Understanding GST Circular No. 173/05/2022: Refund Under Inverted Duty Structure

2025-03-03 05:13:43 02March

02March

Understanding GST Circular No. 173/05/2022: Refund Under Inverted Duty Structure

<h2 class="text-xl font-bold text-text-200 mt-1 -mb-0.5">What is the Circular About?</h2><p class="whitespace-pre-wrap break-words">Circular No. 173/05/2022-GST, dated July 6, 2022, addresses a specific situation: when suppliers can claim refunds of accumulated input tax credit (ITC) while supplying goods at lower tax rates under concessional notifications.</p><h2 class="text-xl font-bold text-text-200 mt-1 -mb-0.5">Key Clarifications</h2><h3 class="text-lg font-bold text-text-200 mt-1 -mb-1.5">Previous Position</h3><p class="whitespace-pre-wrap break-words">Previously, Circular No. 135/05/2020-GST (dated March 31, 2020) stated that refund of accumulated ITC would not be admissible in cases where the input and output supply are the same, even if they attracted different tax rates at different points in time.</p><h3 class="text-lg font-bold text-text-200 mt-1 -mb-1.5">The New Clarification</h3><p class="whitespace-pre-wrap break-words">The CBIC has now clarified that:</p><ol class="[&:not(:last-child)_ul]:pb-1 [&:not(:last-child)_ol]:pb-1 list-decimal space-y-1.5 pl-7"><li class="whitespace-normal break-words">Refunds are allowed when a supplier is making supplies under a concessional notification</li><li class="whitespace-normal break-words">This applies when the rate of tax on output supply is less than the rate of tax on input supply (of the same goods) at the same point in time</li><li class="whitespace-normal break-words">The accumulation of ITC must be due to the concessional notification issued by the Government</li></ol><h3 class="text-lg font-bold text-text-200 mt-1 -mb-1.5">Important Conditions</h3><p class="whitespace-pre-wrap break-words">The refund benefit is subject to certain conditions:</p><ul class="[&:not(:last-child)_ul]:pb-1 [&:not(:last-child)_ol]:pb-1 list-disc space-y-1.5 pl-7"><li class="whitespace-normal break-words">The output supply cannot be nil-rated or fully exempted</li><li class="whitespace-normal break-words">The goods or services must not be specifically excluded by the Government from refund of accumulated ITC</li></ul><h2 class="text-xl font-bold text-text-200 mt-1 -mb-0.5">Why This Matters</h2><p class="whitespace-pre-wrap break-words">This clarification is significant for businesses that:</p><ul class="[&:not(:last-child)_ul]:pb-1 [&:not(:last-child)_ol]:pb-1 list-disc space-y-1.5 pl-7"><li class="whitespace-normal break-words">Supply goods under concessional notifications</li><li class="whitespace-normal break-words">Face accumulation of input tax credit due to inverted duty structure</li><li class="whitespace-normal break-words">Were previously unable to claim refunds based on the earlier circular</li></ul><h2 class="text-xl font-bold text-text-200 mt-1 -mb-0.5">Practical Implications</h2><p class="whitespace-pre-wrap break-words">Businesses should review their current tax positions if they:</p><ul class="[&:not(:last-child)_ul]:pb-1 [&:not(:last-child)_ol]:pb-1 list-disc space-y-1.5 pl-7"><li class="whitespace-normal break-words">Supply goods under any concessional notification</li><li class="whitespace-normal break-words">Have accumulated ITC that couldn't be utilized</li><li class="whitespace-normal break-words">Previously avoided claiming refunds based on the earlier interpretation</li></ul><p class="whitespace-pre-wrap break-words">The circular ensures uniform implementation across all field formations, providing much-needed clarity for taxpayers operating under special rate notifications.</p><p><a href="https://cms.plasament.com/storage/cir-173-05-2022-cgst-1.pdf">cir-173-05-2022-cgst-1</a><br> </p>