Restriction on Refund of Unutilised ITC on Fabric Items not applicable to Zero Rated Supplies, CBEC clarifies [Read Circular]

The Central Board of Excise and Customs (CBEC) has issued clarification on Refund of unutilized input tax credit of GST paid on inputs in respect of exporters of fabrics.

In a Circular issued by CBEC said that, Restriction on Refund of Unutilised Input Tax Credit of GST paid on inputs will not be applicable to zero rated supplies.

The Doubts have been raised by many stakeholders regarding the restrictions of refund of unutilized input tax credit of GST paid on inputs to manufacturer exporters of fabrics [falling under chapters 50 to 55 and 60 and headings 5608, 5801, 5806] under GST.

The Circular said that, Based on the recommendations of the GST Council, Notification No. 5/2017-Central Tax(Rate) dated 28.06.2017 [as amended from time to time] has been issued under clause (ii) of the proviso to sub-section (3) of section 54 of the CGST Act, 2017 restricting refund of unutilised input tax credit of GST paid on inputs in respect of certain specified goods, including input tax credit of GST paid on inputs.

“However, the aforesaid notification having been issued under clause (ii) of the proviso to sub-section (3) of section 54 of the CGST Act, 2017, restriction on refund of unutilised input tax credit of GST paid on inputs will not be applicable to zero rated supplies, that is (a) exports of goods or services or both; or (b) supply of goods or services or both to a Special Economic Zone developer or a Special Economic Zone unit”, the Circular also said.

“Accordingly, as regards export of fabrics it is clarified that, subject to the provisions of sub-section (10) of the section 54 of the CGST Act, 2017, a manufacturer of such fabrics will be eligible for refund of unutilized input tax credit of GST paid on inputs [other than the input tax credit of GST paid on capital goods] in respect of fabrics manufactured and exported by him”, the Circular also added.