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Corporate News *  Service tax penalty can’t survive when assessee acted on dept.’s own view of non-taxability: Delhi High Court. *  GST section 74 extended limitation questionable when form 26AS mismatch was already known: Karnataka High Court grants interim relief. *  CGST demand prima facie impermissible after state GST settlement under section 128A: Bombay High Court. *  Supreme Court asks GSTAT to sympathetically consider delay as taxpayers pursued remedy before wrong forum. *  Supreme Court stays Tripura High Court ruling protecting genuine buyers from ITC denial over supplier’s GST default. *  Diary entries alone can’t prove clandestine removal of goods: CESTAT quashes excise penalty on steel trader. *  Customs could investigate preferential tariff claims even before sec. 28DA: Delhi High Court. *  Customs dept. relied on fake AI generated case laws: supreme court quashes Rs. 425.28 crore penalty. *  No GST exemption in affiliation and annual registration charges for admission or conduct Of examinations: GSTAT. *  Mere invoices, cheque payments insufficient to establish genuine movement of goods: GSTAT restores Rs. 43.44 lakh ITC demand. *  Consolidated GST show cause notice covering multiple financial years is not without jurisdiction: Delhi High Court. *  Construction of independent houses on separate plots not taxable as ‘Residential Complex’ without common facilities: CESTAT. *  GST penalty exceeding statutory maximum unsustainable; Allahabad High Court quashes ? 50,000/- penalty after taxpayer filed return and paid late fee. *  GST order against standard chartered bank passed without hearing set aside by Bombay High Court. *  Retracted statements can’t be relied upon without cross-examination: CESTAT quashes gold confiscation. *  Burden to prove misclassification lies on customs department: CESTAT. *  CESTAT quashes Rs. 98 lakh excise demand on clearance of used refractory brick scrap. *  Service tax demand on irrigation works quashed: Karnataka High Court rules sale of goods component not taxable as service. *  GSTAT restores tax and penalty for transporting iron scrap without E-way bill citing intent to evade tax. *  Madras High Court stays GST recovery from directors without opportunity to show cause under section 89. *  Madras high court stays GST recovery notice against directors; finds prima facie case on applicability of section 79(1)(c). *  Procedural lapses can’t justify harsh punishment without serious customs breach: CESTAT quashes customs broker licence revocation. *  Service tax payable on land leasing and sports complex charges: CESTAT. *  Settled customs dispute can’t be reopened through Article 226 challenge to interest liability: Delhi High Court. *  Mere facilitation of customs clearance can’t establish knowledge of smuggling: Madras High Court. *  GST registration cancellation stayed: Allahabad High Court questions 99% ITC utilisation cap under rule 86B. *  Composition scheme lapses automatically on crossing Rs. 1.5 crore turnover: GSTAT. *  Gujarat High Court quashes GST cancellation orders after officer relied on non-existent AI-generated case laws. *  Importers liable for customs duty benefits availed through manipulated scrips: Delhi High Court. *  Procedural E-way bill lapse alone can’t justify penalty where genuine transaction and absence of tax evasion are established: GSTAT.
Subject News *  Documentary evidence dominates probe, further custody unwarranted: mumbai court grants bail in Rs. 22.44 crore customs duty evasion case. *  Business premises can’t remain sealed for non-participation in GST search: Allahabad High Court. *  GST pre-deposit must be refunded proportionately when taxpayer partly succeeds in appeal: Bombay High Court. *  Supreme Court grants 30 days to file GST appeal; keeps pre-deposit issue open due to deposit in parallel CGST proceedings. *  GST demand can’t exceed amount proposed in SCN: Allahabad High Court quashes Rs. 20.47 Crore order. *  Hundreds-of-crores GST demand and heavy 10% pre-deposit no ground to bypass statutory appeal: Punjab & Haryana High Court. *  Delhi High Court refuses to entertain challenge to gold confiscation due to statutory appeal remedy and unexplained delay. *  Procedural error in customs broker licence inquiry can be rectified through remand: Delhi High Court. *  GSTR-2A mismatch alone can’t justify ITC denial without invoice-wise verification; personal hearing mandatory: GSTAT. *  GST order passed without uploading personal hearing notices violates sec. 75(4): Allahabad High Court. *  TAX EVASION - Sec. 74 GST SCN quashed for not spelling out fraud, wilful misstatement or suppression: Allahabad High Court. *  STPI’s SOFTEX certification and NoC charges taxable as business support services: CESTAT. *  Suspicion can’t replace proof: CESTAT quashes penalty in alleged gold-smuggling operation. *   Limitation runs from communication of order: Madras High Court upholds rejection of delayed GST Appeals. *  Rajasthan High Court quashes GST demand over unsigned show cause notice. *  ITC recovery upheld where supplier failed to deposit GST: Rajasthan High Court. *  Customs commissioner’s empowered to make port trust liable for duty on pilfered goods: Supreme Court. *  Rectification proceedings can’t be used to challenge an uncontested GST assessment through a writ petition: Andhra Pradesh HC. *  GST proceedings against deceased proprietor unsustainable without notice to legal heir: GSTAT. *  Mere availment of ineligible self-assessed ITC doesn’t amount to suppression without evidence of fraud or wilful misstatement: GSTAT. *  Disposal of mining overburden by entity authorised by mining lease holder constitutes taxable service: CESTAT. *  Toll plaza data not mandatory for ITC refund: GSTAT. *  Disputed GST fraud allegations require investigation: Punjab and Haryana High Court makes interim bail absolute in alleged fraud and GST fraud case. *  Non-manufacturer contractor liable to deposit excess excise duty collected from buyer: CESTAT. *  GST order can’t reject taxpayer’s reply as “not satisfactory” without reasons: Madhya Pradesh High Court. *  Uncorroborated statements can’t establish alleged diversion of duty-free goods: CESTAT. *  Erection services were not liable to service tax prior to 10th september 2004: CESTAT. *  Sec. 74 GST notice must spell out statutory ingredients for invoking extended tax demand proceedings: Allahabad High Court. *  No jurisdictional bar under section 6(2)(b) in parallel CGST SGST proceedings: Delhi High Court refuses to bypass GST appeal remedy. *  Madras High Court remits GST demand for fresh adjudication after taxpayer claims it was unaware of SCN following business closure.  

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GST Update on Draft Circular on lapse of credit on account of inverted duty refund on fabrics

GST Update on Draft Circular on lapse of credit on account of inverted duty refund on fabrics
 GST Update on Draft Circular on lapse of credit on account of inverted duty refund on fabrics:-
 
The notification no. 20/2018-Central Tax (Rate) dated 26.07.2018 was a matter of discussion for textile industry as this notification allowed refund of accumulation in input tax credit on account of inverted duty structure on fabrics on supplies received on or after 01.08.2018. We have prepared an update on the same. However, this notification also contained provision regarding lapse of accumulated input tax credit lying unutilised in balance after payment of tax upto the month of July, 2018. This provision regarding lapse of credit was foreseen as a very harsh and unjustifiable restriction. We have come across a draft circular regarding clarification on the provision introduced for lapse of input tax credit and we hereby discuss this provision in our present update.
 
Firstly, it is clarified that the restriction regarding lapse of credit does not applies for credit of input services and capital goods. Furthermore, it is clarified that this provision seeks to lapse only such input tax credit which has accumulated on account of inverted duty structure in respect of stated fabrics and that would have been refunded under section 54 for the period prior to 31.07.2018 if there was no restriction imposed by notification no. 05/2017-Central Tax (Rate). It is also clarified that for computing the amount of credit that will be lapsed, the formula as prescribed under Rule 89(5) of the CGST Rules, 2017 would be applicable. The amount computed by the formula will be the input tax credit that would lapse. The calculation of the amount of input tax credit to be lapsed has been explained with the examples as follows:-
 
A manufacturer of manmade fibre fabrics has total turnover of Rs. 10 Crores during the period from July, 2017 to July, 2018. The GST payable at the rate of 5% was Rs. 50 Lakhs. The computation of amount of input tax credit to be lapsed as per the formula is explained in following cases:-
  1. Assuming that the net ITC availed with respect to inputs during the period was Rs. 60 Lakhs
  2. Assuming that the net ITC availed with respect to inputs during the period was Rs. 50 Lakhs
  3. Assuming that the net ITC availed with respect to inputs during the period was Rs. 40 Lakhs
The computations in the above mentioned situations are as follows:-
 (Net ITC* Turnover of inverted rated supply of goods/Adjusted Total Turnover)- Tax payable on such inverted rated supply of goods
In our example, the assessee only supplies manmade fabrics so the turnover of inverted rated supply of goods and adjusted total turnover is same.
The computation of amount of ITC to be lapsed in different situations is as follows:-
  1. (60*1000/1000)-50 = Rs. 10 Lakhs
  2. (50*1000/1000)-50 = Rs. 0
  3. (40*1000/1000)-50 = -10 Lakhs
It is submitted that only in situation (a), the ITC would lapse to the extent of Rs. 10 Lakhs. In situation (b) and (c), no ITC would lapse as there is no accumulation of ITC on account of inverted rated supply of goods.
 
It is also worth mentioning that the ITC pertaining to closing stock of finished goods and inputs as on 31.07.2018 is to be excluded for the determination of Net ITC for the purpose of applying formula with the result that the ITC pertaining to closing stock as on 31.07.2018 would not lapse. It has been clarified that the ITC relating to inputs contained in stock may be computed in the manner provided in serial no. 7 of Form GST ITC-01.
 
Lastly, it is also clarified that accumulated ITC in relation to exports will not lapse under this provision as separate refund is filed under Rule 89(4) of the CGST Rules, 2017.
It is submitted that the above circular has not legal sanctity but it indicates the intention of the government to restrict assessees from availing the benefit of refund of accumulation of ITC on account of inverted rated supply of goods for the period prior to 01.08.2018. However, in our opinion, there was no need to introduce this restriction as the formula prescribed under Rule 89(5) takes into account only the credit availed during a particular month and does not considers the opening balance of ITC. As such, there was no requirement to lapse the ITC available as on 31.07.2018 after making payment of taxes for the month of July, 2018. Therefore, the provision has no practical implication as such. It is also worth noting that the provision regarding lapse of credit with respect to inverted duty refund on fabrics is not understandable as no such provision was introduced when refund of inverted duty structure was granted for other products such as utensils, umbrella manufacturers. These manufacturers have huge credit unutilised in Central Excise regime due to inverted duty structure but there was no refund available at that time. They are able to claim the refund of current period only. The unutilised credit is being carried forward.  Introducing such a provision only in case of fabrics is discriminatory.                                         

 

 

 
 
 
 
 
 
 
 
 
 
 
 
 
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