Rule 89(4)
In the case of zero-rated supply of goods or services or both without payment of tax under bond or letter of undertaking in accordance with the provisions of sub-section (3) of section 16 of the Integrated Goods and Services Tax Act, 2017 (13 of 2017), refund of input tax credit shall be granted as per the following formula –
Refund Amount = (Turnover of zero-rated supply of goods + Turnover of zero-rated supply
of services) x Net ITC ÷Adjusted Total Turnover
Where,-
(A) “Refund amount” means the maximum refund that is admissible;
(B) “Net ITC” means input tax credit availed on inputs and input services during the relevant period;
(C) “Turnover of zero-rated supply of goods” means the value of zero-rated supply of goods made during the relevant period without payment of tax under bond or letter of undertaking;
(D) “Turnover of zero-rated supply of services” means the value of zero-rated supply of services made without payment of tax under bond or letter of undertaking, calculated in the following manner, namely:-
Zero-rated supply of services is the aggregate of the payments received during the relevant period for zero-rated supply of services and zero-rated supply of services where supply has been completed for which payment had been received in advance in any period prior to the relevant period reduced by advances received for zero-rated supply of services for which the supply of
services have not been completed during the relevant period;
(E) “Adjusted Total turnover” means the turnover in a State or a Union territory, as defined under sub-section (112) of section 2, excluding the value of exempt supplies other than zero-rated supplies, during the relevant period;
(F) “Relevant period” means the period for which the claim has been filed.
Now let us discuss the loophole while making an online application for Refund of Input Tax Credit on Zero-rated supply without payment of GST.
In Statement 3A the portal is asking two figures:
- Turnover of Zero Rated supply (Export turnover)
- Adjusted total turnover
Now as discussed above adjusted total turnover means the turnover in a State or a Union territory, as defined under sub-section (112) of section 2, excluding the value of exempt supplies other than zero-rated supplies, during the relevant period”
The importance of Adjusted total turnover is to work out the Refund amount.
Refund amount is defined in rules means the maximum refund that is admissible.
It means the refund amount is the maximum amount that can be claimed as a refund for a relevant period.
Formula for refund amount:
Refund Amount = (Turnover of zero-rated supply of goods + Turnover of zero-rated supply
of services) x Net ITC ÷Adjusted Total Turnover
Here comes the involvement of Net ITC.
“Net ITC” means input tax credit availed on inputs and input services during the relevant period;
It means ITC availed during the relevant period. ITC availed means ITC available as per table 4C of GSTR 3B.
Now let us understand the loophole with the help of the following example:
Say refund claim to be applied for the month of April 2019
Export turnover : 1,00,00,000/-
Taxable turnover : 10,00,000/- (5% GST applicable)
GST Payable: 50,000/-
ITC availed as per GSTR 3B for the month: 5,00,000/-
ITC utilizes for payment of GST: 50,000/-
ITC carried forward in Credit ledger: 4,50,000/-
As per formulae given for Refund amount the maximum admissible refund in above case would be:
5,00,000/- (Net ITC) x 1,00,00,000/- (Export turnover) / 1,10,00,000/- (Adjusted total turnover)
Which comes to Rs.4,54,545/-. (Subject to maximum of ITC carried forward in credit ledger for relevant period i.e. Rs.4,50,000/- in the present case).
Now when we are making an application on the portal the portal applies the above formulae to the carried forward ITC i.e. to Rs.4,50,000/- and not to Rs.5,00,000/-.
Accordingly as per portal the refund amount will come to (4,50,000/- x 1,00,00,000/- / 1,10,00,000/-): Rs.4,09,090/-
So because of the above loophole on the portal, the taxpayer is losing its eligible refund which is not a correct position.
To cope up with the above loophole on the portal it is advisable to enter Export turnover and Adjusted total turnover as the same figure. This will lead to litigation but it is better to fight than to give away the legitimate right of refund.
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