GST Refund in case of Inverted Duty Structure
Introduction:
- 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.
- Much water flown with respect to the word “inputs” whether includes input services or not. Gujarat High Court in the case of VKC Footsteps India Pvt Ltd vs UOI 2020 (43) G.S.T.L. 336 (Guj.) held that in terms of Section 54(3) of GST Act, assessee is eligible for GST involved on input services as these are also used for same business.
- Contrary to the above decision of the Hon’ble Gujarat High Court, the Hon’ble Madras High Court passed an order in favour of revenue in the case of Transtonnelstroy Afcons Joint Venture v. UOI- [2020] 119 taxmann.com 324 (Madras). It was held that the benefit of refund can be availed only to the extent of unutilized ITC that accumulates on ‘goods’, thereby exclusion of unutilized ITC accumulated on ‘services’ in case of inverted rate structure is valid.
- Through this article, the author wishes to stress on the word ‘output supplies’. The word output supplies is not defined in the CGST Act. However, the Outward supply defined under section 2 (83) CGST Act reads as “means supply of goods or services or both, whether by sale, transfer, barter, exchange, licence, rental, lease or disposal or any other mode, made or agreed to be made by such person in the course or furtherance of business.”
- From this one can understand that “supplier of services” is also eligible for refund under inverted duty structure.
List of services not eligible for inverted duty refund
- In exercise of the powers conferred Section 54 (3), the government has issued Notification no. 15/2017-Central Tax (Rate) dated 28th June 2017 wherein it has been notified that no refund of unutilised input tax credit shall be allowed under sub-section (3) of section 54 of the said Central Goods and Services Tax Act, in case of supply of services specified in sub-item (b) of item 5 of Schedule II of the Central Goods and Services Tax Act.
- The supplies specified under item 5(b) of Schedule II reads as “construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration has been received after issuance of completion certificate, where required, by the competent authority or after its first occupation, whichever is earlier”.
- In short one can say residential or commercial apartment construction services not eligible for inverted duty refund.
Sample list of services eligible for refund
- Author wishes to stress that the restriction for Inverted Duty Refund is only for residential or commercial apartment construction services. There is no restriction for refund in case of Works Contract Services.
- Substantial portion of the construction material chargeable at 18% and Cement at 28%. Those contractors who are doing work contract services to Government are eligible for concessional output rate of 5% or 12%. In such cases, it is highly possible that there could accumulation of input credit due to higher GST rate on inputs.
- The following could be the sample list of service providers who are eligible for refund under inverted duty structure:
- Contractors who are doing Govt. related construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of, a historical monument, archaeological site; canal, dam or other irrigation works; pipeline, conduit or plant for (i) water supply (ii) water treatment, or (iii) sewerage treatment or disposal
- Contractors who are doing Govt related construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of a road, bridge, tunnel, or terminal for road transportation for use by general public; original works pertaining to a scheme under Jawaharlal Nehru National Urban Renewal Mission or Rajiv Awaas Yojana or any other similar schemes, a pollution control or effluent treatment plant, except located as a part of a factory; or a structure meant for funeral, burial or cremation of deceased.
- who are doing construction, erection, commissioning, or installation of original works pertaining to railways, including monorail and metro; a single residential unit otherwise than as a part of a residential complex; low-cost houses, post-harvest storage infrastructure for agricultural produce including a cold storage for such purposes; or mechanised food grain handling system, machinery or equipment for units processing agricultural produce as food stuff excluding alcoholic beverages.
- Contractors who are doing Govt related construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or alteration of a civil structure or any other original works meant predominantly for use other than for commerce, industry, or any other business or profession, a structure meant predominantly for use as (i) an educational, (ii) a clinical, or (iii) an art or cultural establishment; or a residential complex predominantly meant for self-use or the use of their employees or other persons specified in paragraph 3 of the Schedule III of the Central Goods and Services Tax Act, 2017.
- Composite supply of works contract, involving predominantly earth work (that is, constituting more than 75 per cent. of the value of the works contract) provided to the Central Government, State Government, Union territory, local authority, a Governmental Authority or a Government Entity.
- Composite supply of works contract and associated services, in respect of offshore works contract relating to oil and gas exploration and production (E&P) in the offshore area beyond 12 nautical miles from the nearest point of the appropriate base line.
- Composite supply of works contract provided by a sub-contractor to the main contractor providing services specified works to the Central Government, State Government, Union territory, a local authority, a Governmental Authority or a Government Entity which are chargeable at 12% GST.
- Composite supply of works contract provided by a sub-contractor to the main contractor providing predominantly earth work to the Central Government, State Government, Union territory, a local authority, a Governmental Authority or a Government Entity
- Job work services which are chargeable to GST @5%e. Printing of newspapers; Textiles and textile products, all products including diamonds falling under Chapter 71, Printing services; Processing of hides, skins and leather for manufacture of leather goods or foot wear, all food and food products falling under Chapters 1 to 22, all products falling under Chapter 23 except dog and cat food put up for retail sale falling under tariff item 23091000 of the said Chapter, manufacture of clay bricks and manufacture of handicraft goods.
- Supply of e-books
- Maintenance, repair or overhaul services in respect of aircrafts, aircraft engines and other aircraft components or parts.
- Maintenance, repair or overhaul services in respect of ships and other vessels, their engines and other components or parts.
- Etc.
Conclusion:
Though there are many suppliers/businessmen engaged in the above business somehow due to lack of knowledge, confusion, divergent practices in the GST department people are not applying for these refunds. Very few people are applying for these refunds. Due to disruption of Covid -19 many businesspeople are suffering from cash crunch & working capital pressure. It is high time for the businesspeople who are in the above business to apply for the refunds from the GST department so that it will give some working Capital Cushion.