Refund of Unutilized ITC On Capital Goods Under Export of Goods or Services Without Payment of Tax

In order to understand that whether refund of unutilized ITC on Capital Goods is available or not under the case of export of goods or services (Zero-Rated Supplies) without payment of taxes, following provisions should be taken under consideration : –

Section 16 (3) of IGST Act, 2017, inter alia provides that-

  • A registered person making zero rated supply shall be eligible to claim refund under either of the following options, namely:
  • he may supply goods or services or both under bond or Letter of Undertaking, subject to such conditions, safeguards and procedure as may be prescribed, without payment of integrated tax and claim refund of unutilised input tax credit;

……..in accordance with the provisions of section 54 of the Central Goods and Services Tax Act or the rules made thereunder.

Section 54 (3) of CGST Act, 2017, inter alia provides for

  • A registered person may claim refund of any unutilized input tax credit at the end of any tax period.

Provided that no refund of unutilized input tax credit shall be allowed in cases other than

–  (i) zero rated supplies made without payment of tax Section 54 of CGST Act, 2017, prescribes Rule 89 in accordance to which refund to be claimed, which inter alia, provides for:

  • Any person, except the persons covered under notification issued under section 55, claiming refund of any tax, interest, penalty, fees or any other amount paid by him, other than refund of integrated tax paid on goods exported out of India, 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 provisions of sub rule (4) of rule 89 of the Central goods and service tax Rules, 2017

Refund Amount = (Turnover of zero-rated supply of goods + Turnover of zero-rated supply of services) x Net ITC ÷ Adjusted Total Turnover

Where, –

a) “Refund amount” means the maximum refund that is admissible;

b) “Net ITC” means input tax credit availed on inputs and input services during the relevant period other than the input tax credit availed for which refund is claimed under sub-rules (4A) or (4B) or both;

c) Turnover of zero-rated supply of goods” means the value of zero-rated supply of goods made during the relevant period without payment of tax under bond or letter of undertaking, other than the turnover of supplies in respect of which refund is claimed under sub-rules (4A) or (4B) or both;

d) “Turnover of zero-rated supply of services” means the value of zero-rated supply of services made without payment of tax under bond or letter of undertaking, calculated in the following manner, namely:- Zero-rated supply of services is the aggregate of the payments received during the relevant period for zero-rated supply of services and zero-rated supply of services where supply has been completed for which payment had been received in advance in any period prior to the relevant period reduced by advances received for zero-rated supply of services for which the supply of services has not been completed during the relevant period;

e) “Adjusted Total Turnover” means the sum total of the value of- (a) the turnover in a State or a Union territory, as defined under clause (112) of section 2, excluding the turnover of services; and 69 (b) the turnover of zero-rated supply of services determined in terms of clause (D) above and non-zero-rated supply of services, excluding- (i) the value of exempt supplies other than zero-rated supplies; and (ii) the turnover of supplies in respect of which refund is claimed under sub-rule (4A) or sub-rule (4B) or both, if any, during the relevant period. (F) “Relevant period” means the period for which the claim has been filed.

Conclusions –

a) Form RFD-01 is filed when exporter is claiming for GST Refund as per sub rule (1) of rule 89 of the Central goods and service tax Rules, 2017 read with Section 16(3)(a) of IGST Act 2017.

b) As per definition of Net ITC given in sub rule (4) of rule 89 of the Central goods and service tax Rules, 2017

Net ITC means input tax credit availed on inputs and input services during the relevant period.

It however does not include ITC on capital goods therefore we cannot apply for refund of ITC paid on capital goods”

Section 2(19) of CGST Act: Definition of “Capital Goods” 

“Capital goods” means goods, the value of which is capitalized in the books of account of the person claiming the input tax credit and which are used or intended to be used in the course or furtherance of business.

From the above definition, it is clearly evident that, whether the ITC is an ITC on Capital Goods or not depends upon its treatment made in the books of accounts.

Author Bio

Qualification: CA in Practice
Company: AKB JAIN & CO
Location: BHOPAL, Madhya Pradesh, IN
Member Since: 07 Apr 2020 | Total Posts: 1

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