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unutilized ITC

The GST Law provide for refund of unutilized ITC, where credit accumulation is on account of inverted duty structure, subject to certain riders. Time lines have been set for processing of refund claims and claims not settled within 60 days will be paid with interest @6% Claims are to be filed with minimum documentation and the refund amount will be credited directly to the claimant’s bank account. The process is online and hassle free and with minimum deal with tax authorities.



Subject to the provisions of section 54(10), a taxable person may claim refund of any unutilized ITC (input tax credit) at the end of any tax period – section 54(3) of CGST Act.[Section 54(10) provides for recovery of any penalty, tax or interest from any refund due].

When refund of unutilized ITC is not allowed?

1. First proviso to section 54(3) of CGST Act. – No refund of unutilized ITC (input tax credit )shall be allowed in cases other than exports including zero rated, supplies or in cases 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.

2. Second proviso to section 54(3) of CGST Act. – No refund of unutilized ITC (input tax credit ) shall be allowed in cases where the goods exported out of India are subjected to export duty.

3. Third proviso to section 54(3) of CGST Act. – No refund of input tax credit shall be allowed if the supplier of goods or services avails duty drawback of GGST/SGST/UTGST or claims refund of IGST paid on such supplies.

However, drawback of customs duty part can be availed.

As per section 2(42) of CGST Act. – ‘Drawback” in relation to any goods manufactured in India and exported, means the rebate of duty, tax or cess chargeable on any imported inputs or on any domestic inputs or input services used in the manufacture of such goods.

Refund only in case of (a) exports and supplies to SEZ (b) inverted rate structure:-

Refund will be admissible only in case of physical exports and supplied to SEZ. Provision of ‘deemed export‘ has been made in CGST Act. However, there is no specific provision of refund in case of deemed exports or supplies to EOU.

As per the first proviso to section 55(3) of CGST Act. refund is admissible if GST rate on inputs is higher that GST rate of output supplied. However, refund is not available in cases were supply is exempted or nil rated.



Sanctioning 90% of claim on provisional basis in case of exports:

Notwithstanding anything contained in section 54(5) [which states that refund should be credited to Consumer Welfare Fund], the proper officer may, in the case of any claim for refund on account of zero-rated supply of goods or services or both made by registered persons, other than such class of registered persons as may be notified by the Government, on the recommendations of the Council, refund on a provisional basis, ninety per cent of the total amount so claimed, excluding the amount of input tax credit provisionally accepted, in such way and subject to such conditions, limitations and safeguards as may be prescribed and then make an order under section 54(5) for final settlement of the refund claim after due verification of documents furnished by the applicant – section 54(6) of CGST Act.

Refund in case of inverted duty structure

In case of inverted duty rates (i.e. input tax credit more that tax payable on outward supply), there is provision of refund of excess credit under section 54(3) of CGST and SGST Act.

However, this refund is not admissible where the rate of output supply is Nil or exempt. Further, as per proviso (ii) to section 54(3) of CGST and SGST Act, Government can notify supply of goods or services where refund of unutilized ITC  (input tax credit) will not be admissible, even if ITC is more that tax payable on output supply. Under these powers, following notifications have been issued.

No refund of ITC even if input tax credit more than GST payable on outward supply – In case of service of construction of complex [specified in Item 5(b) of Schedule-II of CGST Act], refund of unutilized ITC will not be available – Notification No. 15/2017-CT (Rate) dated 28-6-2017.



Calculation of refund in case of inverted duty structure

In the case of refund on account of inverted duty structure, refund of Input TaxCredit will be as per following formula [Rule 89(5) of CGST and SGST Rules,20l7]

Maximum Refund Amount :{([Turnover of inverted rated supply of goods) X Net ITC]/Adjusted Total Turnover} – tax payable on such inverted rated supply of goods.
Net ITC and Adjusted Turnover has same meaning as assigned in rule 89(4) of CGST and SGST Rules.

Refund in case of exports or supplies to SEZ

The taxable person has following options – (a) pay IGST on exports and claim refund of IGST (b) Clear goods for export without payment of IGST and claim refund of Input Tax Credit (c) If his part supplies are exports, he can use that credit for payment of GST on supplies within India. In that case he need not apply for refund at all.




Refund of IGST paid on goods exported out of India

A taxable person has option to pay IGST on goods exported out of India and claim refund. He may like to this if he has excess Input Tax Credit which may be otherwise not utilizable. Provision contained in rule 96 of CGST and SGST Rules, 2017.

Shipping Bill shall be deemed to be application for refund:

Shipping Bill filed by exporter shall be deemed to be application for refund of IGST. Export Manifest or Export Report covering the number and date of shipping bill should have been filed.

The applicant should have filed valid return in form GSTR-3 or GSTR–3B as the case may be – Rule 96(1) of CGST and SGST Rules, 2017.

Details of export invoices shall be transferred to customs electronically:

Details of export invoices contained in valid return in form GSTR-3 or GSTR-3B as the case may be shall be transmitted to system designated by Customs. The system shall confirm that the goods have been exporters out of India – Rule 96(2) of CGST Rules, 2017.

Processing of refund by customs system:

The system designated by customs will process the refund application on confirmation of export of goods and valid return. IGST in respect of each shipping bill will be transferred to bank account of applicant as mentioned in registration particulars of applicant – Rule 96(3) of CGST Rules, 2017.


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3 thoughts on “Refund of Unutilized ITC under GST

  1. Vinay Desai says:

    When refund process for ITC paid on export of goods without payment of IGST will start?

  2. Deepak Gochhayat says:

    Sir
    we have export prawn which hsn is 03061700 (nil rated) and our unit is fully export oriented.
    Can we get refund of ITC on processing expencess.

  3. T.K.MANNA says:

    Sir, We have purchased materials for manufacturing Wagons for Indian Railways with payment of 18% IGST and Cleared the Wagons With payment of 5% IGST/CGST,SGST . Can we eligible for refund of Excess credit or Carry forward the Excess credit balance ?

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