Refund of unutilised itc
This query is : Resolved
25 December 2018
We are a 100 % Export oriented unit. We do not have any DTA sale. GST paid on capital goods is also a part of our unutilised ITC. This GST paid on capital goods is not being accepted for refund by the jurisdictional officers. They say that we can only adjust it to our taxes DTA sale. But we do not have any DTA sale. Please advise.
25 December 2018
Sir,
GST paid on capital goods is not eligible for refund in case of exports against LUT, Hence it is advisable to opt for payment of export on payment of tax and utilize the amount of input on capital goods on payment of such tax and apply for refund of tax paid on export.
Thanks and regards
CA Shubham Sharma
Contact No.9462302922
email-shubham.vnv@gmail.com
GST paid on capital goods is not eligible for refund in case of exports against LUT, Hence it is advisable to opt for payment of export on payment of tax and utilize the amount of input on capital goods on payment of such tax and apply for refund of tax paid on export.
Thanks and regards
CA Shubham Sharma
Contact No.9462302922
email-shubham.vnv@gmail.com
Message likes :
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25 December 2018
Thankyou Sir for your reply. But being a 100 % EOU we import raw material and consumables at concessional rate of duty ( without payment of customs duty and IGST ) and hence if we make our exports by payment of IGST ( instead of exports against LUT) the refund rule says we are not eligible to get the IGST paid on exports as refund. Please advise
20 July 2025
This is a classic issue faced by 100% Export Oriented Units (EOUs) under GST regarding refund of unutilized Input Tax Credit (ITC) on capital goods when exports are made without payment of IGST under LUT (Letter of Undertaking).
Key points to understand:
Exports under LUT (without payment of IGST)
No IGST is paid on exports.
Since no IGST is paid, there is no output tax liability against which ITC (including on capital goods) can be adjusted.
Under the current GST rules, refund of unutilized ITC on capital goods is not allowed when exports are made without payment of tax.
This leads to the accumulation of unutilized ITC which cannot be claimed as refund or adjusted.
Exports on payment of IGST
IGST is paid on exports.
ITC can be used to offset IGST liability.
Refund claim can be made for the IGST paid on exports.
But, as you rightly pointed out, EOUs often import raw materials under concessional customs duty, so paying IGST on exports is not practical (and may disqualify the concessional benefits).
What does the law say?
As per Notification No. 50/2018-Central Tax (Rate) and subsequent circulars:
ITC on capital goods and inputs used in exports is eligible for refund only when exports are made on payment of IGST.
For exports under LUT (zero-rated without payment of tax), refund of unutilized ITC on capital goods is generally not allowed.
What are the possible options?
Option 1: Export under LUT and absorb the cost of unutilized ITC (common practice but ITC remains blocked).
Option 2: Export on payment of IGST to utilize ITC fully and claim refund of IGST paid on exports (but loses concessional customs benefits).
Option 3: File a legal challenge or representation citing hardship and seeking relaxation or clarification from GST authorities or tribunal (this is a longer route).
Option 4: If you have any DTA sales (which you said you do not), use ITC against output GST on DTA sales.
Key points to understand:
Exports under LUT (without payment of IGST)
No IGST is paid on exports.
Since no IGST is paid, there is no output tax liability against which ITC (including on capital goods) can be adjusted.
Under the current GST rules, refund of unutilized ITC on capital goods is not allowed when exports are made without payment of tax.
This leads to the accumulation of unutilized ITC which cannot be claimed as refund or adjusted.
Exports on payment of IGST
IGST is paid on exports.
ITC can be used to offset IGST liability.
Refund claim can be made for the IGST paid on exports.
But, as you rightly pointed out, EOUs often import raw materials under concessional customs duty, so paying IGST on exports is not practical (and may disqualify the concessional benefits).
What does the law say?
As per Notification No. 50/2018-Central Tax (Rate) and subsequent circulars:
ITC on capital goods and inputs used in exports is eligible for refund only when exports are made on payment of IGST.
For exports under LUT (zero-rated without payment of tax), refund of unutilized ITC on capital goods is generally not allowed.
What are the possible options?
Option 1: Export under LUT and absorb the cost of unutilized ITC (common practice but ITC remains blocked).
Option 2: Export on payment of IGST to utilize ITC fully and claim refund of IGST paid on exports (but loses concessional customs benefits).
Option 3: File a legal challenge or representation citing hardship and seeking relaxation or clarification from GST authorities or tribunal (this is a longer route).
Option 4: If you have any DTA sales (which you said you do not), use ITC against output GST on DTA sales.
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