Refund Question No.101

QUESTION

A dealer is a manufacturer exporter and is not using LUT instead billing @ 18% IGST in export invoice. The above IGST (output) is adjusted from ITC. After adjusted the IGST (output) from ITC, some ITC (SGST,CGST,IGST) remain un adjusted . The dealer received refund from custom against export invoice. Whether refund of unadjusted ITC is due to the dealer.? Delhi GST Officer is reluctant to grant refund to the dealer because dealer is not using LUT. Whether he is right.?

ANSWER

FACTS OF THE CASE:

Manufacturer exporter is not using LUT instead billing @ 18% IGST in export invoice. The above IGST (output) is adjusted from ITC. Whether refund of unadjusted ITC can be claimed?

LAW APPLICABLE: SECTION 54 OF CGST ACT

(3) Subject to the provisions of sub-section (10), a registered person may claim refund of any unutilised input tax credit at the end of any tax period:

Provided that no refund of unutilised input tax credit shall be allowed in cases other than''

(i) zero rated supplies made without payment of tax;
(ii) '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:

Provided further that no refund of unutilised input tax credit shall be allowed in cases where the goods exported out of India are subjected to export duty:

Provided also that no refund of input tax credit shall be 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.

REPLY: The provisions related to refund are given in Section 54. Sub section (3) allows refund of:

(i) zero rated supplies made without payment of tax;
(ii) '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:
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Refund of ITC on zero rated supplies made without payment of tax can be claimed via Rule 89(4). But you have exported goods on payment of tax, therefore claimed refund under Rule 96.

Now you are asking for refund under Section 54(3)(ii) which permits refund of tax if there is Inverted Tax Structure. Refund of Integrated tax paid on goods exported out of India and refund under Inverted Tax Structure are 2 independent refunds. The first one is allowed under Rule 89(4) as mentioned above and the second refund is to be claimed under Rule 89(5). Rule 89(5) nowhere put any restriction for the goods exported under Rule 96 as well as Rule 96 does not put any restriction for claiming Refund under Rule 89(5).

To make our argument very simple in layman language, we can take an example.
Suppose a supplier purchases Input of Rs 160/- on payment of tax of 18% of Rs 28/- and make a supply of Rs 200/- on payment of tax of 12% Rs 24/-.
Out of these 200/-, 100/- is Domestic supply and other 100/- is Export. The tax of Rs 12/- charged on Domestic supply is paid to him by the Domestic buyer and tax of Rs 12/- paid on Export is refunded to him by the Government.

Taking both the cases together, this cost of tax of Rs 24/- is reduced from Cost of Production (Supply). In addition to this, the cost of tax (Rs 4/-) remained unpaid to him which is allowed to be refunded in form of Inverted Tax Structure. So if Rs 2/- is allowed in case of Domestic supply, there is no intention to disallow refund of Rs 2/- in case of Export.

There may be a confusion arised in the mind of Tax Authority because of the second proviso. The same is reproduced below:

In the second proviso the refund is not allowed if the drawback on inputs is claimed by the assessee or the refund of Integrated tax is claimed by the assessee on the supplies.

The term supplies here means Inputs, For example if the inputs (supplies) are procured to manufacture the export product for Rs 80/- (on payment of tax of Rs 14/-) against Advance Authorization (refer Section 147, Deemed Export), then the recipient/exporter may take refund of Rs 14/-, so if the refund of tax of Rs 14/- is already claimed in some other scheme, then it cannot be claimed under section 54. (Reply dt. 04/09/2021)