GST Refund in case of Input Services

According to Section 54 of the CGST Act, no refund of unutilized input tax credit shall be allowed except in the following cases: i. zero-rated supply made without payment of tax; and ii. where the credit has accumulated as a result of the rate of tax on inputs being higher than the rate of tax on output supplies ( other than nil rated or fully exempted supplies) According to the preceding section, GST Refund can be claimed only in two situations: zero-rated supply and inverted duty structure.

A. Zero rated Supply:

According to Section 16 of the IGST Act, a zero-rated supply is any of the following: (a) export 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.

B. Output supplies:

According to Section 2(83) of the CGST Act, supply in relation to a taxable person means the supply of goods or services, or both, made or agreed to be made by such person in the course or furtherance of business, whether by sale, transfer, barter, exchange, licence, rental, lease, or disposal, or any other mode.

C. Input:

Input means any products other than capital goods utilised or intended to be used by a provider in the conduct or furtherance of business, according to Section 2(59) of the CGST Act.

D. Input Services:

As per Section 2(60) of CGST Act, Input Service means any service used or intended to be used by a supplier in the course or furtherance of business.

From the above definitions, it can be derived that GST Refund is only available if it is the case of zero rated supply or in case rate of tax on input is higher than the rate of output supply. The term used in the second case is Input and not Input services. This means, that by this section no refund of input services can be made when rate of tax on input services is higher than the rate of tax on output supply of goods or services or both.

The cases where this situation can arise are as follows:

1. Input service rate: 18%: Output supply rate: 5%/12% – No refunds are available for input services.
2. Output Supply Rate: 5%/12%: Input Goods Rate: 18%- Input Goods Can Be Refunded

Types of Input Services on which input tax is 18%:

1. Rent service
2. Professional service
3. Works Contract Service ( Construction)
4. Financial Services
5. Legal & Accounting services
6. Maintenance & Repair services
7. Job work services