This appeal has been filed before the appellate authority under Section 107 of the Central Goods and Service Tax Act. 2017 by M/s Ajanta Soya Limited, RIICO Industrial Area, Phase-III, Bhiwadi, District-Alwar (hereinafter also referred to as “the appellant”) against the  Order-in-Original No. Refund-GST/BHD-C/2018-19/RFD-06/149 dated 05.02 2019 (hereinafter called as the “impugned order”) passed by the Assistant Commissioner, Central Goods & Service Tax Division-C, Alwar (hereinafter called as the “adjudication authority”)

2.  BRIEF FACTS OF THE CASE:

2.1  The appellant having GSTIN No.08AAACA0434F1ZA is engaged manufacturing and marketing of Vanaspati and Cooking Oils has filed application for refund in respect of unutilized Input Tax Credit of ₹ 1,07,18285/- for the  month of November-2017 accumulated on account of Inverted Tax Structure.

2.2  Further, on scrutiny of documents submitted by the appellant, the adjudicating authority had noticed that the Tax Structure on major Input used and Final Product manufactured is same i.e. @ 5% (except some consumable items). Thus in terms of sub clause (ii) of Section 54(3) of the CGST/SGST Act, 2017, the accumulated credit appeared same and not to be on account of rate of tax on inputs being higher than the rate of tax on output supplies, hence refund on account of inverted tax structure appeared not admissible to the appellant. Accordingly, Form GST-RFD-08 (Notice for rejection of application for refund) was issued to the appellant and further after considering the defence submission dated 10.12.2018 by the appellant, the application for refund was rejected and confirmed vide FORM-GST-RFD-06 dated 05.02.2019 by the adjudicating authority.

3.  Being aggrieved with the impugned order dated 05 02 2019 the appellant has filed the appeal on the following grounds which are summarized as under:-

• that the learned adjudicating authority has grossly erred in rejecting the refund application in the present case as all the essential conditions as laid down by Section 54(3) of the CGST Act for refund of accumulated credit in case of Inverted Duty Rate structure have been fulfilled by the appellant.
• that the learned adjudicating authority has failed to consider that requirement of rate of tax on inputs being higher than the rate of tax output supply is the only condition subject to the satisfaction of which the refund of the entire accumulated input tax credit shall be allowed.
• that the learned adjudicating authority has grossly erred in relying on the amended definition of Net ITC as amended by Notification No.21/2018- Central Tax dated 18 04 2018 and Notification No.26/2018-Central Tax dated 13.06.2018  since the definition of Net ITC prior to the said amendment allowed refund of both input goods and input services. Also. the learned adjudicating authority has failed to consider that amendment made in the definition of the Net ITC under Rule 89(5)   of CGST Rules is not retrospective in nature.
• that the adjudicating authority has grossly erred in relying on Circular No. 79/53/2018-GST dated 31.12.2019 as the said circular is against the language of Section 54(3) (ii) of the CGST Act and grossly erred in rejecting the refund claim on the ground that tax rate OQ major input and output supply is same, since no such condition is prescribed under the Section 54(3) (ii) of the CGST Act.
• that Section 54(3) lays down the provision for refund of accumulated or unutilized input tax credit. The relevant provision of the said’ section reads as under.

Section 54: Refund of Tax

(1)***

 (3) Subject to the provisions of sub-section (10), a registered person may claim refund of any unutilized input tax credit at the end of any tax period.

Provided that no refund of unutilized input tax credit shall be allowed in cases other than-

            (i)***

(ii) where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies (other than nil rated or fully exempt supplies), except supplies of goods or services or both as may be notified  by the Government on the recommendations of the Council:

Clause (ii) of the above section specifically states that the registered person shall be entitled to claim refund of the accumulated credit if all the following conditions are satisfied:

1 . The credit has been accumulated on account of rate of tax on ‘inputs’ being more than the rate of tax on output

2.  The output supplies are neither nil rated nor exempted

3.  The said output supply has not been specifically notified by the government.

• that the appellant procures Vanaspati and cooking oils from other supplier at tax rate of 5%. Further, it uses ‘inputs’ like packaging material, job charges etc., at tax rate of 18%. The rate of tax on the goods sold by the appellant i.e. Vanaspati and cooking oils is 5% which is much less than the rates of tax on inputs like packaging material job charges and others. Thus, there is accumulation of unutilized input tax credit due to rate of ‘inputs’ being higher than the rate of outward supplies i.e. Vanaspati and Cooking Oils. Section 54(3) (ii) does not state that the rates of alt the inward supplies should be more than the rate on outward supplies. Accordingly. even if the rate of some of the inputs is more than the rate of tax on outward supplies and the same is leading to accumulation of credit, the first condition mentioned under Section 54(3) (ii) will be satisfied. In the present case, rate of input goods like packaging material is 18% which is higher than the rate of output supple, thus Section 54 (3) (ii) is applicable.

that the Central Government vide Notification No. 5/2017- Central Tax(Rate) dated 28.06 2017 specifically notified certain supplies in respect to which the refund of accumulated input tax credit due to inverted tax structure, shall not be allowed. Thus goods supplied by the appellant is no where mentioned in the said Notification. The appellant has also placed reliance on the following decisions:-

• • WNS Global Services (P) Ltd [2011 (22) Service Tax Rules 1994 609 (Born.)]
  • Satyam Balaji Rice Industries (P) Ltd [2015 (39) STR 1004 (Tri Del)]
  • RL Fine Chem [2014 (35) STR 814 (Tri- Bang)]
  • Union of India & Ors. V Tushar Ranjan Mohanty & Ors. (1994) 5 SCC 450
  • P.D. Aggarwal & Ors. V State of U.P. &  Ors. AIR 1987 SC 1676
  • Chairman, Railway Board & Ors. V C R. Rangadhamaiah & Prs., AIR 1997 SC 3828
  • Shabnam Petrofils Pvt Ltd., Vs Union of India (Special Civil Application No. 16213 of 2018) decided on 17.07 2019)
• that the learned adjudicating authority has failed to appreciate that the appellant has correctly submitted the undertaking as per Section 93(2) of CGST rules and has grossly erred in rejecting of refund amount to Appellant’s electronic credit ledger. Appellant further prayed in case refund filed by the appellant is rejected; ₹ 1,07,18,285/- should be re-credited in the electronic credit ledger of the appellant.

4. Personal Hearing in the matter was held on 31.01.2020 wherein Sh. Rahul  Lakhwani, Advocate of the appellant appeared. He explained the case in details and reiterated the submissions made in their appeal memorandum. At the time of personal hearing he has also submitted the additional written submission on dated 31.01.2020 & requested to decide the case on the basis of the documents available on record He further submitted that in case their appeal is not allowed.  re-credit to Electronic Credit Ledger may be allowed

5. I have carefully gone through the case records and submissions made in the appeal memorandum as well as additional written submission submitted at the time of personal hearing on dated 31.01 2020. I find that the adjudicating authority  has rejected the refund claim of Input Tax Credit accumulated on account of Inverted Duty Structure filed by the appellant under Section 54 of the CGST Act, 2017 and held that the Tax Structure on major Input used and Final Product manufactured is same @ 5% (except some consumables items). Therefore, the accumulated input tax credit appeared not to be on account of Inverted tax structure and dis-allowed the refund claim of Input Tax Credit accumulated on account of Inverted Tax Structure.

As per Rule 89 (5) of CGST Rules, 2017 in the case of refund on account of inverted duty structure, refund of input tax credit shall be granted as per the following formula:-

Maximum Refund Amount={(Turnover of inverted rated supply of goods and services) X Net lTC/ Adjusted Total Turnover} – tax payable on such inverted rated supply of goods and services.

Explanation:- For the purposes of this sub-rule. the expressions-

 (a) Net ITC shall mean input tax credit availed on inputs during the relevant period other than the input tax credit availed for which refund is claimed under sub-rules (4A)-or (4B) or both; and

(b) [ “Adjusted Total turnover” and “relevant period” shall have the same meaning as assigned to them in sub-rule (4).]

Refund of unutilized ITC in case of inverted tax structure, as provided in Section 54(3) of the CGST Act, 2017 is available where ITC remains unutilized even after setting off of available ITC for the payment of output tax liability. Where there are multiple inputs attracting different rate of tax, in the formula provided in Rule 89(5) of the CGST Rules, the term Net ITC cover the ITC availed on all inputs in the relevant period, irrespective of their rate of tax.

Further, as per Para -14 of Circular No.79/53/2018-GST dated 31.12.2018 states as under:-

Section 54(3) of the CGST Act provides that refund of any unutilized ITC may be claimed where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies (other than nil rated or fully exempt supplies). Further, section 2(59) of the CGST Act defines inputs as any goods other than capital goods used or intended to be used by a supplier in the course or furtherance of business. Thus, inputs do not include services or capital goods. Therefore, clearly, the intent of the law is not to allow refund of tax paid on input services or capital goods as part of refund of unutilized input tax credit. Accordingly, in order to align the CGST Rules with the CGST Act, notification No. 26/2018-Central Tax dated 13.06.2018 was issued wherein it was stated that the term Net ITC, as used in the formula for calculating the maximum refund amount under rule 89(5) of the CGST Rules, shall mean input tax credit availed on inputs during the relevant period other than the input tax credit availed for which refund is claimed under sub-rules (4A) or (4B) or both. In view of the above, it is clarified that both the law and the related rules clearly prevent the refund of tax paid on input services and capital goods as part of refund of input tax credit accumulated on account of inverted duty structure.

6. Since the appellant has taken Input Tax Credit on the Input, namely Vanaspati and Cooking Oils, Packing material, Input Services related to job work and Capital Goods etc., which attracts different rates of GST Further. I also find that major inputs and output supply attracts the same rate of GST The contention of the appellant that word ‘Inputs’ used under Section 54(3) has no where been defined in the CGST Act, therefore in common practice of business ‘Input’ will include anything or service used in the manufacture of goods is not legally correct and not sustainable. Thus, inputs do not include services or capital goods as part of refund of unutilized input tax credit. Accordingly, as per above legality and thus as per CGST Act and Rules clearly prohibit the refund of tax paid on input services and capital goods as part of refund of input tax credit accumulated on account of inverted duty structure. I do not find much force in the contention of the appellant and the reliance placed by the appellant in their defence is not applicable in this case. I find that the adjudicating authority has rightly passed the order and appellant is not entitled for refund of unutilized input tax credit. Therefore, the appeal is rejected to that extent.

As far as, the issue of the re-credit of the amount of ₹ 1,07,18,285/-   in Electronic Credit Ledger of the appellant is concerned that as per Rue 93 of the CGST Rules. 2017 – (1) Where any deficiencies have been communicated under sub-rule (3) of rule 90, the amount debited under sub-rule (3) of rule 89 Shall be recredited to the electronic credit ledger. (2) Where any amount claimed as refund is rejected under rule 92, either fully or partly, the amount debited, to the extent of rejection, Shall be re-credited to the electronic credit ledger by an order made in FORM GST PMT-03

Explanation– For the purposes of this rule, a refund shall be deemed to be rejected, if the appeal is finally rejected or if the claimant gives an undertaking in writing to the proper officer that he shall not file an appeal.

In view of the above provisions, the appellant may approach the adjudicating authority and follow the procedure as laid down under Rule 93 of CGST Rules. 2017

7.  Thus, the appeal is disposed off in above manner