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Higher GST charged by the Vendor: ITC as well as refund available to the recipient

VIVEK JALAN , Last updated: 27 December 2023  

Consider the situation where the input product was chargeable only at the rate of 5% and assesses supplier mistakenly charged higher rate of 18% GST on input for final product, which is chargeable to lower rate of GST of 5%. Inverted duty refund was denied on the ground that –

1. Assesse should also have collected 18% GST, at par with the rate of tax paid by the supplier for the input product.

2. Since the input product is chargeable only at the rate of 5%, however, it has been wrongly made at the rate of 18% by the vendor of the assesse. Therefore, the assessee cannot invoke Section 54(3) of CGST Act.

Higher GST charged by the Vendor: ITC as well as refund available to the recipient

It was held in the case of THE COMMERCIAL TAX OFFICER-GD-III Vs M/s SUZLON ENERGY LIMITED [2023-VIL-810-MAD], that in terms of Section 54(3)(ii) of the CGST Act, 2017 if the rate of tax on input charged and paid is actually higher than the rate of tax on output, assesse can claim the refund. Accordingly, the assesse was considered entitled for refund in terms of the provision of the Section 54(3)(ii) of the Act and no merit was found in the contention of the Dept. that since the supplier had wrongly paid 18% IGST on the input, the assesse-respondent should have paid 18% duty on output. It was ordered that the Dept. cannot insist or advise the assesse to pay excess rate of duty than the duty prescribed in the law.

The judgement of the Hon'ble Division Bench of this Court in M/s. Modular Auto Limited vs. Commissioner of Central Excise, Chennai also supports the case where it has been held as follows:


"16. In the instant cases, it is not in dispute that whatever the portion of Service Tax component which was collected from the assesses by BIL was only the amount on which the CENVAT credit has been claimed by the assesses. Therefore, unless and until the assessment made on BIL was revised, which obviously could have been done, at this juncture, on account of the expiry of the period of limitation, the interpretation given by the Commissioner (Appeals) as well as the Tribunal with regard to the nature of invoice raised on the assesses is unsustainable. Furthermore, we find that the reason assigned by the Tribunal in paragraph 6.2 stating that the activity performed by the BIL for monitoring of production activities of the assesses cannot by any stretch of imagination be considered as an input service or in relation to the manufacture of final products of the assesses, is a statement, which is unsubstantiated by any record. At best, it can be taken as a personal opinion of the Tribunal, which could not have been a reason to reverse the credit availed by the assesses.


17. What is important to note that the assesses specific case is that there has been a service by BIL to the assesses in the matter of retrieval of data and service tax has been collected and paid by BIL and the correctness, legality or otherwise of the tax paid by the subject providers cannot be called in question by the Central Excise Officer having the jurisdiction over the assesses availing the credit. This question has not been considered. If the impugned orders are allowed to stand, then it would in effect mean that the jurisdictional assessment officers of the assesses are sitting in the judgment over the assessment made on BIL, over which, they have no jurisdiction.

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