Inverted Duty Structure refers to a situation where the rate of tax on inputs being higher than the rate of tax on output supplies. In such a case, Input Tax Credit gets accumulated and registered person can claim refund.
Section 54 of CGST Act, 2017 is the principal Section for claiming refunds. First proviso to sub-section (3) of section 54 states
Provided that no refund of unutilised input tax credit shall be allowed in cases other than—
(i) zero-rated supplies made without payment of tax;
(ii) where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies (other than nil rated or fully exempt supplies), except supplies of goods or services or both as may be notified by the Government on the recommendations of the Council:
Notification No. 5/2017-Central Tax (Rate), dated 28-6-2017 – Notification specifying supplies of goods in respect of which no refund of unutilised input tax credit shall be allowed.
Notification No. 15/2017-Central Tax (Rate), dated 28-6-2017 – No refund of unutilised input tax credit under section 54(3) in case of supply of services specified in Item 5(b) of Schedule II of CGST Act.
Other exceptions are mentioned in second and third proviso to section 54(3) and are as follows:-
Provided further that no refund of unutilised input tax credit shall be allowed in cases where the goods exported out of India are subjected to export duty:
Provided also that no refund of input tax credit shall be allowed, if the supplier of goods or services or both avails of drawback in respect of central tax or claims refund of the integrated tax paid on such supplies.
Relevant Period – As per Section 54(1), the refund should be claimed before the expiry of two years from the relevant date. Relevant date for claiming refund as per clause (e) of Explanation 2 to Section 54 of the CGST Act, 2017 is the due date for furnishing of return under section 39 for the period in which such claim for refund arises. Hence, relevant period for Inverted duty Structure Refund is 2 years from due date of GSTR-3B for the period in which such claim for refund arises
Preconditions for claiming refund – GSTR-3B & GSTR-1 for the period for which refund is to be claimed are duly filed before filing refund application.
Calculation of Refund under Amount – As per Rule 89(5)(e) of CGST Rules, 2017
- Maximum Refund Amount = ((Turnover of inverted rated supply of goods and services) × Net ITC ÷ Adjusted Total Turnover) – tax payable on such inverted rated supply of goods and services.
- “Adjusted Total Turnover” means the sum total of the value of-
a) the turnover in a State or a Union territory, as defined under clause (112) of section 2, excluding the turnover of services; and
b) the turnover of zero-rated supply of services determined in terms of clause (D) above and non-zero-rated supply of services,
Excluding-
(i) the value of exempt supplies other than zero-rated supplies; and
(ii) the turnover of supplies in respect of which refund is claimed under sub-rule (4A) or sub-rule (4B) or both, if any, during the relevant period.
- Net ITC shall mean input tax credit availed on inputs during the relevant period other than the input tax credit availed for which refund is claimed under sub-rule (4A) or (4B) or both;
- Input – As per Section 2(59) of CGST Act, 2017 – “input” means any goods other than capital goods used or intended to be used by a supplier in the course or furtherance of business;
- Input Service – As Section 2(60) of CGST Act, 2017 – “input service” means any service used or intended to be used by a supplier in the course or furtherance of business;
- Capital Goods – As per Section 2(19) of CGST Act, 2017 – “capital goods” means goods, the value of which is capitalised in the books of account of the person claiming the input tax credit and which are used or intended to be used in the course or furtherance of business;
- Important Point – It is to be noted here that under Inverted duty Structure, refund can be claimed for Inputs and not on Input Services or Capital Goods.
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