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Refund of input tax credit in textile sector particularly to manufacturer of manmade textile material or staple fabric

Goods and Services Tax - GST - By: - CA DEV KUMAR KOTHARI - Dated:- 4-10-2018 Last Replied Date:- 13-12-2018 - Relevant provisions: Sections of CGST Act Sec 54(3)(ii) - Refund of tax Sec 2(52) - Meaning of goods Sec 2(106) - Tax period Sec 2(112) - Adjusted total turnover Rule 89(5) of the CGST Rules Notification No. 5/2017 - Central Tax (Rate) dated 28.06.2017 Notification No. 20/2018 - Central Tax (Rate) dated 26.07.2018 Circular No. 56/30/2018 dated 24.08.2018 Synopsis: Accumulation of input .....

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state obtains unjust enrichment in its favor at cost of consumers. Section 54 of the GST Act - refund of tax According to sec 54(3), A registered person may claim refund of any unutilized input tax credit at the end of the tax period subject to the provisions of Sec 54(10). A registered person manufacturing following tariff items cannot claim refund of accumulated ITC where input tax credit is accumulated on account of inverted tax rate i.e. tax rate is higher on input supplies than output supp .....

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to 5516 Woven fabrics of manmade staple fibres 7. 60 Knitted or crocheted fabrics [All goods] Now government has issued another notification no 20/2018 on 26/07/2018 giving relief to fabrics manufactures to claim refund of excess ITC accumulated on and after 01.08.2018. Meaning of inverted tax structure Inverted tax structure means a situation where input tax rate in higher than output tax rate on outward supplies. This results in accumulation of ITC in the hands of registered persons. In this a .....

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rs like wool jute, silk etc. In the GST regime almost entire textile industry in brought into tax net except a few. In manufacturing of fabrics and processing of fabrics input like yarn, chemicals, packing materials and other services are used and all these fall under tax levels varying from 5% to 18%,while output supplies are tax at 5%. This results in accumulation of tax credit in the hands weavers and processing units. This resulted into hardships of weavers and processing units as crores of .....

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otification, only input tax credit accumulated of in respect of goods is eligible for refund. According to this notification, what happens to excess credit accumulated on account of services or capital goods or ITC accumulated on account of stock- in- trade. Credit accumulated up to 31st July shall lapsed but according to Sec 54(3), a registered person cannot claim refund. It is nowhere mentioned in the law that excess duty will lapse. Again Government issued one more circular 56/2018 on 24.08.2 .....

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etermination of net ITC for the purpose of applying the formula. For this purpose, the ITC mat be determined in the manner as provided in S.No. 7 of Form GST ITC - 01. Government has also clarified that reversal of ITC has to be done according to the formula prescribed in Rule 89(5) of the CGST Rules. Such amount shall be determined for the months from July,2017 to July, 2018 or for the relevant period for such fabric on which refund was blocked subsequently by inserting entries in the notificat .....

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er 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 .....

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d supplies, during the relevant period; (F) Relevant period means the period for which the claim has been filed. Whether relief allowed should be retrospective?: A possible view is that the relief allowed by above notification is curative of nature and to remove undue hardship. Therefore this should be applicable for earlier periods also when similar situation prevailed. No justification for denial of relief by way of refund: Section 54(3) of the CGST Act does not allow the refund of ITC accumul .....

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