Chartered Accountant
Bookmark and Share
click here to subscribe our newsletter
 
 
Corporate News *  The GSTN has issued an Advisory dated 21.04.2026 about the introduction of an Offline Tool for the Invoice Management System (IMS)  *  CBIC extends due dates for filing of FORM GSTR 3B  for the month of April 2026 *  Interest cannot be imposed in adjudication order, if not demanded/quantified in show cause notice : Allahabad HC *  Wheelchairs with toileting facility eligible for exemption: CESTAT affirms customs duty exemption to importer *  Industries urge GST council to allow inverted duty refunds on input services *  Tamil Nadu GST dept introduced virtual hearing facility for GST appeals under under section 107 of the TNGST act: detailed guidelines  *  CIC urges authorities to implement GST evasion complaint tracking system *  Even if the assessee opts "NO" for personal hearing in form DRC-06 ,The mandatory requirement under section 75(4) to grant opportunity of hearing cannot be waived:Gujarat High Court  *  Glufosinate imports curbs imposed by govt *  Government extends Re-import period for exported cut & polished diamonds *  CIC flags lack of tracking system for tax evasion complaints,urges GST authorities to improve transparency *  No Custodial Interrogation needed in GST fraud case based on documentary evidence already in Department's Possession : Chattisgarh HC *  Orders under section cannot be sustained if passed without considering the taxpayer's objections and without granting a personal hearing:Gujarat High Court *  Mere cancellation of supplier's registration cannot,by itself,justify denial of ITC or cancellation of the recipient's registration:Bombay High Court *  High Court sets aside GST notice citing factual errors and natural justice violations *  Provisional Bank Attachment under Section. 110 of Customs Act Unsustainable Beyond Statutory period without Extension order: Bombay HC orders to defreeze accounts *  Post Clearance MRP Alteration by Distributor Does not attract Differential Customs Duty: CESTAT *  DGFT Expands scope of 'Screws' classification under RoDTEP Scheme  *  E-way bills surze to all time high of 140.6 million in March *  GST Exemption Allowed on Pure Labour Services for Standalone Houses: AAR  *  GST Payable Only on Margin in Second-Hand Car Sales, Subject to Strict Conditions and No ITC Claim: AAR *  DGFT rolls out procedure for allocation of calcined coke *  GST portal update : Pre-deposit amount now editable in Appeals *  J&K HC declared TMT scrap a 'Specified Good' eligibile for GST refunds under Support Scheme  *  Pigmy agents are employees of banks; no GST can be levied on commission  paid to them : Karnataka HC *  DGFT Revises HS Code Description for Screws Under RoDTEP *  GST Registration Cancellation Invalid Without Proper Service of Notice: Allahabad High Court. *  Bengaluru CGST | GST Backlog Appeals Deadline Fixed at June 30, 2026 *  No Time Bar on Refund of Service Tax for Services Not Rendered: CESTAT  Remands Indiabulls Case for Unjust Enrichment Check. *  Supreme Court Holds Renewable Energy Incentive Must Benefit Generators, Not Be Adjusted in Tariff
Subject News *   Delhi HC Quashes Order, Says Reminder Cannot Validate Improperly Served GST SCN *  KARNATAKA HIGH COURT REMANDS GST SHORTFALL MATTER DUE TO ABSENCE OF PERSONAL HEARING   *  CESTAT cancels confiscation and penalties on imported computer cabinet cases: Custom duty restricted to 111 surplus units *  Deposit of tax during search or investigation cannot be treated as 'Voluntary Payment' : Bombay High Court *  Section 76 of the CGST cannot be invoked where the tax has already been duly deposited, even if through another registration of the same entity: Madras High Court *  Sec 74 allows use of material regardless of source; illegality or flaws in section 67 search do not vitiate valid adjudication: HC *  Inter-State transfer of ITC on Amalgamation permissible as given under section 18(3) read with rule 41 of the CGST rules, 2017: Gujarat High Court *  HC: No GST on commisson paid to Pigmy Agents *  IGST refund denial on illegible bill of lading invalid absent chance to furnish docs; merit reconsideration in appeals directed: HC *  ITC is not admissible on GST paid on leasehold rights of land used fpr setting up an air seperation plant: AAAR,Tamil Nadu *  GST: No penalty under Section 74 after voluntary ITC reversal due to non-existent supplier : High Court *  TN AAAR denies GST ITC on Land Lease under Sec. 17(5)(d) for setting up plant and machinery *  GST proceedings quashed as notices sent to old address, despite updated address in registration *  Importer Can’t Be Penalised for Alleged IGCR Procedural Lapses Without Evidence of Departmental Error: CESTAT *  Structured Healthcare Training Not ‘Charitable Activity’, 18% GST Payable: AAR  *  CESTAT As The Appellate Authority For Central Sales Tax Disputes: A Paradigm Shift Under Finance Act, 2023 *   Rs. 25K Cost Imposed On SGST Joint Commissioner for Attaching Bank  Accounts Without Forming Mandatory “Opinion”: Bombay HC *   Ex-Parte GST Order Without Hearing Violates Natural Justice: Karnataka  High Court Quashes Adjudication and Bank Attachment.  *   Retrospective GST Cancellation Can’t Invalidate Genuine Transactions:  Jaipur Commissioner (Appeals) Quashes Rs. 95,670 ITC Demand. *   GST Pre-Deposit Non-Compliance: Allahabad High Court Allows Appeal  Subject to Rs. 30 Lakh Balance Deposit, Recognises Offline Filing. *  Documentary Nature of Evidence: Allahabad High Court Grants Bail in Rs. 32.66 Crore Fake ITC Fraud Case *  Supreme Court Flags Systemic Bias in Army’s Permanent Commission Process for Women Officers *  Re-Determination of Land Compensation Can Be Based on Appellate Court Awards, Clarifies Scope of S. 28-A: Supreme Court. *  Supreme Court Imposes Rs. 5 Lakh Costs On Rent Authority Officer For Acting Beyond Jurisdiction. *  DGGI Meerut | Court Denies Bail to Accused in Claiming Fake ITC And Export Refunds *  Denial of GST Rate Revision Benefit to Contractor Violates Article 14: Rajasthan HC *  GST Registration Cancellation for Non-Filing of Returns: Gauhati High Court Directs Restoration on Compliance. *   Supreme Court Quashes FEMA Adjudication Orders, Revives Proceedings at  Show Cause Stage. *   Higher Rank, Harsher Punishment Justified: Supreme Court Restores Dismissal  of Bank Manager in Misappropriation Case. *   Limitation for Export Refund to Be Counted from Foreign Exchange Realisation,  Not From Export Invoices Issuance: CESTAT  

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