HC Ruling May Bring Input Tax Clarity for Ecomm, Food Cos

New Delhi: Many e-commerce and food delivery companies could get clarity on non-refundable input tax credit under the Goods and Services (GST) framework after a high court ruling recently said that refunds should be available even in cases where tax rate on input is higher than output.

Many e-commerce and food delivery players use raw materials or input services that have higher GST rate but are unable to pass this on to customers either due to offered discounts or because the GST applicable to customers is lower.

Under the GST framework, tax has to be passed on to customers. In cases of mismatch, input tax credit is accumulated on the books. Input tax credit is a mechanism under GST where tax paid on raw material and input services could either be set off against future tax liability.

Calcutta High Court has held that refund arising out of inverted tax structure cannot be denied on the ground that input and output supplies are not different. The High Court held that Section 54(3) of CGST Act is clear as it does not provide for refund only when input and output are different and refund is available in all cases where tax rate on input is higher than that of output.

“The High Court has made a very interesting observation i.e. refund is permissible in respect of all classes where the input tax is higher than the output tax. While some may argue that this is only an obiter dicta, taxpayers specially in the e-commerce sector, may want to look at this judgement to see if this can help in getting them a refund of their blocked credits,” said Harpreet Singh, Partner, Indirect taxes at KPMG in India.

Tax experts say that while the high court’s ruling was in the case of LPG, the court has debated the principles of the GST framework that could help several other sectors.

In the case of e-commerce players some of the input services they render are taxed at a higher rate. Also, the margins of most players are wafer thin, and to attract customers they also dole out discounts.                   

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