CBIC has clarified various issue relating to ‘refund’ or ‘lapse’ of ‘accumulated ITC on Fabrics (Textiles Sector)’, as notified based on recommendations of the GST Council, vide Central Tax Rate Notification 20/2018 dt. 26/07/2018. ITC accumulated due to inverted duty structure shall lapse, however in the case of ‘zero’ rated supplies, accumulated ITC shall not lapse and is refundable.
The GST Council in its 28th Meeting has decided to remove the restriction of not allowing refund of ITC accumulated on account of inverted duty structure on fabrics with prospective effect on the input supplies received after the date of issue of notification. It was also decided to simultaneously lapse the accumulated ITC, lying unutilised, for the past period, after the payment of GST for the month of July, 2018. Accordingly, to give effect to this decision, the Notification 20/2018 Central Tax (Rate) has been issued amending notification 5/2017 Central Tax (Rate). To keep the accounting simple, it was decided to make these changes effective from the 01/08/2018.
Certain doubts have been raised regarding the applicability and intent of Notification 20/2018 Central Tax (Rate), relating to the provision for lapsing of input tax credit accumulated on account of inverted duty structure on fabrics for the period upto the 31/07/2018, as under:
(1) Whether this notification seeks to lapse all the input tax credit lying unutilised after payment of tax upto the month of July. 2018?
(2) Whether unutilised ITC in respect of services and capital goods shall also be disallowed?
(3) Implication to fabrics like cotton and silk where there was no inverted duty structure?
(4) Whether accumulated ITC in respect of exports shall also be made to lapse?
CBIC has examined the matter and has clarified that restriction of refund of accumulated ITC under Notification 5/2017 Central Tax (Rate) dt. 28/06/2017 is applicable only in respect of refund of accumulated ITC on inputs. This notification does not put any restriction in relation to the ITC on input services and capital goods.
Doubts have also been raised as regards the manner of calculating the ITC amount accumulated on account of inverted duty structure on the inputs of said fabrics that would lapse on account of above stated change. CBIC has clarified that for determination of such amount, the formula as prescribed in rule 89(5) of the CGST rules shall mutatis mutandis apply as it applies for determination of refundable amount for inverted duty structure. Such amount shall be determined for the months from July, 2017 to July 2018 [or for the relevant period for such fabrics on which refund was blocked subsequently by inserting entries in Notification 5/2017 Central Tax (Rate)]. The accumulated input tax credit determined by each supplier using the prescribed formula lying unutilised in balance after making the payment of GST for the month of July, 2018 shall lapse.
For complete details of the CBIC clarification, please refer the relevant Circular attached below:
CBIC GST Circular 56/30/2018 dt. 24/08/2018: CBIC Clarification on Refund/ Lapse of Accumulated ITC (Fabrics)