In furtherance to earlier update wherein we shared latest practice and procedure clarified by Circular No. 125/44/2019-GST dated November 18, 2019 (‘Circular 125’), CBIC has issued further clarifications vide its recent Circular No. 135/05/2020-GST dated March 31, 2020 (‘Circular 135’). The key issues clarified in Circular 135 are as follows:

• Clubbing of refund claims across Financial Years (FYs)

• In Para 8 of Circular 125, the CBIC clarified that refund claims for different tax periods can be clubbed except that clubbing shall not be permitted for tax periods falling in different FYs. This restriction has been removed vide Circular 135.

• This restriction has been removed in light of the recent Delhi High Court decision in case of Pitambra Books Private Limited v. Union of India, 2020-VIL-45-Delhi in which the Court held that a Circular cannot impose a substantive restriction which is not coming from the law.

• Refund of accumulated Input Tax Credit (ITC) on account of reduction in GST Rate

• CBIC has clarified that refund of accumulated ITC on account of inverted tax structure will not be available when there are different tax rates at different points of time.

For example: Say GST on product is 18% which is reduced to 12% w.e.f. January 1, 2020. A taxpayer who procured goods at 18% before rate reduction, will sell such goods charging GST of 12% which will result in accumulation of ITC. As per Circular 135, such a taxpayer will be debarred from claiming refund of accumulated ITC.

NITYA Comments: Section 54(3)(ii) of the CGST Act allows refund of accumulated ITC on account of GST rate on inputs being higher than GST rate on output. The restriction provided under Circular 135 that inverted tax refund will not be available in case of reduction in rate of GST, is not backed by any provision and is invalid.

• Refund of ITC not appearing in Form GSTR-2A

• CBIC has clarified that refund of ITC shall be available only for invoices which are getting reflected in Form GSTR-2A (details of which are uploaded by the supplier in Form GSTR-1).

NITYA Comments: Notably, Circular 125 clarified that an applicant can claim refund of ITC even on invoices which are not reflected in Form GSTR-2A subject to satisfaction of Rule 36(4) of the CGST Rules i.e. 110% of matched ITC. Circular 135 has modified Circular 125 and restricted ITC only to the extent appearing in Form GSTR-2A. This clarification in Circular is incorrect since it bars refund of ITC on unmatched invoices even though Rule 36(4) of the CGST Rules permits ITC on the same to the extent of 10%. Once law permits ITC, refund of such ITC cannot be restricted.

• New requirement to mention HSN / SAC

• CBIC has clarified that the applicant will be required to mention HSN / SAC code of inward supplies along with already prescribed details to claim refund of ITC. This requirement has been added to distinguish ITC on capital goods and input services vis-à-vis inputs. Where the supplier is not mandated to mention HSN / SAC code on invoices, the applicant need not mention HSN / SAC code for such invoices.

NITYA Comments: This requirement will create practical difficulties for the taxpayers if they are not mapping HSN / SAC code of inward supplies in their ERP.