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Recently the Government notified amendments to certain provisions of the CGST Rules, 2017. One of the amendments was in relation to Rule 89(4) which provides mechanism for calculation of refund amount of input tax credit in relation to zero-rated supply of goods or services or both without payment of tax under bond or letter of undertaking in accordance with provisions of sub-section (3) of section 16 of the IGST Act, 2017.

The formula for calculation of quantum of input tax credit under Rule 89(4) is given as:

'Refund Amount = (Turnover of zero-rated supply of goods + Turnover of zero-rated supply of services) x Net ITC ÷Adjusted Total Turnover

In the aforementioned rule, the amendment has been made to Clause (E) which deals with the definition of ‘Adjusted Annual Turnover”. A comparison of the amended portion with respect to its old version has been represented herein below:

Before the Amendment:

89. (4) ....................

(E) Adjusted Total turnover" means -

the turnover in a State or a Union territory, as defined under clause (112) of section 2, excluding – 

(a) the value of exempt supplies other than zero-rated supplies and 

(b) the turnover of supplies in respect of which refund is claimed under sub-rules (4A) or (4B) or both, if any, during the relevant period; 

(F) 'Relevant period” means the period for which the claim has been filed.

After the Amendment:

89. (4) ....................

(E) 'Adjusted Total Turnover” means the sum total of the value of

(a) the turnover in a State or a Union territory, as defined under clause (112) of section 2, excluding the turnover of services; and 

(b) the turnover of zero-rated supply of services determined in terms of clause (D) above and non-zero-rated supply of services, excluding- 

(i) the value of exempt supplies other than zero-rated supplies; and 

(ii) the turnover of supplies in respect of which refund is claimed under sub-rule (4A) or sub-rule (4B) or both, if any, during the relevant period.’. 

(F) 'Relevant period” means the period for which the claim has been filed.

Clause D of rule 89(4)- "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 has not been completed during the relevant period;

Comments:

1. Basically the said amendment seeks to bring the mechanism of calculation of refund of input tax credit on account of Zero-rated supply under GST at par with Rule 5 of Cenvat Credit Rules 2004 where 'Total Turnover” was calculated in the similar manner.

2. The amended definition stating "........excluding the turnover of services..." should have been "....excluding the turnover of taxable services...." for more clarity, as we are anyways deducting the value of exempt supplies later on in the formulae, thus if the words "Turnover of services" will be read as "Total turnover of services" it will lead to double deduction of value of exempt supplies which will be illogical.

3. The said amendment is not retrospective and hence will be applicable from the date of issue of its notification which is September 4, 2018.

4. Since, Rule 89(5) which deals with mechanism of calculation of maximum refund amount in case of inverted duty structure and Rule 89(4) share the same definition of ‘Adjusted Total Turnover’ and no amendment has been made in Rule 89(5), this new amended definition will also be applicable in case of calculation of refund amount in case of inverted duty structure.

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