Refund of balance available in the Electronic Credit Ledger was always the demand of the taxpayers, as it is the working capital of the taxpayer which he/she cannot use in his business. Sometimes GST rate on outward goods may be lower than rate of GST on inward goods; in this case lots of funds may have to be invested into the input tax by taxpayer due to non-availment of refund. To overcome this situation and to provide more liquidity to the taxpayer government has allowed refund of accumulated ITC in respect of Inverted Duty Structure.
Section-54(3) of the CGST Act, 2017 allows taxpayer to claim refund of unutilized ITC which is accumulated due to inverted duty structure.
Earlier refund under inverted duty structure was restricted for the below mentioned goods vide Notification No.-5/2017-Central Tax (Rate) dated 28th June, 2017, as amended by Notification No.-29/2017 Central Tax (Rate) dated 22nd September 2017 and Notification No.-44/2017 Central Tax (Rate) dated 14th November,2017,
|Sr. No.||Tariff item,
|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 5311||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|
|6A||5608||Knotted netting of twine, cordage or rope; made up fishing nets and other made up nets, of textile materials|
|6C||5806||Narrow woven fabrics, other than goods of heading 5807; narrow fabrics
consisting of warp without weft assembled by means of an adhesive
|7||60||Knitted or crocheted fabrics|
|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, 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 selfpropelled (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, bisselbogies, axles and wheels, and parts thereof|
Railway or tramway track fixtures and fittings; mechanical (including electromechanical) signalling, safety or traffic control equipment for railways, tramways, roads, inland waterways, parking facilities, port installations or airfields; parts of the foregoing
However by virtue of Notification No.-20/2018 Central Tax (Rate) dated 26th July, 2018 government have allowed refund benefit under inverted duty structure in respect of goods having Sr. No.-1, 2, 3, 4, 5, 6, 6A, 6B, 6C and 7 contained in the above table with a condition of lapsing of accumulated ITC available as on 31st July, 2018 except ITC on Capital Goods, ITC on stock as on 31st July, 2018 and Zero Rated Supplies.
⇒ Calculation of Refund
Maximum refund can be least of the following three amounts:-
(A) Amount as calculated using formula specified under Rule-89(5) of the CGST Rules, 2017 which is as follows:
• Adjusted Total Turnover means total value of Turnover in State/UT excluding turnover of services as defined under Section-2(112) of the CGST Act, 2017 but excludes,
1) Value of exempt supply other than Zero rated supply and
2) Turnover of supply in respect of which refund is claimed under Rule-89(4A) (Refund in the case of deemed export or Rule-89(4B) (refund of unutilised input tax credit on account of zero rated supplies without payment of tax) or both
• Net ITC means ITC availed on input during the relevant period other than ITC availed for which refund is claimed under Rule-89(4A) (Refund in the case of deemed export or Rule-89(4B) (refund of unutilised input tax credit on account of zero rated supplies without payment of tax) or both.
→ ITC availed in subsequent period in respect of purchase invoice of previous period cannot be excluded from the calculation of net ITC. Ex. If you are filing refund application for the month of July, 2019 and in GSTR-3B of July, 2019 you have availed ITC of Rs. 1500 for the invoice dated 10th May, 2019, then also you will be eligible to get refund in the month of July, 2019.
→ Further it is clarified that ITC on stores, spares and packing material will also be included in net ITC if it is not capitalized.
(B) Balance in Electronic Credit Ledger (ECL) at the time of filing of refund application
(C) Balance in Electronic Credit Ledger (ECL) at the end of the tax period for which refund application is being filed
→ The least of the above three amount will be debited from the Electronic Credit Ledger (ECL) on filing of the refund application in chronological manner as mentioned below:
1. IGST( to the extent balance available)
2. CGST and SGST(equally) (but if balance available in CGST and SGST credit ledger is different and due to such difference if shortfall arise in either CGST or SGST, then balance amount shall be debited from another Credit Ledger.
→ However above order described is not following on the portal. Circular is suggesting to compare amount on consolidated basis, but portal makes comparison on individual basis. Due to this taxpayers are unable to claim appropriate refund for which they are eligible.
Complete list of documents required to be attached with the refund application given in the Circular No.-125/44/2019 dated 18th November, 2019 is extracted hereunder:
1) Declaration under Section-54(3)(ii)
2) Declaration under Second and Third proviso to Section-54(3)
3) Undertaking in relation to Section-16(2)(c) and Section-42(2)
4) Statement -1 under Rule-89(5)
5) Statement-1A under Rule-89(2)(h) (Government has issued an excel utility to prepare Statement-1A)
6) Self-declaration under Rule-89(2)(l)(if amount claimed does not exceed two lakh rupees)
7) Certificate under Rule-89(2)(m) of CGST Rules, 2017 from Chartered Accountants (if amount claimed exceeds two lakh rupees)
8) Statement of Invoices (Annexure-B)
9) Copy of GSTR-2A of the relevant period
10) Self-certified copies of purchase invoices entered in Statement of invoices (Annexure-B) whose details are not found in GSTR-2A of the relevant period. However Circular No.-135/05/2020 dated 31st March, 2020 has clarified that refund will be restricted for those invoices only which are available in GSTR-2A, so the requirement of uploading self-certified copies of purchase invoices is procedural only)
→ All the above documents must be uploaded while filing Form GST RFD-01 in online mode.
CBIC has issued two circulars, through which entire refund process under inverted duty structure in going on:
1) Circular No.-125/44/2019 dated 18th November, 2019
2) Circular No.-135/05/2020 dated 31st March,2020
Application for refund of unutilized ITC due to Inverted Duty Structure must be filed in online mode in the Form GST RFD-01 within 2 years from the end of the due date of furnishing of return of relevant period for which application for refund is being filed.
According to Circular No.-125/44/2019 dated 18th November, 2019 refund application could be filed for the period which is in the same Financial Year (like April-2017 to January-2018), however refund application could not be filed for across the Financial Year (like July-2017 to May,2018). But after the decision of Delhi High Court in the case of Pitambar Books Pvt Ltd V. Union of India, government has allowed to file refund application across the Financial Year (like July-2017 to May, 2018) also by issuing Circular No.-135/05/2020 dated 31st March, 2020. However this change is not working on portal until now.
The following procedure shall be followed for all refund applications filed under inverted duty structure from 26th September, 2019:
(1) Form GST RFD-01:-
Form GST RFD-01 shall be filled on the portal by an applicant under the category of Refund of unutilized ITC on account of accumulation due to inverted tax structure. The Form GST RFD-01 shall entail the facility of attaching statements, declarations, undertakings, invoices, other documents. Maximum 4 documents can be attached with a maximum size of 5 MB each. The entire list of documents is provided above and it is clarified that no other documents are required to be provided at the time of filing of the refund application.
On successful filing of the application in Form GST RFD-01 with all required statements, declarations, undertakings, invoices, other documents the Application Reference Number (ARN) will be generated. And all the time limit relating to Form GST RFD-02 (Acknowledgement), Form GSTR RFD-03 (Deficiency Memo), Form GST RFD-06 (Sanction Order or Rejection Order) shall be counted from the date of Application Reference Number (ARN).
(2) Form GST RFD-02 (Acknowledgement) or Form GST RFD-03 (Deficiency Memo):-
Once the ARN is generated the application shall be deemed to have been filed as per Rule-90(2) of the CGST Rules-2017 and the refund application along with all the supporting documents shall be transferred to the jurisdictional officer electronically, the said officer shall be able to view it on his system.
After receiving the refund application the officer is bound to issue Acknowledgment (Form GST RFD-02) for complete application or Deficiency Memo (Form GST RFD-03) for deficient application within the period of 15 days from the date of ARN. Once Acknowledgment is issued, no deficiency memo can be issued in any case.
In case the application is transmitted to the wrong jurisdictional officer, then said officer shall reassign it to the correct jurisdictional officer within the period of 3 working days from the date of ARN. However Deficiency Memos shall not be issued on the ground that the application is received in the wrong jurisdiction. It may be noted that the facility to reassign such refund applications is already available with the Commissioner or the officers authorized by him.
Once the Deficiency Memo has been issued, the amount debited from the Electronic Credit Ledger earlier shall be re-credited automatically by the system and order in Form GST PMT-03 is not required to be issued by the officer. Now, the applicant is required to rectify deficiency contained in Deficiency Memo and file fresh refund application in Form GST RFD-01 and new ARN will be issued again. This fresh application is also required to be filed within 2 years from the end of the due date of furnishing of return of relevant period for which application for refund is being filed.
(3) Recovery and Re-credit of ineligible ITC:–
On scrutinizing the refund application if officer comes to the knowledge about availment of ineligible ITC, then officer shall issue a show cause notice in Form GST RFD-08, requiring to show cause as to why:
(a) The refund amount equivalent to the ineligible ITC should not be rejected as per the relevant provisions of the law and
(b) Amount equals to ineligible ITC should not be recovered along with interest and penalty if any under Section-73 or Section-74 of the CGST Act-2017.
After adjudicating with the principal of natural, justice officer shall pass an order in Form GST RFD-06 under Section-54 read with Section-73 and Section-74 of the CGST Act-2017.
If adjudicating authority decides against the applicant then officer shall pass order in Form GST RFD-06 and amount of ineligible ITC, interest and penalty if any shall be entered into the Electronic Liability Ledger of the application by issuing Form GST DRC-07 by the officer. Alternatively, applicant can pay amount through Form GST DRC-03.
In any case, officer shall order for re-credit of rejected ITC into the Electronic Credit Ledger of the applicant.
If applicant has filed refund application for Rs. 1,00,000, officer has sanctioned Rs. 75,000(Only), Rs. 15,000 is rejected in respect of ineligible ITC and Rs. 10,000 is rejected for any other reason.
– Show cause notice shall be issued in Form GST RFD-08 by the officer as to why refund claim of Rs. 25,000 should not be rejected and Rs. 15,000 should not be recovered with interest and penalty if any.
– If the said notice is decided in the against the applicant then officer shall enter amount of ITC, interest and penalty if any into the Electronic Liability Ledger by issuing Form GST DRC-07
– Further, Rs. 25,000 would be re-credited only if applicant gives an undertaking that he shall not file an appeal or in case he files an appeal, the same is finally decided against the applicant.
-Further if applicant has filed appeal and appellate authority has decided in favour of applicant then a fresh refund application is required to be filed by the applicant in the category of “Refund on Account of Assessment/ Appeal/Provisional Assessment/ Any other order”.
(4) Disbursement of Refund:-
Separate disbursement of refund of different tax by different authority was causing undue hardship, to avoid hardship it is now decided that if application is assigned to Central Tax Officer then Central Tax Officer shall sanction refund under all tax heads. The said officer shall sanction refund by issuing order in Form GST RFD-06 and issuing payment order in Form GST RFD-05. Similarly if application is assigned to State Tax Officer then State Tax Officer shall sanction refund under all tax heads.
The sanctioned amount shall be disbursed by Public Financial Management System (PFMS) of Controller General of Accounts (CGA). PMFS shall validate bank account with link name, GSTIN, bank account details and shall generate Unique Assessee Code to overcome multiple times validation of same details. During validation if any error occurred then invalidated details shall be communicated to the applicant. Applicant is required to correct mistake by filing “Application for Amendment in Non-Core Field”. Once details are corrected by the applicant PMFS shall revalidate detail. Generally this process get completed before payment order is issued by the officer, but in case bank account is invalidated after payment order is issued then officer is required to issue fresh payment order.
If ordered refund is credited to the bank account after 60 days form the date of filing if the application for refund, then interest at the rate of 6% per annum shall have to be paid. It may be noted that “Tax is Refunded” shall be considered on the date of credit into the bank account of the applicant. To complete the entire process in time it is advised to officers to issue sanction order in Form GST RFD-06 and payment order in Form GST RFD-05 within 45 days from the date of receipt of refund application.
⇒ Special Provisions
- As per Circular No.-135/05/2020 dated 31st March, 2020 refund of accumulated ITC cannot be claimed under inverted duty structure if the inversion is because of changes in GST rates. Ex. If rate of GST gets reduced from 18% to 12%, then taxpayer cannot claim refund of accumulated ITC under inverted duty structure.
- It is clarified vide Circular No.-125/44/2019 dated 18th November, 2019 that refund of Transitional Credit cannot be considered for the calculation of net ITC.
- Recently refund of ITC is restricted vide Circular No.-135/05/2020 dated 31st March, 2020 to the extent invoices populated in GSTR-2A only. Although in Circular No.-125/44/2019 dated 18th November, 2019 they have allowed refund of unmatched invoices if applicant attaches the self-attested copy of invoice. In another side they are allowing to take credit of 110% of the ITC populated in GSTR-2A, however they are giving refund of only for those invoices which are available in GSTR-2A.