Inside GST Input tax collection higher than the output tax paid tax Single issue , two High courts given two different orders raised confusions
Contrary to a Gujarat High Court (HC) verdict, the Madras HC on Monday held Rule 89(5) inserted by the government under the CGST Act on restricting such input tax refunds as valid.
E-commerce companies worried over Madras High court ruling on GST refunds on service inputs
The issue pertain to the high court’s order, which says refunds paid on service inputs can be restricted, but this judgement is totally contrary to Gujarat HC verdict and the implications means it could complicate matters
In result of this judgement Businesses such as e-commerce, which face higher goods and services tax (GST) on raw materials than on finished goods, are in a quandary over whether or not they will get refunds on taxes paid on services.
This means that the companies facing an inverted duty structure raw materials drawing higher GST rates than final goods will not be able to get refunds over taxes paid on the services inputs they used, while they will get it for merchandise inputs.
The government had brought in the rule in 2018 by amending an earlier one that allowed all kinds of credits, regardless of whether the taxes were paid on goods or on services.
Delivering a verdict on a batch of petitions filed on the issue, the Madras HC upheld the validity of the rule as well as the main section of the GST Act.
The Department of Revenue argued that goods and services are in different categories and legislature has wide latitude in matters of taxation in terms of granting of refunds and can pick and choose whom they grant refund and whom they refuse.
On the other hand, petitioners argued that the main section and the rule create a distinction between two categories of assesses.
Earlier The Gujarat High court, while hearing a petition filed by VKC Footsteps India, had said the intent of the government (framing a rule restricting input tax credit) cannot be the intent of law.
Footwear attracts GST of 5 per cent whereas majority of the inputs and input services attract GST at the rate of 12 per cent or 18 per cent, which results in accumulation of un utilised credit. This makes refunds of this credit critical for the business.
Therfore Gujarat HC had allowed a footwear company to claim credit for taxes paid on service inputs under the GST regime, striking down an explanation given under Rule 89(5).
But Chennai high Court The latest ruling makes the issue totally complicated.
While the rulings by the HCs are valid in two separate states, what happens to those running their businesses in other states..
This also means inside Gujarat restricting input tax credit is not permissible whereas inside Tamilnadu restricting input tax credit is permissible
“This (Madras) ruling comes as a jolt to many, who after the VKC Gujarat HC ruling were hoping to get the refund of accumulated input services,” said Harpreet Singh, partner at KPMG.
“Many dealers may still decide to file the refund claim for input services, but getting the same from tax authorities may not be easy on account of these two diametrically opposite rulings,” Singh added.
Abhishek Jain, tax partner at EY, said the ruling would come as a substantial setback to businesses, including those in the mobile phone, fertiliser, government business space.
So what will happen to one nation one GST Slogan ..
