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Refund of ITC on account of inverted duty structure - GST Ready Reckoner - GSTExtract Refund of ITC on account of inverted duty structure Persons entitled for refund [ Section 54(3) of CGST Act ] As per Section 54(3), 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. 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. 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 case of services :- 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 CGST Act, in case of supply of services specified in sub-item (b) of item 5 of Schedule II of the CGST Act. The supplies specified under item 5(b) of Schedule II are construction services. In case of goods:- Notification no.15/2017-Central Tax (Rate) dated 28th June 2017 The government has notified the following 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 self- propelled (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 Circular No. 135 / 05 / 2020 - GST Dated 31-03-2020 Clarifies No refund if tax rate on same product subsequently reduced example GST Rate 18% has been subsequently reduced to 12% in such a case excess of tax is not admissible as refund. Computation of Refund in case of Inverted Duty Structure (a) In the case of refund on account of inverted duty structure, refund shall be granted as per the following formula: Maximum Refund Amount = {(Turnover of inverted rated supply of goods and services) x Net ITC Adjusted Total Turnover} - tax payable on such inverted rated supply of goods and services. (i) Net ITC shall mean input tax credit availed on inputs during the relevant period other than the input tax credit availed for which refund is claimed under sub-rules 89(4A) or 89(4B) or both; and (ii) Adjusted Total turnover shall have the same meaning as assigned to it in subrule 89(4). Note : In terms of Notification No. 21/2018 Central Tax dated 18th April, 2018 (i) Maximum refund amount to be computed after taking into consideration the ITC availed on inputs only. No refund shall be allowed on inputs services in case of refunds under inverted duty rate. Before amendment by Notification 21/2018 , the definition of Net ITC as applicable under Rule 89(4) was applicable to inverted duty rated refunds, which included ITC on inputs as well as input services. (ii) Further, Refund shall be allowed on turnover of goods as well as services. Before amendment by Notification 21/2018, the formula provided for refund in respect of turnover of inverted duty rated goods only. Notification No. 26/2018 dated 13-06-2018, further reiterated the above amendments in formula for inverted duty rated refunds and also made it applicable retrospectively w.e.f. 01-07-2017
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