GST
Capital goods ITC not refundable on exports
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Facts
No. Net ITC under Rule 89(4) means credit availed on inputs and input services during the period. Credit on capital goods is excluded from the refund formula, though it can still be used to pay domestic output tax.
Provisions and law
- Rule 89(4), CGST Rules 2017Formula for refund of ITC on zero-rated supplies made without tax
- Sec 54(3), CGST Act 2017Refund of unutilised ITC is allowed on zero-rated supplies without tax and on inverted duty
Analysis
If your quarter's ITC is ₹5,00,000, of which ₹1,20,000 is on laptops booked as capital goods, net ITC for the formula is ₹3,80,000. Including the ₹1,20,000 is a common cause of an RFD-08 notice. Keep your purchase register coded by inputs, input services and capital goods so the split is easy to prove.
Conclusion
- Tag each purchase as input, input service or capital goods in your books
- Exclude capital goods credit from net ITC
- Compute the refund on the reduced figure
- Keep the capital goods credit for domestic tax or carry it forward
A Savvy can do this for you
Refund of ITC on exports without payment of tax, RFD-01
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