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TMI Blog2019 (7) TMI 1229X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 sp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ub-total 155 Less: Total tax on outward supplies 120 Net balance remaining unutilized 35 The questions/ issues placed for determination before the Hon'ble Bench has to be appreciated in light of the following position of law and its applicability to the facts of the Applicant's business and activity as discussed above and detailed hereunder, as may be necessary. At the outset, we would like to make it clear that the provisions Of both the CGST Act and the MGST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to any dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provision under the MGST Act. Further to the earlier, henceforth for the purposes of this Advance Ruling, the expression SGST Act' would mean CGST Act and MGST Act. 02 FACTS AND CONTENTION - AS PER THE APPLICANT The submissions, as reproduced verbatim, could be seen thus- "STATEMENT OF FACTS: (i) Daewoo-TPL JV, is a joint venture between M/s Daewoo Engineering and Construction Company Limited & M/s. Tata Projects Limited, formed with the sole objective to bid & secure the contract for design, engineeri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may claim refund of any unutilised input tax credit at the end of any tax period: Provided that no refund of unutilised input tax credit shall be allowed in cases other than i) zero rated supplies made without payment of lax; ii) 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), except supplies of goods or services or both as may be notified by the Government on the recommendations of the Council: Provided further that no refund of unutilised input tax credit shall be allowed in cases where the goods exported out of India are subjected to export duty: Provided also that no refund of input tax credit shall be allowed, if the supplier of goods or services or both avails of drawback in respect of central tax or claims refund of the integrated tax paid on such supplies. (vii) Thus, a registered person can in-principle claim a refund of accumulated ITC in case the rate of GST on inputs is higher than rate of GST on its outward supplies provided that: (a) in case of notified supplies, such benefit would not be allowed; and (b) amount of refund that can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... within its ambit 'inputs' as well as 'input services'. However, as per the amended definition, the definition of Net ITC only covers ITC availed on 'inputs'. Thus, the amendment has restricted the benefit of refund only to procurement of inputs which are used for inverted rated supply of goods or services. (xiii) Given the above, the Notification 21 & 26 leads to several ambiguities in its applicability. The relevant issues for determination have thus been, listed herein below. (xiv) In addition to above, it may be noted that the based on the nature of MTHL Project and its execution requirements & parameters, the Applicant envisages procurement mix of Daewoo-TPLIV shall tentatively comprise of 55% of materials (inputs) and 45% of services. This reflects that input services comprises of a considerable share of gross procurement made by Daewoo-TPL JV. Notably, the ratio of procurement mix is similar across all large scale projects undertaken by contractors with minor variance on a case to case basis. (xv) In light of above, the Applicant has put forth various questions for determination by this Hon'ble bench of Authority for Advance Ruling duly con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proper officer may -- (a) withhold payment of refund due until the said person has furnished the return or paid the tax, interest or penalty, as the case may be; (b) deduct from the refund due, any tax, interest, penalty, fee or any other amount which the taxable person is liable to pay but which remains unpaid under this Act or under the existing law. Explanation. For the purposes of this sub-section, the expression "specified date" shall mean the last date for filing an appeal under this Act. (iv). As per said Section, refund of unutilized ITC can be claimed in (2) instances as stated above. As per the said Section, in case of inverted duty structure, benefit of refund is available on unutilized balance of ITC. Notably, the Section provides a sweeping benefit on entire balance of unutilized ITC without discrimination whether the same is on account of inputs, input services or capital goods. Alternatively said, the section does not restrict ITC on input services. (v) It is a settled position of law that Rules, which are notified as a delegated legislation, cannot conflict (i.e. expand or restrict) the substantive provision empowering the issuance of such rule ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fic stipulation to the effect that condition prescribed in CGST Rules should apply for determining the amount of refund. However, Section 54 in no manner, provides or stipulates that amount of refund would be granted subject to restriction specified in rules. Given this, Applicant humbly believes that amendment to refund formula, effected by way of issuance of Notfn No 21/2018, should not apply in the instant case. (xii). Given this, it is prayed off the Hon'ble Bench that it may be ruled that the Applicant should be entitled to claim refund of unutilized balance of inputs as well as 'input services', on account of inverted duty structure and that the Notifications 21 and 26 should not be applicable to restrict the same. Issue 2 - The applicability of the formula prescribed vide Notifications 21 and 26 on factual scenario indicated by the Applicant (xiii). Whereas assuming for sake of argument & without admitting to such position, where benefit of refund (supra) is restricted to ITC on inputs alone, the Applicant has raised another issue for determination of the manner of applicability of the amendment notifications (supra). (xiv). The case financial are restated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d of ITC on input services could also be claimed in case of an inverted duty structure scenario." And/ or "In any case, the unutilized balance (so long it does not exceed) the gross ITC availed on inputs, could still be refunded in full."" 03. CONTENTION - AS PER THE CONCERNED OFFICER The questions / issues before Hon'ble Bench for determination are as follows: (i). The Applicant though eligible to claim for refund of inverted duty structure under Section 54(3) of the CGST Act, wishes to understand the in-principle applicability of Notification 21 and 26 in as much whether the same allow for refund of ITC availed on input services (and remaining unutilized) in whole or part thereof. (ii) Where the answer to above is negative, the Applicant wishes to understand how the Notification 21 and 26 applies in a scenario where factually following financials may exist: A. Revenue streams Works contract services liable to 12% GST INR 1,000 Output GST @ 12% INR 120 Total Revenues incl. GST I NR 1,120 B. Input Tax Credit Data Particulars Amount (INR) ITC on inputs 65 ITC on input services 90 Sub-total 155 Less: Total tax on outward supplies 120 Net balance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t payment of tax; 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), except supplies of goods or services or both as may be notified by the Government on the recommendations of the Council: Provided further that no refund of unutilized input tax credit shall be allowed in cases where the goods exported out of India are subjected to export duty: Provided also that no refund of input tax credit shall be allowed, if the supplier of goods or services or both avails of drawback in respect of central tax or claims refund of the integrated tax paid on such supplies. * Rule 89(5) of GST Rule reads as follows :- * In case of refund on account of inverted duty structure, refund of input tax credit shall be granted as per following formula * Maximum refund amount= {(Turnover of inverted rated supply of goods) * Net ITC/Adjusted Total Turnover}- tax payable on such inverted rated supply of goods * As discussed in foregoing paragraphs, the formula prescribed (for determination of eligible refund amount) under Rule 89(5) of CGST Rules i.e. for "Net ITC&qu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, and the relevant provision (3)(ii) of the said section is reproduced as under:- Section 54, Refund of Tax. 54 (13) Subject to the provisions of sub-section (10), a registered person may claim refund of any unutilised input tax credit at the end of any tax period: Provided that no refund of unutilised input tax credit shall be allowed in cases other than i) …………; ii) 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), except supplies of goods or services or both as may be notified by the Government on the recommendations of the Council: Provided further that no refund of unutilised input tax credit shall be allowed in cases where the goods exported out of India are sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s refund under the said Rules. 5.4 The said refund formula was made retrospectively effective from 01.07.2017, vide Notification No. 26/2018-Central Tax dated 13.06.2018. Thus the effect of both the above Notifications i.e. Notfn Nos. 21 & 26 of 2018, taken together, has the effect of having introduced the above said refund formula with effect from 01.07.2017. 5.5 Section 54 (3) mentions that "Provided that no refund of unutilised input tax credit shall be allowed in cases other than (i) zero rated supplies made without payment of tax; (ii) 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), except supplies of goods or services or both as may be notified by the Government on the recommendations of the Council: Thus it is clear that 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. 5.6 In their first query the applicant wishes to understand the in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nical affair. What a legislature can possibly do and actually does is that it lays down the policy and purpose of the legislation and leaves it to the executive, experts and technocrats to provide for working details within the framework of the enactment by way of rules, regulations, bye-laws or other statutory instruments. That is why, delegated legislation is increasingly assuming an important role in the process of law-making, comprising an important component of legislation. Powers have also been conferred under various provisions of the Constitution of India on the different functionaries to frame rules, regulations or schemes dealing with various aspects." Therefore, we do not see anything 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. 5.7 Their second query is "Where the answer to above is negative, the Applicant wishes to understand how does the Notification 21 and 26 apply in a scenario where factually following financials may exist..... and they have gone on to list five actual financials. 5.8 This a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 98 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017) No. GST-ARA-113/2018-19/B-41 Mumbai, dt. 24/04/2019 Q. No. 1): The Applicant though eligible to claim for refund of inverted duty structure under Section 54(3) of the CGST Act, wishes to understand in-principle applicability of Notification No 21 and 26 in as much whether the same allow for refund of ITC availed on input services (and remaining unutilized) in whole or part thereof. Answer: Both the Notifications Notification No 21/2018 - Central Tax (Rate) dated April 18, 2018 and Notification No. 26/2018-Central Tax dated 13.06.2018 21 do apply to the Applicant which prescribe the method for carrying out provisions of Section 54 (3) of the CGST Act, 2017 and therefore do not allow refund of ITC availed on input services (and remaining unutilized) in whole or part thereof, in view of the definition of 'input' contained in the sub-section (59) of Section 2 of the GST Act, 2017 and the definition of 'Net ITC' contained in the Notification No. 26/2018-Central Tax dated 13.06.2018. Q. N0.2): Where the answer to above is negative, the Applicant wishes to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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