The Cotton Textiles Export Promotion Council (Texprocil) has asked the CBEC Chairman to refund unutilised Input Tax Credit when goods are exported under LUT. The Council, says exporters pointing out the problem being faced by them due to a clarification issued by CBEC on refund of transitional credit. As per the circular, Transitional Credits pertaining to duties and taxes paid under the Central Excise Act 1944 and Chapter V of the Finance Act 1994 cannot be included in the “Net Input Tax” for the purpose of refund of unutilised “Input Tax Credit” in terms of Section 54 of the CGST Act.

This means exporters who had exported under LUT and intend to claim refund of unutilised Input Tax Credit related to the export of goods will not eligible for the refund if the Input Tax Credit is on account of “Transitional Credit”.

Texprocil noted “Transitional Credits are allowed to offset GST liabilities on onward supplies which includes clearance for exports. In other words IGST paid on exports out of Input Tax Credits which includes “Transitional Credits” are allowed as refund when the exporter have exercised the option of “Exports under IGST Refund”. While IGST refund is allowed when the GST is paid out of Input Tax Credit including “Transitional Credits’ there is no reason why the refund should be disallowed in the case of Exports under LUT when the exporter claims refund of unutilised “Input Tax Credit” which is related to Transitional Credit.

GST law permits business units to carry forward their Input Tax Credit and ensures that no ITC is lost while migrating into the new GST regime. By denying refund of Transitional credits the propose of “Transitional Rules” is defeated.