GST REFUND ISSUE ON PURCHASE OF PLANT AND MACHINERY

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A company setting up a freezing plant has accumulated GST Input Tax Credit (ITC) on machinery purchases before commencing operations. While a cash refund isn't possible at this stage, the ITC will not be forfeited. It will remain in the Electronic Credit Ledger and can be carried forward indefinitely to offset future GST liabilities once the business starts. Cash refunds are only permitted for zero-rated supplies or inverted duty structures, neither of which applies here.

TARIQUE RIZVI

TARIQUE RIZVI (Querist)

21 October 2026 RESPECTED SIR
A company is setting up a freezing plant worth crores of rupees. It has to pay GST on the purchase of machinery and spare parts. Since the freezing business has not yet commenced, there is an accumulated Input Tax Credit (ITC) amounting to lakhs of rupees. The question is whether a refund of this ITC can be obtained, or if it will be forfeited.

Dhirajlal Rambhia

Dhirajlal Rambhia

(Expert)

22 October 2026 No cash refund can be obtained at this stage, but your accumulated Input Tax Credit (ITC) will NOT be forfeited.
Under the Central Goods and Services Tax (CGST) Act, 2017, the accumulated ITC will safely remain in your Electronic Credit Ledger. It can be carried forward indefinitely to be offset against your future outward GST liabilities once the freezing plant commences commercial operations.

Dhirajlal Rambhia

Dhirajlal Rambhia

(Expert)

22 October 2026 As per Section 54(3) of the CGST Act, a cash refund of unutilized ITC is strictly limited to only two specific scenarios:
1. Zero-Rated Supplies: Making exports or supplying goods/services to a Special Economic Zone (SEZ) without paying tax.
2. Inverted Duty Structure: When the tax rate on your inputs is higher than the tax rate on your output supplies.
Because your business hasn't commenced operations or generated outward supplies, you do not meet either criteria. Furthermore, under standard GST rules, a cash refund of unutilized ITC accumulated specifically on capital goods (machinery) is explicitly prohibited.

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