Accumulation of Input Tax
Credit happens when the tax paid on inputs is more than the output tax liability. Such accumulation
will have to be carried over to the next financial year till such time as it can be utilised by the
registered person for payment of output tax liability. However, the GST Law permits refund of unutilised
ITC in two scenarios, namely if such credit accumulation is on account of zero rated supplies or on
account of inverted duty structure, subject to certain exceptions. As per Section 54(3) of the
CGST Act, 2017, a registered person may claim refund of unutilised input tax credit at the end
of any tax period. A tax period is the period for which return is required
to be furnished. Thus, a
taxpayer can claim refund of unutilised ITC on monthly basis. Refund of unutilised input
tax credit is allowed only in following two cases
a) Zero rated supplies made without payment of tax:
As per Section 16(3) of the IGST Act, 2017, a registered
person making zero rated supply is eligible to claim refund under either of the following options,
namely: –
·
Supply
of 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; or
• Supply
of goods or services or both, subject to such conditions, safeguards and
procedure as may
be prescribed, on payment of integrated tax and claim refund of such tax paid
on goods
or services or both supplied.
The first category pertains to refund of
unutilised ITC for which the registered person has to supply under Bond/LUT (as prescribed in Rule
96A of CGST Rules) and in the second category supply has been made after payment of Tax
(IGST). In both the cases, refund can be applied under Section 54 of the CGST Act, 2017 read
with Rule 89 or Rule 96, as the case may be, of
the CGST Rules, 2017.
b)
Inverted duty structure: Where
the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on output
supplies (other than nil rated or fully exempt supplies), except supplies of goods or
services or both as may be notified by the Government on the recommendations of the Council. In such cases also, refund
can be applied under Section 54 of the CGST Act, 2017 read with Rule 89 of the CGST Rules, 2017. It should be noted that no
refund of unutilised input tax credit is allowed in cases where the goods exported out of India are
subjected to export duty. Further, no refund of input tax credit is allowed, if the supplier of goods or
services or both avails of drawback in respect of central tax or claims refund of the integrated tax
paid on such supplies.
Refund
of ITC on account of zero-rated supplies
The application filed for
refund of unutilized ITC on account of zero-rated supplies (with payment of tax or without
payment of tax under Bond/LUT) has to be accompanied by documentary evidence as may
be prescribed to establish that a refunds due to the applicant; and such documentary or other
evidence (including the documents referred to in section 33 of the CGST Act, 2017) as the
applicant may furnish to establish that the amount of tax and
interest, if any, paid on
such tax or any other amount paid in relation to which such refund is claimed was collected from,
or paid by, him and the incidence of such tax and interest had not been passed on to any other
person. Rule 89(2) of the CGST Rules,
2017, specifies documents to be attached with
the refund application in Case of different types of Refund applicants. However, it has
been provided under section 54(4) of the CGST Act, 2017, that where the amount claimed as
refund is less than two lakh rupees, it shall not be necessary for the applicant to furnish any
documentary and other evidences but he may file a declaration, based on the documentary or
other evidences available with him, certifying that the incidence of such tax and interest had not
been passed on to any other person. It
has also been provided under section 54(6) of the
CGST Act, 2017, that in cases where the claim for refund on account of zero-rated supply of goods
or services or both made by registered persons, other than such category of registered persons
as maybe notified by the Government on the recommendations of the Council, refund on a
provisional basis, ninety per cent. of the total amount so claimed,
excluding the amount of input
tax credit provisionally accepted; and the final order shall be issued within sixty days from
the date of receipt of application complete in all respects (section 54(7) of the CGST Act, 2017
refers). Rule 91 of CGST Rules, 2017
provide that the provisional refund is to be granted
within 7 days from the date of acknowledgement of the refund claim. An order for provisional
refund is to be issued in Form GST RFD 04 along with payment advice in the name of the claimant
in Form GST RFD 05. The amount will be electronically credited to the claimant’s bank account.
The rules also prescribe the provisional refund will not be granted to if the person claiming
refund has, during any period of five years immediately preceding the tax period to which the claim
for refund relates, been prosecuted for any offence under the Act
or under an earlier law where
the amount of tax evaded exceeds two hundred and fifty lakh rupees; It may also be noted
that by default, the refund is to be credited to the Consumer Welfare Fund, except in the cases
below:-
(a) Refund
of tax paid on zero-rated supplies of goods or services or both or on inputs or
input services used in making such zero-rated
supplies;
(b) Refund
of unutilised input tax credit under section 54(3) of the CGST Act, 2017;
(c) Refund
of tax paid on a supply which is not provided, either wholly or partially, and
for which invoice has not been issued, or where a
refund voucher has been issued;
(d) Refund of tax in
pursuance of section 77;
(e)The tax and interest, if any,
or any other amount paid by the applicant, if he had not passed On the incidence of such tax and interest to
any other person; or
(f)
The tax or interest borne by such other class
of applicants as the Government may, on the recommendations of the Council, by
notification, specify. Formula for grant of refund
in cases where the refund of accumulated Input Tax Credit is on account of zero rated supply
is based on the following:
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;
(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;
(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 turnover
in a State or a Union territory, as defined under
sub-section (112) of section 2, excluding the value of exempt supplies other
than zero-rated
supplies, during the relevant period;
(F) “Relevant period” means the period for
which the claim has been filed.
As per Section 54(3), refund of accumulated
ITC will be granted where the credit accumulation has taken place on account of inverted duty
structure. However, the Government also has the power to notify supplies where refund of ITC will
not be admissible even if such credit accumulation is on account of an inverted duty structure. In
exercise of the powers conferred by this section, the government has issued Notification
no.15/2017-Central Tax (Rate) dated 28th June 2017 wherein it has been notified that no refund of
unutilised input tax credit shall be allowed under sub-section (3) of section 54 of the said Central Goods
and Services Tax Act, in case of supply of services
specified in sub-item (b) of item 5 of
Schedule II of the Central Goods and Services Tax Act. The supplies specified under item 5(b) of
Schedule II are construction services. In
respect of goods, the central government has issued Notification
no.5/2017- Central Tax (Rate)
dated 28th June 2017. The government has notified the ollowing goods in respect
of
which
unutilized ITC will not be admissible as refund: -
Sr.
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 selfpropelled (for example,
workshops, cranes, ballast tampers, track liners, 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, Bissell-bogies, axles and
wheels, and parts thereof
|
15
|
8608
|
Railway
or tramway track fixtures and fittings; mechanical (including electro-mechanical)
signaling, safety or traffic
control equipment for railways, tramways, roads, inland
waterways, parking facilities, port installations or airfields; parts of the foregoing
|
Tariff item,
Further, Rule 89(2)(h) of
CGST Rules, 2017 stipulate that refund claim on account of accumulated ITC (where such accumulation is on account of
inverted duty structure) has to be accompanied by
a statement containing the number and date of
invoices received and issued during a tax period. Rule 89(3) of CGST Rules, 2017 also provide
that where the application relates to refund of input
tax credit, the electronic credit ledger
shall be debited by the applicant in an amount equal to the refund so claimed.
Provisions
similar for refund of accumulated ITC for both types of Refund Applicants (suppliers
making zero-rated / inverted duty supplies)
Where the application relates
to refund of input tax credit, the electronic credit ledger shall be debited by the applicant by an amount
equal to the refund so claimed as per Rule 89(3) of CGST Rules, 2017. Also, interest will be paid
for any delay in sanctioning of Refund beyond the mandated period of 60
days (as per Rule 94 of CGST
Rules, 2017). The refund and/or interest
sanctioned, if any, will be directly credited to the bank account of the
applicant.
Conclusion
The GST Law provides for
multiple options to the zero rated suppliers to claim refund of taxes paid on the input side. One of the
options is export under bond or LUT and claim refund of unutilised ITC. The law also provides for
refund of unutilised ITC where credit accumulation is on account of inverted duty structure, subject to
certain riders. Time lines have been set for processing of refund claims and claims not settled within 60
days will be paid with interest @6%. Moreover, 90% of the claim would be paid within 7 days
of acknowledgement of claim on provisional basis. Claims are to be filed with minimum
documentation and the refund amount will be credited directly to the claimant’s bank account. The process is
online and hassle free and with minimum interface with tax authorities.
