refund of this amount. Kindly reply me quickly mam..

    1. S.Bhuvaneswari says:

      Please refer to Board’s Circular 17/17/2017 dt. 15th November, 2017 on manual claim of refunds, Circular 24/24/2017 dt. 21st December 2017 regarding claim of refund in case of inverted duty structure, Circular no.37/2018 dt.15th March 2018.

  6. MAYUR CHOUDHARY says:

    PLEASE CAN YOU EXPLAIN INVERTED DUTY STRUCTURE WITH AN EXAMPLE.
    WHAT AMOUNT IS TO BE TAKEN IN ADJUSTED TURNOVER AND INVERTED TURNOVER AS PER FORMULA.

  7. shyam says:

    Very informative, Sir. Please advise me on the following points;
    1. How the service tax of pre GST period will be paid now by an assessee who was registered in service tax,
    2.How the service tax of pre GST period will be paid now by an assessee who was not registered in service tax,

    1. SAROJ BISWAS says:

      . In a month, if i had a turn over of rs.7151092 tranovers.and i paid an input tax of RS.18% & 12%i. e RS.1158532. But if sales are of RS. 54552248.00 to an sale with an output tax of 12%, i. e rs.654622.00 and rs.1695868.00 at 18%sales i. e 305255 total balance of input is rs.198655 then how can i claim a refund of this amount. Kindly reply me quickly mam..

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