Clarification regarding removal of restriction of refund of accumulated ITC on fabrics – reg.
56/30/2018 Dated:- 24-8-2018 CGST – Circulars / Ordes
GST
Circular No. 56/30/2018-GST
F. No. 354/290/2018-TRU
Government of India
Ministry of Finance
Department of Revenue
Tax Research Unit
North Block, New Delhi
24th August, 2018
To,
The Principal Chief Commissioners/Chief Commissioners/
Principal Commissioners/ Commissioner of Central Tax (All) /
The Principal Director Generals/ Director Generals (All)
Madam/Sir,
Subject: Clarification regarding removal of restriction of refund of accumulated ITC on fabrics – reg.
Certain doubts have been raised regarding the applicability and intent of notification No. 20/2018-Central Tax (Rate) dated 26th July, 2018 (which seeks to amend notification No. 5/2017-Central Tax (Rate) dated 28.06.2017) relating to the provision for lapsing of input tax credit accumulated on account of inverted duty structure on fabrics for the period up
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
nets, of textile materials
6B.
5801
Corduroy fabrics
6C#
5806
Narrow woven fabrics, other than goods of heading 5807; narrow fabrics consisting of warp without weft assembled by means of an adhesive
7.
60
Knitted or crocheted fabrics [All goods]
*Inserted in the month of Sep 17, # Inserted in the month of Nov 17.
3. In the 28th GST Council meeting, it was decided to remove the restriction of not allowing refund of ITC accumulated on account of inverted duty structure on fabrics with prospective effect on the input supplies received after the date of issue of notification. It was also decided to simultaneously lapse the accumulated ITC, lying unutilised, for the past period, after the payment of GST for the month of July, 2018. Accordingly, to give effect to this decision, the notification No. 20/2018-Central Tax (Rate) has been issued amending notification No. 5/2017-Central Tax(Rate). To keep the accounting simple, it was decided to make these changes effective from the 1s
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
d capital goods shall also be disallowed?
(3) Implication to fabrics like cotton and silk where there was no inverted duty structure?
(4) Whether accumulated ITC in respect of exports shall also be made to lapse?
6. The matter has been examined. Section 54 of the CGST Act, 2017 provides for refund of accumulated credit on inputs on account of inverted duty structure, i.e., GST rate on inputs being higher than the GST rates on finished goods. However, proviso (ii) to section 54 (3) provides that in respect of notified goods, the refund of such accumulated input tax credit shall not be allowed. Notification No. 5/2017-Central Tax (Rate) has been issued in terms of this provision and it interalia prescribes that refund of accumulated ITC on account of inverted duty structure shall not be allowed in respect of fabrics as mentioned in para 2. Therefore, the restriction of refund of accumulated ITC under notification No. 5/2017-Central Tax (rate) dated 28.06.2017 is applicable only in res
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
f inverted duty structure lying in balance after payment of GST for the month of July (on purchases made on or before the 31st July, 2018) shall lapse.
8 As the notification No. 5/2017-Central Tax (Rate) does not put any restriction in respect of ITC on input services and capital goods, therefore the proviso now inserted in the said notification No. 5/2017-Central Tax (Rate) vide notification No. 20/2018 does not affect the ITC availed on input services and capital goods.
9. As regards, the legislative power of providing for lapsing of input tax credit, the same flows inherently from the power to deny refund of accumulated ITC on account of inverted structure.
10. Doubts have also been raised as regards the manner of calculating the ITC amount accumulated on account of inverted duty structure on the inputs of said fabrics that would lapse on account of above stated change. It is clarified that for determination of such amount, the formula as prescribed in rule 89 (5) of the CGST rul
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
in rule 89 (5), the accumulated ITC on account of inverted duty structure comes to ₹ 5 lakh. In other words, this manufacturer has accumulated ₹ 5 lakh on inputs on account of inverted duty structure during the said period. If ITC balance lying unutilized with him is more than this amount, say ₹ 10 lakh, the ITC equal to ₹ 5 lakh will only lapse. However, if for any reason, the ITC balance lying unutilized is less than ₹ 5 lakh, say ₹ 3 lakh, the ITC equal to ₹ 3 lakh will lapse.
(2) A manufacture who produces, say, grey manmade fibre fabrics and cotton fabrics, had a turnover of ₹ 5 crore and 2 crore respectively for manmade fabrics and cotton fabrics for the months from July, 2017 to July 2018 [or for the relevant period for fabrics on which refund was blocked subsequently by inserting entries in notification No. 5/2017-Central Tax (Rate)]. Tax payable thereon is ₹ 25 lakh on MMF fabrics and ₹ 10 lakh on cotton fabrics. MMF
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
relating thereto shall also lapse and concern has been expressed that this would amount to double taxation. It is clarified that the proposed amendment seeks to lapse only such credit that has been accumulated on inputs on account of inverted duty structure. Therefore, in case a manufacturer, whose accumulated ITC is liable to lapse in terms of said notification, has certain stock lying in balance as on 31.7.2018, the input tax credit involved in inputs contained in such stock ( including inputs lying as such) may be excluded for determination of Net ITC for the purposes of applying the said formula. For this purpose, the ITC relating to inputs contained in stock may be determined in the manner as provided in S. No. 7 of Form GST ITC-01.
12. As regards the applicability of said proviso to cotton, silk and other natural fibre fabrics, which do not suffer inverted duty structure, this is clarified that the said condition of lapsing of ITC would apply only if input tax credit on inputs
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =