Clarification on issue of claiming refund under inverted duty structure where the supplier is supplying goods under some concessional notification.

Circular No.: 173/05/2022-GST
Date of Circular: 6th July 2022
Relevant Sections and Rules:

• CGST Act, 2017:
  • Section 54(3)(ii): Refund of accumulated input tax credit under inverted duty structure
  • Section 168(1): Power to issue instructions
• Relevant Previous Circular:
  • Circular No. 135/05/2020-GST dated 31.03.2020 (specifically para 3.2)

Summary of Clarification Provided:

1. Clarification on Refund of Accumulated ITC Under Inverted Duty When Supplying Under Concessional Notification:
   It was earlier clarified in para 3.2 of Circular No. 135/05/2020-GST that no refund of accumulated ITC is allowed if input and output goods are the same, even if their tax rates differ at different times.
   This Circular refines that position.

Now clarified that:

• If a supplier uses the same goods as input and output, but makes outward supply at a lower rate under a concessional notification, while the input tax is at a higher rate,
• Then refund of accumulated ITC is admissible under Section 54(3)(ii) of the CGST Act.

2. Revised Position – Substitution of Para 3.2 in Earlier Circular:
   The new para 3.2 clarifies:

• Refund is available where ITC accumulation arises due to output tax rate being lower than input, even if both are for the same goods,
• Provided the lower rate on output is due to a valid concessional government notification,
• And the supply is not nil-rated, fully exempt, or specifically excluded from refund eligibility.

Source: Circular No.: 173/05/2022-GST