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What’s New
Tax Insights
14 November 2022
Revised formula for IDS refund cases and restriction on certain goods covered under Chapters 15 and 27 applicable prospectively
In brief
The CBIC in its recent circular1 has clarified two important issues relating to input tax credit (ITC) refunds vis-à- vis inverted duty structure (IDS) cases, which are –
(i) The revised formula under rule 89(5) of the Central Goods and Services Tax Rules, 2017 (CGST Rules) is applicable prospectively with effect from 5 July 2022.
(ii) The restriction which was placed in respect of certain goods covered under Chapters 15 and 27 will also apply prospectively with effect from 18 July 2022.
In detail
Effective date for revised formula under rule 89(5) of the CGST Rules
The formula to claim refund of unutilised ITC was amended by a notification2. Upon representations raised by the trade and field formations, the CBIC has now clarified the following:
• The amendment in the refund formula is not clarificatory in nature and is applicable prospectively with effect from 5 July 2022.
• Accordingly, the revised formula would be applicable for all refund applications filed on or after 5 July 2022.
• The refund applications filed before 5 July 2022 would be dealt as per the formula as it existed before the amendment.
Effective date for negative categories for IDS refund
Referring to another notification3 that was made effective from 18 July 2022, it was notified that certain goods covered under Chapters 15 and 27 of the Customs Tariff are not eligible for IDS refund.
1 Circular No. 181/13/2022 dated 10 November 2022
2 Notification No. 14/2022-Central Tax dated 5 July 2022
3 Notification No. 09/2022-Central Tax (Rate) dated 13 July 2022
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In this regard, the following is clarified:
• This restriction has a prospective effect, and accordingly, the restriction would be applicable in respect of refund applications filed on or after 18 July 2022.
• The restriction will not apply to the refund applications filed before 18 July 2022.
The takeaways
This issue of applicable date of the refund formula was gaining prominence among the trade and field formations. While this circular clarifies the government’s position, the principle of retrospective application of beneficial provisions of law has been debated by the courts in the past and this circular may also be subject to potential challenge.
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In this document, “PwC” refers to PricewaterhouseCoopers Private Limited (a limited liability company in India having Corporate Identity Number or CIN : U74140WB1983PTC036093), which is a member firm of PricewaterhouseCoopers International Limited (PwCIL), each member firm of which is a separate legal entity.
©2022 PricewaterhouseCoopers Private Limited. All rights reserved.
Tax Insights
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