37th The Goods & Services (GST) Council is going to be held in Goa on September 20. It is expected to take up the issues related to inverted duty structure for various sectors.
The inverted duty structure, where there is a higher duty on input(s) and lower duty on output, has caused two problems:
- Firstly, the refund in the GST regime, and
- Secondly, inverted duty structure encourages imports hurting the domestic industry.
There are at least seven industries including textiles and railway wagon facing difficulties on account of inverted duty structure.
Senior Finance Ministry officials confirmed that efforts are on to resolves the problems especially related with refund and therefore rates related with inverted duty structure are being restructured under GST.
Any registered assessee can claim a refund of unutilised input tax credit on account of inverted duty structure at the end of any tax period where the credit has accumulated on account of a higher tax on input and lower tax on the output.
However, exceptions to this are:
if output supplies are NIL rated or fully exempt supplies except for supplies of goods or services or both as notified;
if the goods exported from India are subject to export duty;
if the supplier claims refund of output tax paid under IGST (Integrated Goods & Services Tax); or avails duty drawback or refund of IGST on such supplies.
The issue of refund came up before the Council at least twice, once during the 31st meeting held on December 22, 2018 and another time during the 35th meeting held on June 21.
In the December meeting it was decided that clarifications will be issued on certain refund related matters like refund of ITC accumulated on account of inverted duty structure, disbursal of refunds within the stipulated time, the time allowed for availing of ITC on invoices, the refund of accumulated ITC of compensation cess etc.
The Central Board of Indirect Taxes and Custom (CBIC) issued a circular on December 31, 2018. It was clarified that refund of unutilised ITC in case of inverted tax structure is available where ITC remains unutilised even after setting off of available ITC for the payment of output tax liability.
Where there are multiple inputs attracting different rates of tax, the concept of ‘Net ITC’ as mentioned in the formulae prescribed under the CGST rules will be applicable.
This term covers the ITC availed on all inputs in the relevant period, irrespective of their rate of tax. However, industries complain that this circular has not resolved their issues completely.