Govt's Q&A on GST refund due to inverted duty rates is controversial

We refer to your article ‘GST reforms: Festival cheer for consumers but many suppliers face IDR’ (BS-September 22, 2025). 

 

You have mentioned that ‘a controversial clarification from the government that has rattled dealers says that refunds due to IDR will not be available where input and output are the same’. Please let us know the reference of the clarification, why it is controversial and how, as traders, we should proceed?

 

The Q&A no.10 released on September 3, 2025, says that ‘refund of accumulated ITC in terms of clause (ii) of first proviso to section 54(3) of the CGST Act, is available where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies. However, the input and output being the same in such cases, though attracting different tax rates at different points in time, do not get covered under the provisions of clause (ii) of the first proviso to sub-section (3) of section 54 of the CGST Act.’ However, Section 54 (3) says that (relevant extracts). ‘ ……. a registered person may claim refund of any unutilised input tax credit at the end of any tax period provided that no refund of unutilised input tax credit shall be allowed in cases other than-(i) ……(ii) where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies (other than nil rated or fully exempt supplies), except ……’. You will observe that the Section 54(3) makes no mention about the input and output being the same. So, the controversy is that the said Q&A no.10 does not reflect the correct position. My suggestion is that if you are eligible for refund under the said Section 54(3), you file the refund claim and then litigate if the department resorts to the said Q&A and denies the refund.

 

Procedure for fulfilment of export obligation through third party under Export Promotion Capital Goods Scheme (EPCG) is prescribed at Para 5.10 (d) of the Handbook of Procedures (HBP). Has any similar procedure been prescribed for exports through third party under advance authorisation scheme?

 

Para 4.26(ii) of FTP says that ‘merchant exporter shall be required to mention name and address of supporting manufacturer of the export product on the export document viz. Shipping Bill/ Bill of Export. 

 

We refer to your article ‘GST reforms: Festival cheer for consumers but many suppliers face IDR’ (BS-22nd September 2025). 

 

You have mentioned that ‘a controversial clarification from the government that has rattled dealers says that refunds due to IDR will not be available where input and output are the same’. Please let us know the reference of the clarification, why it is controversial and how, as traders, we should proceed?

 

The Q&A no.10 released on 3rd September 2025 says that ‘refund of accumulated ITC in terms of clause (ii) of first proviso to section 54(3) of the CGST Act, is available where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies. However, the input and output being the same in such cases, though attracting different tax rates at different points in time, do not get covered under the provisions of clause (ii) of the first proviso to sub-section (3) of section 54 of the CGST Act.’ However, Section 54 (3) says that (relevant extracts). ‘ ... a registered person may claim refund of any unutilised input tax credit at the end of any tax period provided that no refund of unutilised input tax credit shall be allowed in cases other than-(i) … (ii) where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies (other than nil rated or fully exempt supplies), except …’ 

 

You will observe that the Section 54(3) makes no mention about the input and output being the same. So, the controversy is that the said Q&A no.10 does not reflect the correct position. My suggestion is that if you are eligible for refund under the said Section 54(3), you file the refund claim and then litigate if the department resorts to the said Q&A and denies the refund.

 

Procedure for fulfilment of export obligation through third party under EPCG scheme is prescribed at Para 5.10 (d) of the HBP. Has any similar procedure been prescribed for exports through third party under advance authorisation scheme?

 

Para 4.26(ii) of FTP says that ‘merchant Exporter shall be required to mention name and address of supporting manufacturer of the export product on the export document viz. Shipping Bill/ Bill of Export/Tax Invoice for export prescribed under the GST rules.’ The merchant exporter should also mention the advance authorisation number and date on the same shipping bill. Please do take note of paragraphs 2.41, 2.42, 11.59(a) and 11.61 of FTP also.

 

Our foreign buyer insists that we use CIP terms for air consignments and not CIF terms. What difference does it make?

 

The Incoterms are so worded as to make FAS, FOB, CFR and CIF suitable for transport by sea or inland waterways only.  The default insurance cover under CIP is for Institute Cargo Clauses (All Risks), which is not so under CIF. That could mean a slightly higher premium.