National Fertilizers , a government-owned entity, has been hit with substantial tax demands totaling approximately ₹3.84 billion from state tax authorities, according to recent company disclosures.

Tax Demand Details

The company has received two separate tax demand orders:

1. A demand of ₹1.94 billion for the fiscal year 2022-23
2. Another demand of ₹1.90 billion for the fiscal year 2021-22

These demands stem from audits conducted by the State Tax Officer (Audit Cell) at the Office of the Joint Commissioner of State Tax, Ahmedabad.

Reasons for Tax Demands

The tax demands are related to Goods and Services Tax (GST) refunds claimed by National Fertilizers Limited under the inverted duty structure provision. The key points of contention are:

• NFL had claimed GST refunds under Section 54(3) of the CGST Act for both fiscal years.
• The GST department initially issued the refunds as claimed.
• During subsequent audits, the department raised demands based on Circular no. 135/05/2020-GST dated March 31, 2020.
• The circular states that refunds of accumulated Input Tax Credit (ITC) would not apply when input and output supplies are the same.

Company's Stance

National Fertilizers Limited has provided its perspective on the matter:

• The company argues that it availed Input Tax Credit on inputs at 5% GST and cleared the same goods by paying 5% GST.
• NFL contends that there should not be any accumulation of ITC due to an inverted duty structure.
• The company emphasizes that it receives government subsidies, which affect the tax values of inward and outward supplies, rather than the tax rates themselves.

Impact and Next Steps

Despite the significant amounts involved, National Fertilizers Limited has stated that there is no material impact on its financial and operational activities due to these audit reports. The company is taking the following actions:

• Reviewing the audit reports in detail
• Preparing to exercise its right to file a reply or appeal before the competent authority

Market Implications

While the tax demands are substantial, amounting to ₹3.84 billion, the company's assertion of no material impact suggests confidence in its position. However, investors and market watchers will likely keep a close eye on how this situation unfolds, as the resolution of these tax demands could have implications for NFL's financial statements and potentially for other companies in the fertilizer sector dealing with similar GST refund issues.

National Fertilizers Limited continues to operate normally as it addresses these tax matters through the appropriate channels.

National Fertilizers Limited (NFL), a government-owned fertilizer company, has received two significant tax demand orders totaling approximately ₹383.34 crore from the State Tax Officer (Audit Cell), Office of the Joint Commissioner of State Tax, Ahmedabad. These orders, stemming from GST audits for the financial years 2021-22 and 2022-23, challenge the company's claims for GST refunds under the inverted duty structure.

Details of the Tax Demands

The tax demands are split as follows:

Grounds for the Tax Demand

The State Tax Officer has raised these demands based on the following grounds:

1. NFL claimed GST refunds under the provisions of Section 54(3) of the CGST Act, citing an inverted duty structure for both financial years.
2. The GST department initially issued all refunds as claimed by the company.
3. During subsequent GST audits, the department raised demands citing Circular No. 135/05/2020-GST dated March 31, 2020.
4. The circular states that refund of accumulated Input Tax Credit (ITC) under clause (ii) of sub-section (3) of section 54 of the CGST Act would not apply in cases where input and output supplies are the same.

NFL's Position

National Fertilizers Limited has stated that:

1. The company availed ITC on inputs at 5% GST and cleared the same goods by paying 5% GST, arguing that there should not be any accumulation of ITC due to an inverted duty structure.
2. NFL receives government subsidies, which have led to fixed fertilizer rates. The company contends that without these subsidies, ITC would not have accumulated.
3. The difference lies in the tax value of inward and outward supplies, not in the tax rate itself.

Impact and Next Steps

NFL has reported that there is no material impact on its financial and operational activities due to these audit reports. The company is currently reviewing the audit reports and plans to exercise its right to file a reply or appeal before the competent authority.

This development highlights the ongoing complexities in GST compliance and interpretation, particularly for companies operating in subsidized sectors like fertilizers. The outcome of NFL's potential appeal could have implications for other companies in similar situations, making it a case worth watching for the broader industry.