Important Keyword: GST Circular 173/05/2022, Inverted duty structure refund, Refund of accumulated ITC, Concessional GST notification, Section 54(3) CGST Act, Circular 135/05/2020 GST, GST refund clarification, GST concessional rate refund, Input Tax Credit refund, GST Circular 173 explained,
Words: 1707 Read time: 9 minutes.
Table of Contents
F. No. CBIC-20001/2/2022-GST
Government of India
Ministry of Finance
Department of Revenue
Central Board of Indirect Taxes and Customs
GST Policy Wing
*****
New Delhi, Dated the 6th July, 2022
Circular No. 173/05/2022 - GST: Clarification on issue of claiming refund under inverted duty structure where the supplier is supplying goods under some concessional notification
To,
The Principal Chief Commissioners/ Chief Commissioners/ Principal Commissioners/ Commissioners of Central Tax (All)
The Principal Directors General/ Directors General (All) Madam/Sir,
Subject: Clarification on issue of claiming refund under inverted duty structure where the supplier is supplying goods under some concessional notification – reg.
Various representations have been received seeking clarification with regard to applicability of para 3.2 of the Circular No. 135/05/2020-GST dated 31.03.2020 in cases where the supplier is required to supply goods at a lower rate under Concessional Notification issued by the Government.
In order to clarify the issue and to ensure uniformity in the implementation of the provisions of law in this regard across the field formations, the Board, in exercise of its powers conferred by section 168 (1) of the Central Goods and Services Tax Act, 2017 (hereinafter referred to as “CGST Act”), hereby clarifies the issue as under:
2. Vide para 3.2 of Circular No. 135/05/2020-GST dated 31.03.2020, it was clarified that refund on account of inverted duty structure would not be admissible in cases where the input and output supplier are same. Para 3.2 of Circular No. 135/05/2020-GST dated 31.03.2020 is reproduced, as under:
“Refund of accumulated ITC in terms clause (ii) of sub-section (3) of section 54 of the CGST Act is available where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies. It is noteworthy that, the input and output being the same in such cases, though attracting different tax rates at different points in time, do not get covered under the provisions of clause (ii) of sub-section (3) of section 54 of the CGST Act.
It is hereby clarified that refund of accumulated ITC under clause (ii) of sub-section (3) of section 54 of the CGST Act would not be applicable in cases where the input and the output supplies are the same.”
3. The matter has been examined. The intent of para 3.2 of Circular No. 135/05/2020-GST dated 31.03.2020 was not to cover those cases where the supplier is making supply of goods under a concessional notification and the rate of tax of output supplier is less than the rate of tax on input supply (of the same goods) at the same point of time due to supply of goods by the supplier under such concessional notification.
4. Therefore, it is clarified that in such cases, refund of accumulated input tax credit on account of inverted structure as per clause (ii) of sub-section (3) of section 54 of the CGST Act, 2017 would be allowed in cases where accumulation of input tax credit is on account of rate of tax on outward supply being less than the rate of tax on inputs (same goods) at the same point of time, as per some concessional notification issued by the Government providing for lower rate of tax for some specified supplies subject to fulfilment of other conditions. Accordingly, para 3.2 of the Circular No. 135/05/2020-GST dated 31.03.2020 stands substituted as under:
“3.2 It may be noted that refund of accumulated ITC in terms of clause (ii) of first proviso to sub-section (3) of section 54 of the CGST Act is available where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies. It is noteworthy that, the input and output being the same in such cases, though attracting different tax rates at different points in time, do not get covered under the provisions of clause (ii) of the first proviso to sub-section (3) of section 54 of the CGST Act.
3.3 There may however, be cases where though inputs and output goods are same but the output supplies are made under a concessional notification due to which the rate of tax on output supplies is less than the rate of tax on inputs.
In such cases, as the rate of tax of output supply is less than the rate of tax on inputs at the same point of time due to supply of goods by the supplier under such concessional notification, the credit accumulated on account of the same is admissible for refund under the provisions of clause (ii) of the first proviso to sub-section (3) of section 54 of the CGST Act, other than the cases where output supply is either Nil rated or fully exempted, and also provided that supply of such goods or services are not notified by the Government for their exclusion from refund of accumulated ITC under the said clause.”
5. It is requested that suitable trade notices may be issued to publicize the contents of this Circular.
6. Difficulty, if any, in implementation of this Circular may please be brought to the notice of the Board. Hindi version would follow.
(Sanjay Mangal)
Principal Commissioner (GST)
📚 Frequently Asked Questions (FAQs): Circular No. 173/05/2022 - GST
Q1. What is Circular No. 173/05/2022-GST about?
Answer: Circular No. 173/05/2022 clarifies that refund of accumulated ITC under the inverted duty structure is available even when the input and output goods are the same, provided the outward supply is made under a concessional GST notification resulting in a lower GST rate.
Q2. Why was this circular issued?
Answer: The circular was issued because Paragraph 3.2 of Circular No. 135/05/2020 was being interpreted to deny refunds in all cases where the input and output goods were identical. The CBIC clarified that this interpretation was incorrect in cases involving concessional GST notifications.
Q3. Can refund be claimed when the same goods are purchased and sold?
Answer: Yes, in certain cases. If the outward supply is made under a Government-issued concessional notification and the GST rate on outward supplies is lower than the GST rate on inputs at the same point in time, refund is available.
Q4. Why was refund denied earlier?
Answer: Refunds were often denied because tax authorities relied on the earlier clarification that refund was not available where the input and output goods were the same. This circular clarifies that such denial is not appropriate where the lower output tax rate results from a concessional notification.
Q5. Does this circular amend the law?
Answer: No. The circular does not amend Section 54 of the CGST Act. Instead, it clarifies the correct interpretation of the earlier circular and substitutes Paragraph 3.2 while introducing Paragraph 3.3 to eliminate ambiguity.
Q6. Is refund available if the GST rate changed over time?
Answer: No. Where the input and output goods are the same and the difference in tax rates arises only because the GST rate changed between the date of purchase and the date of sale, refund under the inverted duty structure is not available.
Q7. Is refund available for nil-rated or fully exempt supplies?
Answer: No. The circular specifically states that refund is not available where the outward supply is nil-rated, fully exempt, or specifically excluded by the Government under Section 54(3).
Q8. What is the significance of the concessional notification?
Answer: A concessional notification prescribes a lower GST rate for specified supplies. When this concessional rate results in the output tax being lower than the input tax at the same point in time, the resulting accumulation of ITC qualifies for refund.
Q9. Which legal provision governs this refund?
Answer: Refund is governed by Section 54(3)(ii) of the CGST Act, which permits refund of accumulated ITC where credit accumulates because the tax rate on inputs exceeds the tax rate on outward supplies, subject to prescribed conditions.
Q10. Who benefits most from this circular?
Answer: Manufacturers, suppliers, Government contractors, public sector vendors, and businesses making supplies under concessional GST notifications benefit the most because the circular protects their eligibility to claim refunds of accumulated ITC.
Q11. Does this circular replace the earlier clarification?
Answer: Yes. Paragraph 3.2 of Circular No. 135/05/2020 has been substituted, and a new Paragraph 3.3 has been inserted to clearly distinguish between rate changes over time and concessional GST notifications.
Q12. Why is this circular important?
Answer: This circular removes a significant source of litigation by ensuring that taxpayers making supplies under concessional notifications are not unfairly denied refunds merely because the input and output goods are identical. It reinforces the true intent of the inverted duty refund provisions.
Conclusion
In simple terms, Circular No. 173/05/2022 restores clarity to the refund provisions under the inverted duty structure by distinguishing between two very different situations—changes in GST rates over time and supplies made under concessional notifications. The CBIC has made it clear that genuine accumulation of ITC caused by concessional output tax rates should not deprive taxpayers of their refund entitlement.
Download PDF: Circular No. 173/05/2022 - GST
More Information: https://taxinformation.cbic.gov.in/
Read more interesting articles:
