A company has paid GST on out ward supply through cash instead of ITC because of this ITC accumulated in electronic credit ledger Can the company claim the refund of ITC accumulated in their ITC ledger.

ANSWER

Facts of the case:
Company is engaged in trading of sugar. The rate of tax on purchase of sugar and sale of sugar is 5%. The company pays some expenses like commission, rent etc which attracts 18% of tax. GST is paid on outward supply through cash instead of ITC because of this ITC accumulated in electronic credit ledger. Can the refund of ITC accumulated in ITC ledger be claimed?

Law applicable: Section 54 of CGST Act, 2017: Refund of tax

(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 unutilized 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.

RULE 89 of CGST Rules, 2017: Application for refund of tax, interest, penalty, fees or any other amount

(5) In the case of refund on account of inverted duty structure, refund of input tax credit 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.

Explanation:-
For the purposes of this sub-rule, the expressions

(a) 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 (4A) or (4B) or both; and
(b) Adjusted Total turnover" and "relevant period" shall have the same meaning as assigned to them in sub-rule (4)

Interpretation:
The provisions related to refund are given in Section 54. Clause (ii) Sub section (3) allows refund of the credit 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(5) provides a formula for the refund of Input Tax Credit, in “a case of refund on account of inverted duty structure” which doesn’t include ‘input services’ in the scope of ‘Net ITC’ for computation of the refund amount.

Therefore, Section 54(3) allows for refund of unutilised ITC accumulated only on inputs and the same is also restricted by Rule 89(5) of the CGST Rules which denies refund on the unutilised ITC availed on input services and allows relief of refund of ITC availed on input goods alone.

As the rate of tax on purchase and sale of sugar is same i.e. 5%, therefore, the case does not fall under inverted duty structure. So far as the input of commission is concerned, Rule 89(5) denies refund of unutilized ITC availed on input services.

Conclusion:
Only the refund of unutilized ITC on input goods is allowed under inverted duty structure. Therefore the company can claim only the refund of unutilised ITC of input goods and not of input services (like rent and commission).(Reply dt. 23/09/2021)