Gujarat High Court Allows Refund Of Tax On Input Services Under Inverted Duty Structure

The High Court of the State of Gujarat has ruled that companies can claim a refund using unutilised tax credit arising from input services under the inverted duty structure. The HC held that disallowing refunds on tax paid on input services is contrary to the CGST Act and businesses must be allowed to consider the tax paid on input services for calculating the claim of refund under the inverted duty structure. Section 54 of the CGST Act allows businesses to claim a refund on taxes paid on 'inputs', without any differentiation between goods or services. This refund can be claimed by filing RFD-01A within two years from the end of the financial year in which the taxpayer makes the claim. However, in April 2018, this section was amended to exclude the tax paid for 'input services' from the scope of 'net input tax credit' used for computing the refund amount. A number of taxpayers have challenged this amendment since then. Petitioners have argued that GST is a consumption tax which is based on value addition with an aim to minimise the cascading effect and facilitating a 'seamless' flow of input tax credit. Section 54 of the CGST Act addresses the anomaly of an inverted duty by allowing refund of additional taxes borne by businesses. As this is applicable to both goods and services, the amended rules cannot make a contradictory differentiation. The HC has provided partial relief to petitioners stating that the amended rules violate the act.

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