CBIC issues clarifications on refunds due to inverted tax structure under GST

This Tax Alert summarizes a recent Circular[1] issued by the Central Board of Indirect Taxes and Customs (CBIC) clarifying issues relating to refund of unutilized input tax credit on account of inverted tax structure (ITS) under Goods and Services Tax (GST).

CBIC had, through Notification[2] dated 5 July 2022, amended the formula prescribed for refund on account of ITS under Rule 89(5) of Central Goods and Services Tax Rules, 2017 (CGST Rules). Further, vide another Notification[3] effective from 18 July 2022, CBIC restricted refund due to ITS in case of supply of certain goods falling under Chapter 15 (edible oils) and Chapter 27 (coal).

On the applicability of the said amendments, CBIC has clarified the following:

• The new formula would be applicable for refund applications filed on or after 5 July 2022, as it is a prospective amendment. For applications filed before 5 July 2022, formula that existed before the amendment shall apply.

• The restriction on refund imposed in respect of edible oils and coal, shall apply prospectively, i.e., for all refund applications to be made on or after 18 July 2022.

Comments

• Clarification on issues concerning refunds may ensure uniformity in the implementation of the provisions of the law and eliminate unwarranted litigation.

• Registered persons dealing with edible oil and coal may explore the possibility of refund, contending that amendment should not apply for past period credits. There are divergent rulings on the said matter in pre-GST era.

[1] Circular No. 181/13/2022-GST dated 10 November 2022
[2] Notification No. 14/2022-Central Tax dated 5 July 2022
[3] Notification No. 9/2022- Central Tax (Rate) dated 13 July 2022, effective 18 July 2022