Clarification on ITC Refund Restrictions for Fabrics Due to Inverted Duty Structure Under GST Notification No. 20/2018.

The circular clarifies the removal of restrictions on the refund of accumulated Input Tax Credit (ITC) on fabrics due to an inverted duty structure. It addresses doubts regarding Notification No. 20/2018, which amends Notification No. 5/2017, and specifies that refunds are not allowed for accumulated ITC on certain fabrics. Effective from August 1, 2018, the accumulated ITC on inputs received before July 31, 2018, will lapse after GST payment for July 2018. The circular outlines the calculation method for lapsed ITC and confirms that ITC on input services, capital goods, and exports remains unaffected. Taxpayers must report lapsed ITC in their August 2018 GSTR 3B return.

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