CBIC Issues Clarification On Claiming Refund Under Inverted Duty Structure Where Supplier Is Supplying Goods Under Concessional Notification

The Board has received various representations seeking clarification with regard to the applicability of Circular No. 135/05/2020-GST dated 31.03.2020 in cases where the supplier is required to supply goods at a lower rate under Concessional Notification.

In order to clarify the issue and to ensure uniformity in the implementation of the provisions of law, the Board, in the exercise of its powers conferred by section 168 (1) of the CGST Act, 2017, issued a clarification.

It was clarified in Paragraph 3.2 of Circular No. 135/05/2020-GST dated 31.03.2020 that refunds due to inverted duty structure would not be allowed in circumstances where the input and output supply are the same.

"The intent of para 3.2 of Circular No. 135/05/2020-GST dated 31.03.2020 was not to cover those cases where the supplier is making a supply of goods under a concessional notification and the rate of tax on output supply is less than the rate of tax on input supply (of the same goods) at the same point of time due to the supply of goods by the supplier under such a concessional notification," the circular read.

The CBIC clarified that refund of accumulated ITC on account of inverted structure would be allowed in cases where accumulation of ITC is on account of the rate of tax on outward supply being less than the rate of tax on inputs (same goods) at the same point of time. As per some concessional notifications issued by the government providing for a lower rate of tax for some specified supplies subject to fulfilment of conditions.

The CBIC substituted para 3.2 of the Circular No. 135/05/2020-GST dated 31.03.2020.

As per the substituted paragraph, the refund of accumulated ITC in terms of clause (ii) of the first proviso of section 54 (3) of the CGST Act is available where the credit has accumulated on account of the rate of tax on inputs being higher than the rate of tax on output supplies. The input and output being the same in such cases, though attracting different tax rates at different points in time, do not get covered under the provisions of clause (ii) of the first proviso to sub-section (3) of section 54 of the CGST Act.

There may however, 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 supplies is less than the rate of tax on inputs. "In such cases, as the rate of tax of 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 such concessional notification, the credit accumulated on account of the same is admissible for refund under the provisions of clause (ii) of the first proviso to sub-section (3) of section 54 of the CGST Act, other than the cases where output supply is either Nil rated or fully exempted, and also provided that supply of such goods or services are not notified by the Government for their exclusion from refund of accumulated ITC under the said clause," the circular read.

Circular No. 173/05/2022-GST

Dated: 06.07.2022

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