Chartered Accountant
Bookmark and Share
click here to subscribe our newsletter
 
 
Corporate News *  GST registration cancellation without reasons amounts to ‘Economic Death’ of business: Supreme Court. *  No GST refund if appeal before GSTAT is filed late: Gujarat High Court. *  Mere upload of GST notice on portal not valid service, appeal limitation won’t start: Punjab & Haryana High Court. *  Taxpayer can’t be penalised for missing notices hidden under ‘Additional Notices/Orders’: Calcutta High Court allows fresh adjudication. *  State tax officer can’t issue GST SCN beyond CBIC-assigned jurisdiction: Bombay High Court stays recovery proceedings. *  Earlier 7.5% Pre-Deposit must count towards mandatory 10% for Appeal: Uttarakhand high court quashes CESTAT Order. *  Third Parties can’t challenge GST Advance Rulings merely due to financial impact: Karnataka HC *  GST SCN generated using AI tool quashed: Punjab & Haryana High Court *  Bank Attachment Quashed as Madras HC Quashes GST Order Issued Against Deceased Person *  ITC Blocking Order for Failure to Record ‘Reason to Believe’ U/R 86A Quashed: Allahabad High Court *  Govt Extends GSTAT Appeal Filing Deadline From 30 June to July 31, 2026 *  GST Demand on RWA Stayed: Allahabad High Court Questions Taxability of Electricity Distribution to Flat Owners *  CBIC Clarifies Jurisdiction After GST Registration Transfer: Earlier Proceedings Remain Valid, New Officer to Continue Action *  GST authorities’ certification not mandatory for reimbursement, but tax payment must be proven: Karnataka HC *  Contractor can’t seek gst reimbursement through writ when contract has arbitration clause: Karnataka HC *  Unsigned Order Is No Order in Law: AP HC Quashes GST Assessment Order for Want of Officer’s Signature *  Customs Can’t Levy Rs. 1.36 Crore Cost Recovery Charges Without Proof of Full-Day Officer Deployment: CESTAT  *  12% IGST Payable On Imported Dialysis Machine Parts: CESTAT *  Bombay High Court Admits Challenge to GST Limitation Extension Notifications; Grants Protection Against Coercive Recovery *  Criminal Case Can’t Run Parallel to GST Proceedings on Same Facts: Allahabad High Court *  Allahabad High Court Stays GST Detention Order; Directs Release of Vehicle and Goods on Deposit of Rs. 1.44 Lakh *  Service Tax Can’t Be Levied on Loss-Making Contracts: Gujarat High Court *  GSTN Mandates Ship-to GSTIN in e-Invoice and e-Way Bill APIs; Introduces Voluntary e-Way Bill Closure Facility from August 1, 2026 *  GST Appeal Can’t Be Rejected as Time-Barred When Taxpayer Was Pursuing Rectification Remedy: Telangana High Court *  Absence of E-Way Bill and Transport Documents Justifies Customs Seizure U/s 110: Gauhati HC *  Madras High Court Upholds GST Late Fee and Penalty for Non-Filing of Annual Return, Dismisses Challenge  *  GST Records, Purchase Documents Sufficient to Discharge Burden Under Customs Act: CESTAT Orders Release of 3.65 Kg Gold  *  No Sugar Cess Payable on Sugar Exported Out of India: CESTAT *  Road Construction Services Exempt and SCN Time-Barred: CESTAT Quashes Service Tax Demand Based Solely on Form 26AS  *  ITC Freeze Upheld After GST Dept Find Suppliers Were Allegedly Fake Bill-Trading Entities: Madras HC 
Subject News *  Input service benefits can’t be denied: CESTAT allows export refund despite MMTC acting as Canalising agency. *  No service tax demand without proof of service of SCN: CESTAT. *  Service tax demand quashed as dept. fails to prove service of SCN: CESTAT *  GST : Mere allegation of inadequate consideration of reply not enough to invoke writ jurisdiction: Delhi High Court *  Onerous conditions imposed for provisional release of seized imported goods shouldn’t amount to virtual denial of relief: CESTAT. *  GST SCN without alleging fraud cannot invoke sec. 74: Karnataka High Court quashes adjudication order. *  Extended Limitation Can’t Be Invoked Merely on Form 26AS Data: CESTAT *  Revenue-Sharing with Restaurants Not Taxable as Business Support Service: CESTAT *  R. 6(3) Option Can’t Be Forced on Taxpayer; CESTAT Quashes Rs. 12.36 Crore CENVAT Credit Demand *  Excise Duty | Power Consumption Alone Can’t Prove Clandestine Manufacture: Karnataka High Court *  Madras High Court Examines DGGI’s Authority to Issue GST Penalty Orders Under Section 122, Adds DGGI as Party *  Proceedings under omitted r. 96(10) can’t survive without saving clause: andhra pradesh high court quashes gst refund recovery *  Excise duty power consumption alone can’t prove clandestine manufacture: karnataka high court *  Madras high court rules GST show cause notices must disclose grounds for invoking extended limitation *  Court Can’t Direct Extension GST Return Deadlines or Waive Interest and Penalties: Karnataka High Court *  GST Notifications Can’t Go Beyond GST Council Recommendations: Madras High Court Quashes SCN on Branded Pulses *  Appeal Can’t Be Dismissed for Delay When Dept’s Own Order Mis-states Limitation Period: CESTAT *  No Evidence of KYC or Due Diligence Breach By Customs Broker: CESTAT Quashes Licence Revocation in Export Overvaluation Case *  Glucometers Are Chemical Analysis Instruments Classifiable Under Tariff Heading 9027: CESTAT *  Validity of Post-GST Service Tax Proceedings Upheld: Gujarat High Court Dismisses Challenge to S. 73 SCN *  Rectified GST Refund Applications Can’t Be Rejected as Time-Barred If Original Refund Claim Was Filed Within Limitation: Gujarat HC *  Service Tax Refund Can’t Be Denied as Time-Barred When Levy Itself Is Unconstitutional: Gujarat High Court *  Same Officer Can’t Act As Auditor & Adjudicator: Karnataka High Court *  Karnataka High Court Condones 324-Day Delay, Revives Customs Appeal in Jewellery Pilferage Case  *  Madras High Court Quashes GST Assessment Order Passed Ex Parte Despite Prior ITC Reversal; Lifts Bank Attachment *  Tobacco Process Doesn’t Amount to Manufacturing: Madras High Court Quashes Rs. 1.32 Crore Compensation Cess Demand  *  Recovery Notice Unsustainable After Voluntary Reversal of Unutilised Credit: CESTAT  *  GST | ‘System Generated’ SCN Without Officer Details Invalid: Allahabad HC  *  Electronic Records Without Statutory Certification Requirements Can’t Justify Undervaluation Allegations: CESTAT *  Madras High Court Stays GST Order, Finds Prima Facie Merit in Plea Against S. 74 Proceedings Based on S. 73 Intimation  

Comments

Print   |    |  Comment

PJ/Case Study/2020-21/153
02 May 2020

Whether the high use of inputs as compared to the selling price of goods sold is required to be justified while sanctioning refund of unutilized input tax credit.
Case:
M/s K.K Steel industries (Order in Appeal No. 32-36 (DSD)GST/JDR/2019)
 
Introduction:
 
M/s K.K Steel Industries are engaged in the manufacture of utensils. They have claimed refund of accumulated input tax credit on account of inverted duty structure as the rate of GST on utensils is 12% whereas the inputs are procured at higher GST rate.
Issue involved:
Whether the high use of inputs as compared to the selling price of goods sold is required to be justified while sanctioning refund of unutilized input tax credit.
Brief Facts:
 
M/s K.K Steel industriesis engaged in supply of S.S Utensils with their main input being S.S patta having GSTIN No. 08AUPT1388H1ZR. Refund application of total unutilised credit on account of inverted duty structure of Rs.12,11,261/- for the months of October 17, November 17, January 2018, February 2018 and March 2018 has been rejected on the grounds that there is high use of inputs as compared to the selling price of goods sold.
 
Show cause notice was issued alleging that the refund claim filed by them is not admissible under the provisions of section 54(3) of the CGST Act, 2017.The appellant replied to the show cause notice issued to them. The submissions were not adhered to and the impugned order in original was passed for confirming the allegations levelled in the impugned show cause notice. The refund claim pertaining to SGST was rejected.
 
Assessee’s Contention:
The assesse has contended in the following manner
  1. The impugned order in original rejecting the refund claim filed by them is wholly and totally erroneous and is liable to be set aside.
  2. The appellant submit that the entire basis for rejection of the refund claim filed by them is in case of refund pertaining to inverted duty structure, the refund sanctioning authority has to examine the value addition aspect. In this regard, the appellant submits that if the provision contained in the proviso to section 54(3) of the CGST Act, 2017 is studied, it is found that there is no condition regarding the quantum of value addition required for claiming the refund of credit accumulation on account of inverted duty structure. The proviso reads as follows:-
Provided that no refund of unutilised input tax credit shall be allowed in cases other than-
  • Zero rated supplies made without payment of tax;
  • 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:
 
From the above provision, it is clear that there is no condition as regards the value addition required for claiming refund of accumulation of input tax credit on account of inverted duty structure. The only condition for claiming refund is that the rate of tax on inputs should be higher than the rate of tax on output supplies. The appellant submits that the rate of GST on their output supplies of utensils is 12% whereas inputs being patta patti is procured at the rate of 18%. As such, they are rightly eligible for claiming refund of accumulation of credit on account of inverted duty structure.
 
  1. In continuation to the above, the appellant submits that even the provision contained in Rule 89(5) of the CGST Rules, 2017 does not prescribe that cost data or value addition analysis is required before sanctioning refund of input tax credit on account of inverted duty structure. Rather, the formula prescribed for granting refund takes into account the fact that refund of credit accumulated on account of inverted duty structure itself is granted to the assessee. The provision contained in Rule 89(5) of the CGST Rules, 2017 reads as follows:-
 
(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” shall have the same meaning as assigned to it in sub-rule (4)
 
The appellant submits that when the formula stated above grants refund of input tax credit in proportion to the turnover of inverted rated supply of goods and services, the allegation regarding analysis of value addition or excess usage of material is not at all tenable. As such, the order in original rejecting the refund claim on irrational grounds is not at all sustainable and deserves to be set aside.
 
  1. The impugned order has alleged that the average purchase price of SS Patta/patti is Rs. 89.01 per kgs and the average sales price is Rs. 86.99 per kgs. which shows that they have tried to get refund by any means. In this regard, the appellant submits that the allegation is totally baseless as the details provided by them with respect to S SPatta/Patti pertained to trading and manufacturing both. The appellant submits that the details of average purchase price and average sales price of S SPatta/Patti in case of trading and manufacture for the period from July, 2017 to March, 2018 is separately tabulated as follows:-
 
SS PATTA/PATTI TRADING DETAILS:
 
Sales Value (in Rs.) Sales Quantity (in Kgs) Average Sales Price Per Unit (in Rs.) Purchase Value (In Rs. ) Purchase Quantity (In Kgs) Average Purchase Price Per Unit Average Profit per Unit (in Rs.)
 
16105194
 
189719.200 KG
 
 
84.89
 
 
15996367
 
 
193802.180 KG
 
 
82.54
 
 
2.35
The appellant submits that in case of trading, the value addition is not significant and the average profit per unit is minimum. Therefore, the allegation that there was no value addition is not at all tenable and deserves to be set aside.
 
DETAILS OF SS PATTA/PATTI USED IN MANUFACTURING OF UTENSILS:
 
Sales Value of Utensils (in Rs.) Sales Quantity of Utensils (in Kgs) Average Sales Price Per Unit (in Rs.) Purchase Value of Patta Patti (In Rs. ) Purchase Quantity of Patta Patti (In Kgs) Average Purchase Price Per Unit Average Profit per Unit (in Rs.)
 
16128446
 
 
158391.850 KG
 
 
101.83
 
 
18134302
 
 
208968
 
 
86.78
 
 
15.05
 
The appellant submits that in case of manufacturing, the value addition is significant which is clear from the average profit per unit as reflected in the table. Therefore, the allegation that there was no significant value addition is not at all tenable and deserves to be set aside.
 
  1. The impugned order has also alleged that the appellant has claimed input tax credit on invoice no. 140 dated 30.10.2017 during October, 2017 for Rs. 16,053.93 + Rs. 16,053.93 but the said invoice does not exist in their books of accounts. In this regard, the appellant submit that the allegation is totally baseless as they have availed input tax credit on the basis of invoice issued by M/s Shanti Udyog. The copy of invoice is enclosed. Therefore, the contention of the order as regards non-existence of invoice in the books of accounts is totally absurd and deserves to be quashed. 
The appellant submits that the refund of input tax credit on account of inverted duty structure is admissible as far as the rate of tax on input is higher than rate of tax on output irrespective of the proportion of material consumed by the assessee in manufacture of finished product. The appellant submits that the refund on account of inverted duty structure is not on the basis of proportion of inputs used rather it is admissible simply if the rate of tax on inputs is higher than the rate of tax on output. The appellant have also negated the submission as regards no value addition by the impugned order by separately providing the details of S SPatta/Patti used in manufacture of utensils and that traded by them. The appellant submits that although the profit margin in trading of S SPatta/Patti is insignificant, the value addition in case of manufacture of utensils is reasonable. Even otherwise, the appellant are not statutorily required to prove the quantum of value addition while claiming refund of accumulated input tax credit on account of inverted duty structure. Therefore, the impugned order rejecting their refund claim is not at all tenable and deserves to be set aside.
Decision:
The commissioner Appeals has set aside the impugned order and allowed the appeal of the appellant.
Conclusion:
The taxpayer need not prove if they there is no requirement in law. The refund of inverted duty structure only requires that the tax rate on inputs be higher than the tax rates on output. This has been evidently stated in the provisions of Section 54(3) of CGST Act and Rule 89(5) of CGST Rules. 
Department News


Query

 
PRADEEP JAIN, F.C.A.

Head Office : -

Address :
"SUGYAN", H - 29, SHASTRI NAGAR, JODHPUR (RAJ.) - 342003

Phone No. :
0291 - 2439496, 0291 - 3258496

Mobile No. :
09314722236

Fax No. :0291 - 2439496


Branch Office : -

Address:
1008, 10th FLOOR, SUKH SAGAR COMPLEX,
NEAR FORTUNE LANDMARK HOTEL, USMANPURA,
ASHRAM ROAD, AHMEDABAD-380013

Phone No. :
079-32999496, 27560043

Mobile No. :
093777659496, 09377649496

E-mail :pradeep@capradeepjain.com