CBIC has issued clarification on issues related with refunds of unutilized input tax credit (ITC), accumulated due to an inverted duty structure, u/s 54(3) read with Rule 89(5) and related amendments/notifications.
The formula prescribed for refund of unutilized ITC accumulated due to Inverted Duty Structure (IDS) under CGST Rule 89(5) has been amended by Central Tax Notification 14/2022, dated 05/07/2022. Furthermore, Central Tax Rate Notification 9/2022 dt. 13/07/2022 (effective as of 18/07/2022) has placed restrictions on the refund of unutilized ITC accumulated as a result of the Inverted Duty Structure in the case of the supply of certain specified goods falling under Chapter 15 and Chapter 27. There were apprehensions about the implementation dates of these amendments/notifications, which have been clarified by the CBIC.
CBIC GST Circular 181/13/2022 dt. 10/11/2022: CBIC clarification on refunds of unutilized input tax credit, accumulated due to an inverted duty structure, u/s 54(3) read with Rule 89(5).
Section 54(3) of the CGST Act, 2017 provides for the refund of unutilized input tax credit accumulated because the rate of tax on inputs is higher than the rate of tax on output supplies, i.e. due to an inverted duty structure. The formula for granting a refund in such cases is prescribed in CGST Rule 89(5), which has been amended by Central Tax Notification 14/2022 dated 05/07/2022. Furthermore, Central Tax Rate Notification 09/2022 dated 13/07/2022, effective from 18/07/2022, has limited the refund of unutilized input tax credit due to inverted duty structure in the case of supply of certain goods falling under chapters 15 and 27.
CBIC received representations seeking clarification on refunds of unutilized input tax credit accumulated as a result of an inverted duty structure, u/s 54(3) read with Rule 89(5), and other issues related to the implementation of the aforementioned amendments/notifications. To clarify issues and ensure uniformity in the implementation of GST law provisions, the CBIC, in exercise of its powers conferred by section 168 (1) of the CGST Act, has clarified the issues on the following lines:
Issue 1: Will the formula prescribed under CGST Rule 89(5) for calculating refund of unutilized input tax credit (ITC) due to inverted duty structure, as amended by Central Tax Notification 14/2022 dated 05/07/2022, apply only to refund applications filed on or after that date (i.e. 05/07/2022), or will it also apply to refund applications filed before that date and pending with the proper officer as of that date?
Clarification: In Central Tax Notification 14/2022, dated 05/07/2022, the formula prescribed in CGST Rule 89(5) was modified. This amendment is not clarifying in nature and is effective prospectively on 05/07/2022. As a result, CBIC has clarified that the amended formula under CGST Rule 89(5) for calculating refund of input tax credit due to inverted duty structure will apply to refund applications filed on or after 05/07/2022. Refund applications received prior to 05/07/2022 will be processed in accordance with the formula in effect prior to the amendment made via Central Tax Notification 14/2022 dated 05/07/2022.
Issue 2: Whether the restriction on refund of unutilized input tax credit due to inverted duty structure in the case of certain goods falling under chapters 15 and 27 imposed by Central Tax Rate Notification 09/2022 dated 13/07/2022 (effective as of 18/07/2022) would apply to refund applications pending as of 18/07/2022 as well, or whether it will apply only to refund applications filed on or after 18/07/2022, or whether it will apply only to refunds pertaining to prospective tax periods?
The Central Tax Rate Notification 09/2022, dated 13/07/2022 and effective as of 18/07/2022, has restricted the refund of unutilized ITC accumulated due to inverted duty structure in respect of certain specified goods falling under chapters 15 and 27. CBIC has clarified that such refund restrictions would only apply prospectively. As a result, the restriction imposed by the notification would apply to all refund applications filed on or after 18/07/2022, but not to refund applications filed prior to 18/07/2022.