Updated Refund Rules for Unutilized ITC: New Restrictions on Specific Goods
Simplified Explanation of Notification No. 20/2023-Central Tax (Rate) – Refund of Unutilized Input Tax Credit
Heading: Changes in Refund Rules for Unutilized Input Tax Credit on Specific Goods
Purpose of the Notification:
This notification amends the existing rules regarding the refund of unutilized input tax credit (ITC) under the Central Goods and Services Tax (CGST) Act. The changes affect supplies of certain goods where the tax rate on inputs is higher than on the output supplies.
Key Points of the Notification:
1. Amendment in the Refund Notification
- Amendment to Notification No. 5/2017-Central Tax (Rate):
- Previous Notification: Notification No. 5/2017-Central Tax (Rate) specified goods and conditions for which refunds of unutilized ITC are not allowed if the input tax rate is higher than the output tax rate.
- New Amendment: Notification No. 20/2023 introduces a new entry in the list of supplies for which refund of unutilized ITC is restricted.
2. New Entry for Refund Restrictions
- New Entry Added:
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- S.No. 6AA: The new entry specifies restrictions on refunds for “Imitation zari thread or yarn made out of Metallised polyester film/plastic film.”
- Explanation: Refunds of ITC will be allowed only on the polyester film/plastic film used to make imitation zari thread or yarn. The restriction applies to the entire process of making these threads or yarns.
Example:
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- Scenario: A manufacturer produces imitation zari thread using polyester film. The manufacturer has paid GST on the polyester film but the final output (imitation zari thread) is taxed at a lower rate.
- Refund Impact: The manufacturer can only claim a refund of the ITC on the polyester film itself, not on the entire manufacturing process if the final product’s tax rate is lower than the input.
3. Effective Date
- Date of Effect:
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- The changes come into effect on October 20, 2023.
Example:
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- If a manufacturer applies for a refund of ITC on or after October 20, 2023, they must follow the new rules regarding polyester film/plastic film.
Summary:
The notification updates the rules for claiming refunds on unutilized input tax credit for specific goods. It adds a new restriction for imitation zari thread made from polyester or plastic film, limiting refunds to the ITC on the film used. This amendment ensures that refunds are in line with the tax rate differences between inputs and outputs.