GST Refund Claim on Input Services U/S 54 of CGST Act

As per the provisions of section 54 of the CGST act, no GST refund of the unlisted ITC will be permitted in cases other than the

• i. Zero-rated supply made without payment of tax;

• ii. In which the credit has been collected on the basis of the tax rate on the inputs more than the tax rate on outputs supplies (other than nil rated or fully exempted supplies).

As per the mentioned section, it could come as the GST refund would be claimed only in two situations that are in the case of zero-rated supply and inverted duty structure.

• A. Zero-Rated Supply: Under section 16 of the IGST Act, zero-rated supply denotes any of the following supplies of goods or services or both:

  • (a) Export of goods or services or both

  • (b) Supply of goods or services or both to a Special Economic Zone developer or a Special Economic Zone Unit.

• B. Output Supplies: Under section 2(83) of the CGST Act, supply concerning the taxable individual rendered the supply of goods or services or both, whether by sale, transfer, barter, exchange, license, rental, lease or disposal or any different mode, created or agreed to be made by the individual for the concern of the subsequent business.

• C. Input: Under section 2(59) of the CGST act, input rendered any goods other than the capital goods utilized or plan to use with an intention by the supplier for the business future.

• D. Input Services: Under Section 2(60) of the CGST Act, Input Services means any service availed or intended to be used by a supplier for business.

From the mentioned definitions, the same arrived that the GST refund is only available when it is the case of the zero rate supply or in the case of the tax rate on the input is exceeds the rate of the output supply.

The term used in the second case is input and not input services. The same directed that through the section no refund of the input services would be made when the tax rate on the input service exceeds the tax rate on the output supply of the goods or services or both.

Below mentioned cases in which the same situation comes are:

• i. Output Supply Rate: 5% /12%: Input service rate: 18%- No Refund shall be accomplished for Input services

• ii. Output Supply Rate: 5%/12%: Input goods rate: 18%- Refund could be accomplished for Input Goods

Kinds of Input Services on which input tax is 18%:

• i. Rent service

• ii. Professional service

• iii. Works Contract Service ( Construction)

• iv. Financial Services

• v. Legal & Accounting services

• vi. Maintenance & Repair services

• vii. Job work services

The Supreme court acknowledges the problem and the decisions on that is as follows:

High Court of Gujarat

The Gujarat High Court rendered to permit the avail of the refund of the unused ITC of “input services” as part of the “net input tax credit” (Net ITC) for the purpose of computation of the refund of the claim Under Rule 89(5) of the CGST Rules, 2017 for claiming refund under Sub-section 3 of Section 54 CGST Act, 2017.

Hence the court ruled that the refund of the GST furnished on the input services will be acknowledged for the refund computation beneath Rule 89(5) of CGST Rules.

High Court of Madras

The Madras High court ruled that no refund of the GST ITC on the basis of the inverted duty structure.

The mentioned judgment is in the contraction of the judgment passed by the Gujarat High Court in the case of VKC Footsteps India Pvt Ltd.

Supreme Court Judgment

The Supreme court in its landmark judgment on September 13th, 2021 cancelled the order of the Gujarat High Court and verified the judgment of the Madras High Court, thereby rejecting the refund of input services for the concern of inverted duty structure.

SC recognizing the tough issue went in the favor of the Madras High Court but made the suggestion to the GST board the remove this anomaly of law.

Via judgment of the honorable Supreme Court, the same revealed that the refund of the input services shall not be given due to the anomaly of the law. The court suggested to the GST board and urged that the board would remember and make essential amendments to the law so that the refund of the services would be issued.