Refund of unutilised ITC in GST

Refund of unutilised ITC in GST

According to Goods and Service Act 2017 section 54 say about refund of unutilized input tax credit ( ITC).

Who can claim refund of unutilized input tax credit ( ITC) ?

A Registered person can  claim refund of unutilized input tax credit ( ITC)

When refund of unutilized input tax credit ( ITC) allow

Accumulation of Input Tax Credit happens when the tax paid on inputs is more than the output tax liability.
Such accumulation will have to be carried over to the next financial year till such time as it can be utilised
by the registered person for

payment of output tax liability. However, the GST Law permits refund of
unutilised ITC in two scenarios,

1. If such credit accumulation is on account of zero rated supplies
2 On account of inverted duty structure, subject to certain exceptions.

As per Section 54(3) of the CGST Act, 2017, a registered person may claim refund of unutilised input tax credit
at the end of any tax period. A tax period is the period for which return is required to be furnished.
Thus, a taxpayer can claim refund of unutilised ITC on monthly basis.

Refund of unutilised input tax credit is allowed only in following two cases

a) Zero rated supplies made without payment of tax:

As per Section 16(3) of the IGST Act, 2017,
a registered person making zero rated supply is eligible to claim refund under either of the
following options, namely: –
• Supply of goods or services or both under bond or Letter of Undertaking, subject to such conditions,
safeguards and procedure as may be prescribed, without payment of integrated tax and claim
refund of unutilised input tax credit; or

Supply of goods or services or both, subject to such conditions, safeguards and procedure as may
be prescribed, on payment of integrated tax and claim refund of such tax paid on goods or services
or both supplied.
The first category pertains to refund of unutilised ITC for which the registered person has to supply
under Bond/LUT (as prescribed in Rule 96A of CGST Rules)and in the second category supply has been
made after payment of Tax (IGST). In both the cases, refund can be applied under Section 54 of
the CGST Act, 2017 read with Rule 89 or Rule 96 , as
the case may be, of the CGST Rules, 2017.

b) Inverted duty structure:

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. In such cases also, refund can be applied under Section 54 of the CGST Act, 2017 read with Rule 89 of the CGST
Rules, 2017. It should be noted that no refund of unutilised input
tax credit is allowed in cases where the goods exported out of India are subjected to export duty. Further, no
refund of input tax credit is allowed, if the supplier of goods or services or both avails of drawback in respect
of central tax or claims refund of the integrated tax paid on such supplies.

Mean refund of unutilized input tax credit ( ITC) can not be claimed in normal course of business

Example:

Sankhla Ltd purchase goods Rs.1,00,00,000 during the year 2019-20  It has paid GST Rs. 18,00,000 and sale of goods Rs.20,00,000 GST on it Rs.3,60,000 adjusted from  ITC

balance of ITC is Rs.14,40,000(18,00,000- 3,60,000)

So Sankhla Ltd can not claim refund of unutilized ITC Rs.14,40,000

it can be utilized only for payment of GST liability

Example of Zero rated supply

Export of goods or services without payment of GST to out side India and  fully Payment has been received at time

of refund claim.

Example of inverted duty structure

Fashion India  Pvt Ltd paid GST on purchases of services during 2019-20 Rs. 50,00,000 @ 18 % GST while it product is liable @ 5% GST and it GST liability   during 2019-20 was Rs.10,00,000. so the difference Rs. 40,00,000 can claim ITC refund.

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