This article aims to highlight the practical difficulties faced in claiming the “Refund of unutilized ITC” due to inverted rate structure because of technical problem in the conditions put in calculation of “Maximum refund amount to be claimed” in column 5 of Statement 1 of on line refund claim in GST RFD-01 A and restricting the claim period for a tax period in the online application of the GSTN portal.
As per rule 89(5) of CGST Rules, 2017, the formula for arriving refund in case of accumulated ITC due to inverted rate structure is as under:
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
Where the expressions “Net ITC” and “Adjusted Total turnover” have the same meanings as assigned to them in sub-rule (4) of rule 89 of CGST Rules.
As per rule 89(4)(B), “Net ITC” means input tax credit availed on inputs and input services during the relevant period;
As per rule 89(4)(E), “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;
Calculation tables of GST RFD-01 A to be filed online:
Example:
Computation of Refund Amount to be claimed (Statement 1)
| Turnover of Inverted rated supply of goods (1) | Tax Payable on such inverted rated supply of goods (2) | Adjusted total turnover (3) | Net input tax credit (4) | Maximum Refund amount to be claimed (5)
[(1×4÷3)-2] |
|
| Integrated Tax |
1,00,00,000 |
2,00,000 |
1,00,00,000 |
1,00,000 | -1,00,000 |
| Central Tax | 1,50,000 | 5,00,000 | 3,50,000 | ||
| State/UT Tax | 1,50,000 | 5,00,000 | 3,50,000 | ||
| CESS |
Amount eligible for Refund (in INR)
| Values as per Statement 1 | Balance in Electronic Credit Ledger | Tax Credit Availed during the period | Eligible amount (Lowest of all) | |
| Integrated Tax | -1,00,000 | 0 | 1,00,000 | -1,00,000 |
| Central Tax | 3,50,000 | 2,50,000 | 5,00,000 | 2,50,000 |
| State/UT Tax | 3,50,000 | 3,50,000 | 5,00,000 | 3,50,000 |
| CESS |
The GSTN is calculating the figure in negative against IGST as above and is not allowing saving / submitting the application and the error message reads: “The calculated value should be greater than zero for form to get saved / submitted”.
This is a case where the assessee has higher quantum of intra state inward supplies and inter state outward supply as compared to inter state inward supplies and intra state outward supplies respectively. In such a case IGST on inter state outward supply has been discharged from CGST ITC. However, the assessee is eligible for refund as provided in GST law.
It may be pertinent to note that there will be practical scenarios where a registered person has higher quantum of intrastate inward supply as compared to interstate inward supply and higher quantum of interstate outward supply as compared to intrastate outward supply or vice-versa. This will result in a situation whereby entire Input IGST plus a portion from input CGST would be utilized for discharging the liability on outward interstate supply or vice-versa. Such a situation will result in negative figure calculation in the column no. 5 “Maximum refund amount to be claimed” of statement no. 1 of GST RFD-01 A as in the above table.
In my humble opinion, the issue can be resolved within the parameters of the definition provided in the CGST Rules if the GST system takes value as “zero” if there is any negative calculation against IGST/CGST/SGST or else the check for the calculated value to be greater than zero be put for the total of IGST+CGST+SGCT+CESS and the refund application is then allowed to be saved / submitted.
Besides the technical glitch as aforesaid, as per the provisions of the law, the assessee can file refund application for each month separately or for some months cumulatively. (ref. section 54(3), 2(106), 39(1) of the CGST Act and rule 89 of the CGST Rules) However, the online form RFD -01A allows filing month wise only.
If the refund is restricted to be filed month wise, the manufacturer who procures material for processing during previous month and availed ITC in the same month but made outward supply in the subsequent months will not able to claim the said refund on accumulated ITC as they do not have outward supply in the month of availment of ITC which not the intention of the GST law.
Hence, the online application format on the GSTN may be modified as to:
1. the GSTN system takes value as “zero” if there is any negative calculation against IGST/CGST/SGST or else the check for the calculated value to be greater than zero be put for the total of IGST+CGST+SGCT+CESS
2. Facilitate filing of refund of unutilized ITC at the end of any tax period provided the same is filed within the relevant due date.
Hope the CBEC responds at the earliest to resolve the practical hardships faced by assessee to claim the due refund so as GSTN is in consonance with legal provisions and “ease of doing business” remains the backbone of the GST Law in its true sense.
(The author can be reached at [email protected])
