Refund of input tax credit in textile sector particularly to manufacturer of manmade textile material or staple fabric
By: – DEVKUMAR KOTHARI
Goods and Services Tax – GST
Dated:- 4-10-2018
Relevant provisions:
Sections of CGST Act
Sec 54(3)(ii) – Refund of tax
Sec 2(52) – Meaning of goods
Sec 2(106) – Tax period
Sec 2(112) – Adjusted total turnover
Rule 89(5) of the CGST Rules
Notification No. 5/2017 – Central Tax (Rate) dated 28.06.2017
Notification No. 20/2018 – Central Tax (Rate) dated 26.07.2018
Circular No. 56/30/2018 dated 24.08.2018
Synopsis:
Accumulation of input tax credit happens when tax paid on inputs is more than output tax liability. Such unutilized tax credit will have to be carried over to the next financial year till it can be utilized by the registered person for payment of output tax liability. However GST Law permits refund of such ITC in two scenarios., namely if such credit accumulation is on account of zero rated supplies or inverted du
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5311
Woven fabrics of other vegetable textile fibres, paper yarn
5.
5407, 5408
Woven fabrics of manmade textile materials
6.
5512 to 5516
Woven fabrics of manmade staple fibres
7.
60
Knitted or crocheted fabrics [All goods]
Now government has issued another notification no 20/2018 on 26/07/2018 giving relief to fabrics manufactures to claim refund of excess ITC accumulated on and after 01.08.2018.
Meaning of inverted tax structure
Inverted tax structure means a situation where input tax rate in higher than output tax rate on outward supplies. This results in accumulation of ITC in the hands of registered persons.
In this articles author want to discuss the situation of inverted tax structure in relation to textiles industry
The Indian textile industry in highly fragmented consisting of small scale and tiny units. Most of the weavers are uneducated and operating loom with the help of family member and uneducated laborers. The textile industry is labour intensive having s
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d of duty accumulated after 01.08.2018.
Now many more issued will arise if we strictly analyses the language of the notification. According to the notification, only input tax credit accumulated of in respect of goods is eligible for refund. According to this notification, what happens to excess credit accumulated on account of services or capital goods or ITC accumulated on account of stock- in- trade. Credit accumulated up to 31st July shall lapsed but according to Sec 54(3), a registered person cannot claim refund. It is nowhere mentioned in the law that excess duty will lapse.
Again Government issued one more circular 56/2018 on 24.08.2018 clarifying doubts regarding unutilized input credit on capital goods and services and also on stock in hand as on 31.07.2018. Government has clarified that inverted duty will lapse only on input goods only. A registered person may carry forward ITC accumulated on account of capital goods and services till next financial year till it can be util
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” means the maximum refund that is admissible;
(B) “Net ITC” means input tax credit availed on inputs and input services during the relevant period;
(C) “Turnover of zero-rated supply of goods” means the value of zero-rated supply of goods made during the relevant period without payment of tax under bond or letter of undertaking;
(D) “Turnover of zero-rated supply of services” means the value of zero-rated supply of services made without payment of tax under bond or letter of undertaking, calculated in the following manner, namely:-
Zero-rated supply of services is the aggregate of the payments received during the relevant period for zero-rated supply of services and zero-rated supply of services where supply has been completed for which payment had been received in advance in any period prior to the relevant period reduced by advances received for zero-rated supply of services for which the supply of services has not been completed during the relevant period;
(E) “Adjusted Total
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two purposes. First to utilize credit for payment of future tax liability and second to claim refund. If refund is not allowed then it cannot be equated with lapsing of credit. In my view the power to deny the refund of ITC can be compared with the power to reversal of ITC itself.
Therefore justifying the issue of Notification No. 20/2018 CT (Rate) dated 26.07.2018 vide Circular No. 56/30/2018 GST dated 24.08.2018 to the extent refund is not allowed, seems not justified.
Request to readers:
Readers are requested to send their views, feedback and suggestion on the subject for brain storming and to improve the understanding of the subject and to remove mistake, and deficiency, if any in the understanding. For this purpose email id of authors
By CA Rajendra Kumar Rathi, Erode.
rkrathigst@gmail.com
Reply By SUDHIRKUMAR SHAH as =
sir as per my understanding, following steps are required to be follwed
ITC-capital goods-input services-stock on 31-07-2018= Net ITC
NOW, LAPSE OF ITC
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