The court, while hearing a petition filed by VKC Footsteps India, said that the intent of the government by framing a rule restricting input tax credit cannot be the intent of law.
Footwear attracts GST at the rate of 5 per cent whereas majority of the inputs and input services attract GST at the rate of 12% or 18%, which results in accumulation of unutilized credit, said Harpreet Singh, partner at KPMG.
The judgment is likely to set a precedent for similar being heard by courts and tribunals. For instance, the authority for advance rulings in Maharashtra had held that Daewoo-TPL JV, engaged in execution of construction of large projects, was ineligible for refund of ITC on ‘input services’ with respect to transactions covered under inverted duty structure.
Experts said the ruling of Gujarat high court
may help many companies, particularly e-commerce players.
“E-commerce and other companies
who were suffering on account of blocked input service credits would be keen to analyze the ruling in detail and evaluate if the benefit of this ruling can be availed in their case,” said Singh.
Ritesh Kanodia, partner at Dhruva Advisors, said the Gujarat court’s ruling confirms the view that the inverted duty structure refunds will also include refunds on account of input services, bringing a substantial cash flow benefit to companies
in a situation where input service credits been accumulated and there is no immediate utilisation window.