GST Update No 234 GST ON CLARIFICATION ON REFUND UNDER INVERTED DUTY STRUCUTRE

The refund claim of accumulated input tax credit under inverted duty tax structure, i.e., where rate of tax on inputs is more than the rate of tax on output supplies is a new concept in GST regime which has faced lot of litigation since inception. It is observed that often clarifications issued by the government are the root cause of disputes and confusion which has been the case for refund under inverted duty structure. The present update seeks to discuss the recent clarification issued vide Circular No. 173/05/2022-GST dated 06.07.2022.
The recent circular seeks to explain the clarification issued earlier vide para 3.2 of the Circular No. 135/05/2020-GST dated 31.03.2020 which stated that refund of accumulated credit on account of inverted duty structure would not be applicable in cases where the input and the output supplies are the same. The effect of this clarification was that it was being presumed that refund of accumulated input tax credit under inverted duty structure would not be available in cases where there is concessional rate of tax on output supplies such as in case of supplies made to merchant exporter under notification no. 40/2017-Central Tax (Rate) dated 23.10.2017. There may be cases where though inputs and output goods are same but the output supplies are made under a concessional notification due to which the rate of tax on output supply is less than the rate of tax on inputs at the same point of time due to supply of goods by the supplier under concessional notification. However, the refund of accumulated input tax credit under inverted duty structure is not available in cases where output supply is either Nil rated or fully exempted or the supply of said goods are excluded by the government.
It is submitted that the above clarification was needed as the government seeks to restrict refund of accumulated input tax credit under inverted duty structure where rate of input and output are same but attract different tax rates at different points in time. Basically, the benefit of refund is not available to traders if the rate of GST has changed over a period. For instance, if the GST rate on product ABC was 18% but it was reduced to 12% subsequently. The trader having stock of product at higher GST rate cannot claim benefit of inverted duty structure. The clarification issued by the government provides a sigh of relief to the domestic suppliers supplying goods to merchant exporters at concessional rate and having intend to claim refund of accumulated input tax credit under inverted duty structure.

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GST Update No 234 GST ON CLARIFICATION ON REFUND UNDER INVERTED DUTY STRUCUTRE

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