Is ITC of items used for machines i.e.Capital goods are eligible for ITC Inverted refund ?ITC re, Goods and Services Tax - GST

[Rajesh Kumar]

I want to know that the inputs used for machines are also claimable as inverted refund.

Posts / Replies

[KASTURI SETHI]

Not allowed. See relevant extract of Board's Circular No.79/53/2018-GST dated 31.12.2018

Refund of accumulated ITC of input services and capital goods arising on account of inverted duty structure :

14. Section 54(3) of the CGST Act provides that refund of any unutilized ITC may be claimed where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies (other than nil rated or fully exempt supplies). Further, section 2(59) of the CGST Act defines inputs as any goods other than capital goods used or intended to be used by a supplier in the course or furtherance of business. Thus, inputs do not include services or capital goods. Therefore, clearly, the intent of the law is not to allow refund of tax paid on input services or capital goods as part of refund of unutilized input tax credit. Accordingly, in order to align the CGST Rules with the CGST Act, notification No. 26/2018-Central Tax, dated 13-6-2018 was issued wherein it was stated that the term Net ITC, as used in the formula for calculating the maximum refund amount under rule 89(5) of the CGST Rules, shall mean input tax credit availed on inputs during the relevant period other than the input tax credit availed for which refund is claimed under sub-rules (4A) or (4B) or both. In view of the above, it is clarified that both the law and the related rules clearly prevent the refund of tax paid on input services and capital goods as part of refund of input tax credit accumulated on account of inverted duty structure.

It is also relevant to go through the whole circular

[Rajesh Kumar]

Dear sir

My issue is whether inputs used in capital goods like spare parts , oil etc. are eligible for inverted ITC claim.

[KASTURI SETHI]

If you fulfill the conditions laid down in para nos.12 & 13 of Board's circular no.79/53/2018-GST, dated 31-12-2018, inputs used in the machines are eligible for ITC inverted refund claim.. Relevant paras are extracted below:

Misinterpretation of the meaning of the term “inputs”:

12. It has been represented that on certain occasions, departmental officers do not consider ITC on stores and spares, packing materials, materials purchased for machinery repairs, printing and stationery items, as part of Net ITC on the grounds that these are not directly consumed in the manufacturing process and therefore, do not qualify as input. There are also instances where stores and spares charged to revenue are considered as capital goods and therefore the ITC availed on them is not included in Net ITC, even though the value of these goods has not been capitalized in his books of account by the claimant.

13. In relation to the above, it is clarified that the input tax credit of the GST paid on inputs shall be available to a registered person as long as he/she uses or intends to use such inputs for the purposes of his/her business and there is no specific restriction on the availment of such ITC anywhere else in the GST Act. The GST paid on inward supplies of stores and spares, packing materials etc. shall be available as ITC as long as these inputs are used for the purpose of the business and/or for effecting taxable supplies, including zero-rated supplies, and the ITC for such inputs is not restricted under section 17(5) of the CGST Act. Further, capital goods have been clearly defined in section 2(19) of the CGST Act as goods whose value has been capitalized in the books of account and which are used or intended to be used in the course or furtherance of business. Stores and spares, the expenditure on which has been charged as a revenue expense in the books of account, cannot be held to be capital goods.

Still if you have any doubt, ask for more clarification.

[Ganeshan Kalyani]

After you have posted a detailed reply I hope the querist will have no queries. It's clear.