An inverted tax structure simply refers to a condition where the tax rate on inputs used is higher than the tax rate on the outputs for sale.
For example, fabric bags are finished goods being sold at a 5% GST. Non-woven fabric, which is a raw material used to make fabric bags, is purchased at a 12% GST.
Refund in case of Inverted Tax Structure under GST
A registered person may claim a refund of unutilized Input Tax Credit (ITC) at the end of any tax period where the credit has accumulated on account of the rate of tax on inputs being higher than the rate of tax on output supplies. A tax period is a period for which a return is required to be furnished.
Exceptions where the refund of the unutilized input tax credit cannot be claimed
- Output supplies are nil-rated or fully exempt supplies, except for supplies of goods or services or both as may be notified by the Government on the recommendations of the GST Council.
- If the goods exported out of India are subject to export duty.
- If the supplier claims a refund of output tax paid under the IGST Act.
- If the supplier avails duty drawback or refund of IGST on such supplies.
No refund can be claimed for ITC on input services, capital goods, and compensation cess.
Form to be filed:
A person claiming a refund must apply in Form GST RFD-01. GSTR-1 and GSTR-3B have to be filed for the relevant tax period for which you want to file a refund application for the accumulated ITC.
Time limit to file:
RFD-01 has to be filed within two years from the end of the financial year in which such a claim for refund arises.
Maximum Amount of Refund that can be claimed
Maximum Refund Amount =
{(Turnover of inverted rated supply of goods and services) * Net ITC ÷ Adjusted Total Turnover} – {tax payable on the such inverted rated supply of goods and services * (Net ITC ÷ ITC availed on inputs and input services)}
Illustration:
| Turnover of inverted rated supply of goods and services (5%) | 550000 |
| Other Turnover (12%) | 50000 |
| Adjusted total turnover | 600000 |
| ITC on Inputs (Goods) | 50000 |
| ITC on Input Services | 15000 |
| ITC on Capital Goods | 5000 |
| Total ITC | 70000 |
Maximum Refund
= 550000*50000/600000- (27500*50000/65000)
= 45833 -21154
= Rs 24679
For any queries, email at Prateek123.jain@gmail.com.
Author Bio
Refund already approved by the department, but not getting it due to wrong bank account details earlier. A latest account details submitted around 25 days back, and the same has been corrected in department, but not getting refund yet. please advice to get it back at the earliest.
Very casual and immature analysis without going into indepth of the Basic of Inverted Duty Structure
one of my clients have purchased JCB machine for digging and mining. he paid ITC @28% and now have 8 lakhs in his credit ledger.He is charging 18%gst on his service. can we claim refund of the amount through inverted duty structure.
I have received deficient memo for incomplete document in regards to Refund for Inverted duty structure.
My query is do we required to attach
1.sales and purchase register
2. GST R 1 & 3 B Copies required
3. Whether Annexure 2 ca certificate for no transfer of ITC is required or owner declaration is sufficient.