Refund on export of capital goods under LUT

Section 16(3) of IGST Act as amended vide s. 123(b) of the Finance Act, 2021 talks about Refund of unutilized ITC on zero rated supply under LUT. Which is reproduced below-

16(3) A registered person making zero rated supply shall be eligible to claim refund of unutilised input tax credit on supply of goods or services or both, without payment of integrated tax, under bond or Letter of Undertaking, in accordance with the provisions of section 54 of the Central Goods and Services Tax Act or the rules made thereunder, subject to such conditions, safeguards and procedure as may be prescribed:

Now let us examine related sections and rules-

CGST Section 54 (relevant part) says-

(1) Any person claiming refund of any tax and interest, if any, paid on such tax or any other amount paid by him, may make an application before the expiry of two years from the relevant date in such form and manner as may be prescribed:

(3) A registered person may claim refund of any unutilised input tax credit at the end of any tax period for zero rated supplies made without payment of tax;

From section 54, it seems that the refund for Input tax credit is allowed and Input tax credit includes inputs for goods, input services and capital goods.

CGST Rule 89(4) says-

(4) In the case of zero-rated supply of goods or services or both without payment of tax under bond or letter of undertaking in accordance with the provisions of sub-section (3) of section 16 of the Integrated Goods and Services Tax Act, 2017 (13 of 2017), refund of input tax credit shall be granted as per the following formula -

Refund Amount = (Turnover of zero-rated supply of goods + Turnover of zero-rated supply of services) x Net ITC ÷ Adjusted Total Turnover

Where "Net ITC" means input tax credit availed on inputs and input services during the relevant period other than the input tax credit availed for which refund is claimed under sub-rules (4A) or (4B) or both;

Rule 89 considers only inputs and input services for the calculation of refund amount and it excludes capital goods credit.

Hence when IGST section 16(3) is read with CGST section 54 and CGST Rule 89, it seems that the refund on capital goods credit is not allowed.

The Relevant Section and Rule are linked below fro your reference.

IGST Section 16(3)

CGST Section 54

CGST Rule 89(4)