GST UPDATE

????Desk of CA. Praveen Sharma Series-591????

Draft Reply to Notice for Rejection of Refund Application under Section 54(3)(ii) of CGST

?We acknowledge receipt of the above-referenced show cause notice rejecting the refund claimed for the period _____, stating that the refund does not fall under Section 54(3)(ii) as the tax rates on raw materials and finished goods are not different.

?The rejection of our refund claim is not in accordance with the law. The goods/services received have a higher tax rate than the tax rate applicable on the final product, making us eligible for a refund as per Section 54 of the CGST Act, 2017.

?Section 54(3) allows refund of unutilized ITC when the tax rate on inputs is higher than on outputs, resulting in an inverted duty structure. Rule 89(5) provides the formula for calculating such refunds, and we have followed this statutory formula.

?The refund claim is based on the statutory scheme and not on a one-to-one correlation between inputs and outputs. Our inputs, such as packing materials, qualify as "inputs" under Section 16 and Section 2(59) of the CGST Act, 2017.

?The rejection notice erroneously interprets the tax rates on our inputs and outputs. Our turnover includes various outputs with tax rates lower than the inputs. The law does not consider "more or less" similarity in rates; it allows refunds if the average input rate exceeds the output rate, even marginally.

?The argument that refund is denied due to high input purchases and stock during the claim period is not relevant. The refund calculation is based on output turnover during the claim period, as per Rule 89(5).

?Circular No. 125/44/2019-GST cited by the authority is not applicable, as it pertains to single-product cases, whereas our case involves multiple inputs and outputs.

CA. Sharma Praveen

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