Important Keyword: GST Circular 181/13/2022, GST refund clarification, Rule 89(5) refund formula, Inverted duty structure refund, GST refund formula amendment, Notification 14/2022 Central Tax, Notification 09/2022 Central Tax Rate, GST refund on Chapter 15 goods, GST refund on Chapter 27 goods, GST Circular 181 explained,
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Table of Contents
F. No. CBIC-20021/4/2022
Government of India
Ministry of Finance
Department of Revenue
Central Board of Indirect Taxes and Customs
GST Policy Wing
New Delhi, Dated the 10th November, 2022
Circular No. 181/13/2022 - GST: Clarification on Refund Related Issues
To,
The Principal Chief Commissioners/ Chief Commissioners/ Principal Commissioners/ Commissioners of Central Tax (All)
The Principal Directors General/ Directors General (All) Madam/Sir,
Attention is invited to sub-section (3) of section 54 of CGST Act, 2017, which provides for the refund of unutilized input tax credit in cases where credit is accumulated on account of rate of tax of inputs being higher than the rate of tax on output supplies i.e. on account of inverted duty structure. Sub-rule (5) of rule 89 of CGST Rules, 2017 prescribes the formula for grant of refund in cases of inverted duty structure. Vide Notification No. 14/2022-Central Tax dated 05.07.2022, amendment has been made in the formula prescribed under sub-rule (5) of rule 89 of the CGST Rules, 2017.
Further, vide Notification No. 09/2022-Central Tax (Rate) dated 13.07.2022, which has been made effective from 18.07.2022, the restriction has been placed on refund of unutilized input tax credit on account of inverted duty structure in case of supply of certain goods falling under chapter 15 and 27.
2. Representations have been received from the trade and the field formations seeking clarification on various issues pertaining to the implementation of the above notifications. In order to clarify the issues and to ensure uniformity in the implementation of the provisions of law 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 issues as under:
| S. No. | Issue | Clarification |
| 1. | Whether the formula prescribed under sub-rule (5) of rule 89 of the CGST Rules, 2017 for calculation of refund of unutilised input tax credit on account of inverted duty structure, as amended vide Notification No. 14/2022-Central Tax dated 05.07.2022, willapply only to the refund applications filed on or after 05.07.2022, or whether the same will also apply in respect of the refund applications filed before 05.07.2022 and pending with the proper officer as on 05.07.2022? | Vide Notification No. 14/2022-Central Tax dated 05.07.2022, amendment has been made in sub-rule (5) of rule 89 of CGST Rules, 2017, modifying the formula prescribed therein. The said amendment is not clarificatory in nature and is applicable prospectively with effect from 05.07.2022. Accordingly, it is clarified that the said amended formula under sub-rule (5) of rule 89 of the CGST Rules, 2017 for calculation of refund of input tax credit on account of inverted duty structure would be applicable in respectof refund applications filed on or after 05.07.2022. The refund applications filed before 05.07.2022 will be dealt as per the formula as it existed before the amendment made vide Notification No. 14/2022-Central Tax dated 05.07.2022. |
| 2. | Whether the restriction placed on refund of unutilised input tax credit on account of inverted duty structure in case of certain goods falling under chapter 15 and 27 vide Notification No. 09/2022-Central Tax (Rate) dated 13.07.2022, which has been made effective from 18.07.2022, would apply to the refund applications pending as on 18.07.2022 also or whether the same will apply only to the refund applications filed on or after 18.07.2022 or whether the same will be applicable only to refunds pertaining to prospective tax periods? | Vide Notification No. 09/2022-Central Tax (Rate) dated 13.07.2022, under the powers conferred by clause (ii) of the first proviso to sub-section (3) of section 54 of the CGST Act, 2017, certain goods falling under chapter 15 and 27 have been specified in respect of which no refund of unutilised input tax credit shall be allowed, where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on the output supplies of such specified goods (other than nil rated or fully exempt supplies). The said notification has come into force with effect from 18.07.2022. The restriction imposed vide Notification No. 09/2022-Central Tax (Rate) dated 13.07.2022 on refund of unutilised input tax credit on account of inverted duty structure in case of specified goods falling under chapter 15 and 27 would apply prospectively only. Accordingly, it is clarified that the restriction imposed by the said notification would be applicable in respect of all refund applications filed on or after 18.07.2022, and would not apply to the refund applications filed before 18.07.2022. |
3. It is requested that suitable trade notices may be issued to publicize the contents of this Circular.
4. 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. 181/13/2022 - GST
Q1. What is Circular No. 181/13/2022-GST about?
Answer: Circular No. 181/13/2022 clarifies two important refund-related issues under GST. It explains the applicability of the amended refund formula under Rule 89(5) and the prospective application of refund restrictions for specified goods under Chapters 15 and 27.
Q2. Does the amended Rule 89(5) refund formula apply to pending refund applications?
Answer: No. The CBIC has clarified that the amendment is prospective. Refund applications filed before 5 July 2022 will continue to be processed under the earlier formula, even if they remain pending after that date.
Q3. Why is the amendment considered prospective?
Answer: Because the amendment introduced by Notification No. 14/2022-Central Tax is not merely clarificatory. It changes the refund calculation mechanism, making it a substantive amendment that applies only from its effective date.
Q4. Which refund applications will use the amended formula?
Answer: Only refund applications filed on or after 5 July 2022 are governed by the amended formula under Rule 89(5) of the CGST Rules.
Q5. What is the restriction introduced through Notification No. 09/2022-Central Tax (Rate)?
Answer: The notification specifies certain goods falling under Chapters 15 and 27 for which refund of accumulated Input Tax Credit due to an inverted duty structure is not available. This restriction became effective from 18 July 2022.
Q6. Does the restriction apply to applications already filed before 18 July 2022?
Answer: No. The circular clearly states that the restriction applies prospectively. Refund applications filed before 18 July 2022 are not affected by the notification, even if they are processed later.
Q7. What determines which law applies to a refund application?
Answer: The determining factor is the date on which the refund application is filed. Subsequent amendments do not change the legal framework applicable to an application already submitted.
Q8. Does this circular amend the GST law?
Answer: No. The circular does not amend any statutory provision. It clarifies how the amended Rule 89(5) and Notification No. 09/2022-Central Tax (Rate) should be applied by GST officers.
Q9. Who benefits from this clarification?
Answer: Manufacturers and businesses claiming refunds under the inverted duty structure benefit the most. It provides certainty regarding the refund formula and protects pending applications from being affected by subsequent amendments.
Q10. What is an inverted duty structure?
Answer: An inverted duty structure arises when the GST rate on inputs is higher than the GST rate on output supplies, leading to accumulation of Input Tax Credit. Section 54(3) of the CGST Act permits refund of such unutilized credit, subject to prescribed conditions and exceptions.
Q11. Why is this circular important for refund processing?
Answer: It ensures that GST officers across India adopt a consistent approach while processing refund applications. This reduces disputes and prevents retrospective application of amendments that could otherwise adversely affect taxpayers.
Q12. Can taxpayers rely on this circular during pending refund proceedings?
Answer: Yes. Taxpayers whose refund applications were filed before the relevant effective dates can rely on this clarification while pursuing pending refund claims, as it confirms the prospective application of both amendments.
Conclusion
In simple terms, Circular No. 181/13/2022 provides certainty on an issue that could have resulted in significant litigation. It confirms that amendments to the refund formula under Rule 89(5) and restrictions on refunds for specified goods are prospective and do not alter the treatment of refund applications already filed before the respective effective dates.
Download PDF: Circular No. 181/13/2022 - GST
More Information: https://taxinformation.cbic.gov.in/
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