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ITC to lapse

10 Highlights of Undated Draft Circular of August 2018 -354/290/2018-TRU regarding (Input Tax Credit) ITC to Lapse.

The Tax Research Unit of CBIC has issued a draft circular to address the controversy arising due to lapse of credit in respect of fabrics vide Notification 20/2018. The circular deals with calculation of ITC to lapse, impact of lapse of ITC on exports, input services and capital goods and also deals with situations of fabrics where tax rate on inputs is not higher than outward supplies like cotton and silk. The major highlights of the Circular are as under

1. It was decided in 28th GST Council meeting to simultaneously lapse the accumulated ITC, lying unutilized, for the past period, after the payment of GST for the month of July, 2018 [Para 3 of Circular]

2. ITC on input services and capital goods are not affected by notification 20/2018 regarding lapse of credit [Para 6 and 8 of Circular].

3. As regards, the legislative power of providing for lapsing of input tax credit, the same flows inherently from the power to deny refund of accumulated ITC on account of inverted structure.[Para 9 of Circular].

4. Calculation of ITC to lapse shall be done according to formula provided in Rule 89(5) to ensure that ITC relating to capital goods and input services does not lapse.

Formula :

{(Turnover of inverted rated supply of goods÷ Adjusted Total Turnover) x Net ITC} – Tax payable on such inverted rated supply of goods.

The above formula to be applied separately for CGST, SGST,UTGST and IGST

The formula gives the maximum amount of ITC to lapse. If calculated ITC is Rs. 5 lacs and actual ITC is

a) Rs. 10 lacs, only Rs. 5 lacs shall lapse
b) Rs. 3 lacs, Rs. 3 lacs and not 5 lacs shall lapse [Para 10 of Circular].

5. ITC relating to stock as on 31-07-2018 shall be excluded while making calculation of ITC to be lapsed.[Para 11].

6. ITC relating to inputs contained in stock to be determined as per Point no. 7 of ITC-01 [Para 11]. Point no. 7 of ITC-01 requires following information to be furnished for allowing ITC on inputs u/s 18(1):

1. GSTIN of Supplier
2. Invoice No. and Date
3. Description of Inputs
4. Unit Quantity Code
5. Quantity
6. Value (As adjusted by credit/debit note)
7. Amount of ITC claimed.

7. Formula to be applied to cotton, silk and other natural fibre fabrics also inspite there is no inverted duty rate structure involved. Calculation as per formula shall automatically take care of such situations [Para 12].

8. Formula under Rule 89(5) excludes zero rated supplies and ensures that ensures that accumulated ITC on exports does not lapse.[Para 13].

9. The amount of ITC to lapse shall be reflected in GSTR 3B for August 2018 in column 4B (2) of the return [ITC amount to be reversed for any reason (others)]. [Para 14].

10. Verification of accumulated ITC amount so lapsed may be done at the time of filing of first refund (on account of inverted duty structure on fabrics). A detailed calculation sheet in respect of accumulated ITC lapsed shall be prepared by the taxable person and furnished at the time of filing of first refund claim on account of inverted duty structure.

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2 thoughts on “Updated Draft regarding Lapse of ITC Under GST Act

  1. Gopikishan Tulsiram kabra says:

    1. please see minutes of 28 th meeting available on gst councils website .
    It is clear that The council did not recommend to lapse surplus itc.
    Which authority lapse the itc it is yet suspense ?
    2. we have paid value in cash for the itc in consideration of right to utilize the same in future for our tax liabilities and while accumulation the same right was available by the act. while accumulation it was understood that it may be utilized so it may not be forfeited now.
    3.surplus itc is our current asset and part of our working capital. there is a huge difference between deny of refund and lapse, it may not be considered inherently powers. there is no any section to lapse itc in the act it is beyond the powers and unconstitutional. I am filed rti request also.



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