2021 (2) TMI 589 - Commissioner - GST

Refund of input tax credit accumulated on account of Inverted Tax Structure - rejection of refund on the ground that the said ITC have been availed on input services and capital goods which is not included in Net ITC for the purpose of refund amount as per Rule 89(5) of the CGST Rules, 2017 as amended vide Notification No. 26/2018-C.T., dated 13-6-2018 - appellant had declared that refund of input tax credit on account of input services and capital goods has not been claimed in their revised computation whereas, the adjudicating authority has treated the items as capital goods and rejected the claim - Section 54(3) of the CGST Act, 2017 - HELD THAT - As per provisions of Section 2(59) of CGST Act input means any goods other than capital goods used or intended to be used by a supplier in the course or furtherance of business. Thus any goods which are not capital goods will be considered as inputs - As per provisions of Section 2(19) of the CGST Act, 2017 capital goods means goods, the value of which is capitalized in the books of account of the person claiming the input tax credit and which are used or intended to be used in the course or furtherance of business Thus any goods which is not capitalized in the books of accounts of the person claiming ITC shall not be treated as capital goods. Circular No. 79/53/2018-GST, dated 31-12-2018 has clarified that if the goods whose value is not capitalized in the books of accounts and the expenditure which has been charged as revenue expenditure in the books of accounts cannot be treated as capital goods and is to be treated as inputs. These facts has to be verified from the books of accounts. Looking to the nature of business of the appellant i.e. mining and selling of silica sand, it is found that various tools and parts/spares of the machinery are required replacement on frequent basis and as long as these are not capitalized in their books of accounts and has been charged as revenue expenditure in their books of accounts will be treated as inputs in terms of Section 2(59) of the CGST Act, 2017. The appellant has also submitted declaration dated 27-6-2018 that the claim does not include any amount of goods and service tax paid on procurement of inputs, which has been capitalized or treated as expense in their books of accounts - further, the definition of inputs as provided under Section 2(59) of CGST Act, 2017 and the definition of capital goods as provided under Section 2(19) of CGST Act, 2017 and clarification issued by the Board vide Circular No. 79/53/2018-GST, dated 31-12-2018 and Circular No. 125/44/2019-GST, dated 18-11-2019, the goods on which the credit is accumulated and the refund is claimed by the appellant is to be treated as inputs subject to verification of the invoices and books of accounts by the adjudicating authority. Appeal allowed.

Summary

Issues Involved:
1. Eligibility for refund of accumulated input tax credit (ITC) under the inverted tax structure.
2. Classification of goods as 'inputs' or 'capital goods' for ITC purposes.
3. Compliance with procedural requirements for claiming ITC refund.

Detailed Analysis:

1. Eligibility for Refund of Accumulated ITC:

The appellant, engaged in the supply of silica sand taxed at 5%, faced an inverted tax structure where the tax rate on inputs was higher than the output. Under Section 54(3)(ii) of the CGST Act, 2017, a registered person can claim a refund of unutilized ITC when the tax rate on inputs exceeds that on outputs. The appellant initially claimed a refund of ?28,19,021 for the period from August 2017 to March 2018, which included ITC on input services and capital goods.

2. Classification of Goods as 'Inputs' or 'Capital Goods':

The adjudicating authority rejected the refund claim, stating that the ITC was availed on input services and capital goods, not included in Net ITC for refund purposes per Rule 89(5) of the CGST Rules, 2017. The appellant argued that the tools and parts/spares used in their machinery, which were replaced frequently, should be classified as 'inputs' under Section 2(59) of the CGST Act. As per Section 2(19), 'capital goods' are goods capitalized in the books of accounts. The appellant clarified that these tools and parts were not capitalized but treated as revenue expenses, thus qualifying as 'inputs.'

The appellant cited Circular No. 79/53/2018-GST and Circular No. 125/44/2019-GST, which clarify that stores and spares charged to revenue are not capital goods if not capitalized in the books of accounts. The appellant recomputed the refund claim, excluding input services, and submitted a revised claim of ?25,61,699.

3. Compliance with Procedural Requirements:

The adjudicating authority issued a show cause notice and rejected the refund claim, stating that the appellant did not provide documents related to inputs. The appellant contended that they had submitted all required invoices and documents and had revised their claim to exclude input services. They argued that the Department had overlooked the nature of invoices and their treatment in the books of accounts.

During the personal hearing, the appellant reiterated their submissions and provided additional documents. The appellate authority reviewed the case records and found that the adjudicating authority had not properly analyzed the invoices and the appellant's declarations regarding the non-capitalization of the goods.

Conclusion:

The appellate authority concluded that the tools and parts/spares used by the appellant, not capitalized in the books of accounts, should be treated as 'inputs' under Section 2(59) of the CGST Act. The authority set aside the impugned order and directed the appellant to submit all relevant documents to the adjudicating authority for verification and processing of the refund claim as per the CGST Act/Rules, 2017.