AAR Lacks Jurisdiction to Decide GST ITC Refund on Operating Charges paid to E-Commerce Platforms under IDS [Read Order]

The Karnataka Authority for Advance Ruling (AAR) recently rejected an application, holding that the AAR lacks jurisdiction to decide on matters relating to refund of accumulated Input Tax Credit (ITC) on Goods and Services Tax (GST), arising under the inverted duty structure (IDS) on operating charges paid to e-commerce platforms.

The Applicant M/s Hanuman Fashion manufactures and sells readymade garments. A majority of their products are sold through e-commerce platforms such as Myntra, Flipkart and Meesho. For selling through these e-commerce platforms, the applicant pays 30% of the selling charges as operating charges, and avails ITC on the GST paid on these services.

The applicant further stated that around 95% of their outward supplies attract GST at 5%, while the rest of the supplies are taxed at 12%, thus resulting in accumulation of ITC due to the inverted duty structure due to the mismatch in tax on inputs (purchases) and the tax on output (sales).

The applicant approached the AAR querying whether they could claim refund of the entire accumulated ITC of ₹55,24,971 against the refund restricted to ₹20,43,082 permissible under the formula prescribed for IDS refunds.

The applicant further queried whether they could avail the full ITC under the category of “any other ground” without applying the prescribed formula.

During the personal hearing before the authority, the Authorised Representatives reiterated their submissions from their application.

The Bench of Kalyanam Rajesh Rama Rao, Member (Central Tax) and Sivakumar S. Itagi, Member (State Tax) examined the application and noted that the issue is regarding “Determination of the liability to pay tax on any goods or services or both”.

The AAR noted that the applicant sought to understand the manner and eligibility of claiming refund of accumulated ITC under the inverted duty structure and not on issues such as classification, rate of tax, or admissibility of ITC as specified under Section 97(2) of the CGST Act, 2017.

The AAR clarified that refund-related matters, including quantification and sanction of refund under IDS fall within the scope of Section 54 of the CGST Act and are to be dealt with by the appropriate jurisdictional officers under the statutory refund mechanism, and lie outside the ambit of matters specified in section 97(2) of the GST Act.

Accordingly, the AAR held that it does not have jurisdiction to decide the questions raised by the applicant and rejected the application under Section 98(2) of the CGST Act, 2017.

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