ITC Refund on Capital Goods Facing Inverted Duty Likely Soon
The government is expected to soon allow a refund of unutilized Input Tax Credit (ITC) accumulated on capital goods in cases involving the Inverted Duty Structure (IDS).
Key Implication of the Upcoming Change
- Addressing a Long-Pending Issue: Currently, the GST law allows a refund of accumulated ITC under IDS only for inputs and input services, but explicitly excludes ITC accumulated on capital goods. This has caused financial strain for manufacturers in sectors with high capital expenditure.
- Expected Relief: This proposed change would allow manufacturers to claim a refund on the GST paid for machinery and equipment, providing a major financial relief and addressing a demand raised by the industry since the GST’s inception.
- Mechanism: The amendment would likely involve modifying the proviso to Section 54(3) of the CGST Act, which currently restricts the ITC refund under IDS only to inputs.
- Benefit to Manufacturers: The change will immediately improve the working capital of manufacturing units—particularly those in capital-intensive sectors—that face a higher tax rate on their machinery (inputs) than on their final product (output).
Source :- Business Standard