2019 (7) TMI 1229 - AAR - GST

Refund of inverted duty structure/ unutilized input tax credit - input services - Section 54(3) of the CGST Act - in-principle applicability of Notification 21 and 26 - HELD THAT - The contract in the nature of services. Execution of construction of large projects such as MTHL Project entails procurement of various inputs, input services and capital goods such as cement, concrete, steel and steel structures, bridge accessories, formworks, plant and equipment, labour, etc. All such goods and services attract GST at varied rates, depending on the nature of such procurement. The ITC paid on the inputs and services are higher than output supply. Therefore, the transaction is covered under Inverted duty structure. In such cases as in the subject case, to avoid the cascading effect, Govt. has allowed relief in the form of Refund of unutilized Input tax Credit as provided in Section 54 of the CGST Act. A reading of the provisions of Section 54 (3) (ii) and Notification No 21 of 2018 implies that the formula prescribed (for determination of eligible refund amount) under Rule 89(5) of CGST Rules i.e. for Net ITC only considers ITC on inputs , for computing the amount of eligible refund. Therefore any portion of the ITC availed on 'input services' is not available as refund under the said Rules - thus, the refund of unutilized input tax credit (comprising of both goods and services) shall be allowed only in cases mentioned in (i) and (ii) i.e the allowance of such refund of credit is only when credit availed on goods is higher that the tax rate on output supplies. Thus, there is nothing in the Rule 89 of the CGST Rules, 2017, as amended by the Notifications 21 and 26 of 2018, that overrides the Section 54 of the CGST Act, 2017 and they have to be read together harmoniously while granting refunds. Whether the Applicant wishes to understand how does the Notification 21 and 26 apply in a scenario where factually following financials may exist? - scope of Advance Ruling application - HELD THAT - Section 95 says that, the term 'advance ruling' means a decision provided by this authority to the applicant on matters or questions specified in subsection 2 of Section 97, in relation to the supply of goods or services or both being undertaken or proposed to be undertaken by the applicant - We find from the above subsection 2 of Section 97, that the method of calculation of refund is not covered therein. The provisions of Section 95 state that the applicant shall ask the question in relation to the supply of goods or services or both being undertaken or proposed to be undertaken by them on matters or questions specified in, and to that extent only, the authority shall answer/give a ruling to those category of issues. Thus this query is with respect to the formula involved in calculation of refund. Such queries do not fall under Section 97 of the CGST Act - in the present case, applicant has posed the question no 2 that is not covered under the category mentioned from (a) to (g) of subsection (2) of section 97 of CGST ACT. Hence we refrain from taking up the question for any discussion.

Summary

Issues Involved:
1. Applicability of Notification 21 and 26 regarding refund of ITC availed on input services.
2. Application of Notification 21 and 26 in a scenario with specific financial data.

Detailed Analysis:

Issue 1: Applicability of Notification 21 and 26 regarding refund of ITC availed on input services

The applicant sought clarity on whether Notifications 21/2018 and 26/2018 allow for the refund of unutilized Input Tax Credit (ITC) availed on input services under the inverted duty structure as per Section 54(3) of the CGST Act. The applicant argued that Section 54(3) does not explicitly restrict the refund of ITC on input services and that the subordinate legislation (rules) should not override the main enactment (CGST Act).

The Authority for Advance Ruling (AAR) observed that Section 54(3) of the CGST Act allows for a refund of unutilized ITC where the rate of tax on inputs is higher than the rate of tax on output supplies. However, the term "inputs" as defined in Section 2(59) of the CGST Act refers only to goods and not services. Furthermore, Rule 89(5) of the CGST Rules, amended by Notifications 21/2018 and 26/2018, prescribes a formula for calculating the maximum refund amount, which only considers ITC on inputs (goods) and excludes ITC on input services.

The AAR concluded that the notifications are valid and enforceable as they are within the framework of the CGST Act and do not conflict with the main provisions. Therefore, the notifications do not allow for the refund of ITC availed on input services.

Issue 2: Application of Notification 21 and 26 in a scenario with specific financial data

The applicant provided a financial scenario to understand how the amended formula under Notifications 21/2018 and 26/2018 would apply. The financial data included revenue streams and input tax credit details, showing a net balance of unutilized ITC.

The AAR noted that the applicant's second query pertains to the methodology of calculating the refund, which is not covered under the provisions of Section 97(2) of the CGST Act. Section 97(2) specifies the types of questions that can be addressed by an advance ruling, such as the classification of goods or services, applicability of notifications, and admissibility of ITC, among others. The calculation of refund amounts does not fall within these categories.

As a result, the AAR refrained from addressing the second query, stating that it does not fall within its jurisdiction under Section 97 of the CGST Act.

Order:
1. The AAR ruled that Notifications 21/2018 and 26/2018 do apply to the applicant and do not allow for the refund of ITC availed on input services.
2. The AAR did not answer the second query regarding the application of the refund formula to specific financial data, as it is outside the scope of Section 97 of the CGST Act.

Conclusion:
The AAR concluded that the applicant is not entitled to a refund of ITC on input services under the inverted duty structure as per the applicable notifications. The query regarding the calculation of the refund amount was not addressed due to jurisdictional limitations.