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 Eg., Fabric Bags are Finished Goods being sold at 5% GST. Non-Woven Fabric which is a raw material used to make Fabric Bag is purchased at 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, mail at – Prateek123.jain@gmail.com

Author Bio

Qualification: CA in Practice
Company: Prateek S Jain & Associates
Location: Kolkata, West Bengal, India
Member Since: 21 Aug 2020 | Total Posts: 6
Diligent Tax and Financial Professional with strong Tax and Accounting expertise. Monitoring regulatory compliances and improving the process and quality of accounts of businesses to help them achieve their planned goals. Reach me at - LinkedIn: http://linkedin.com/in/caprateekjain Instagram: View Full Profile

My Published Posts

Join Taxguru’s Network for Latest updates on Income Tax, GST, Company Law, Corporate Laws and other related subjects.

Join us on Whatsapp

taxguru on whatsapp GROUP LINK

Join us on Whatsapp

taxguru on whatsapp GROUP LINK

Join us on Whatsapp

taxguru on whatsapp GROUP LINK

Join us on Whatsapp

taxguru on whatsapp GROUP LINK

Join us on Whatsapp

taxguru on whatsapp GROUP LINK

Join us on Whatsapp

taxguru on whatsapp GROUP LINK

Join us on Whatsapp

taxguru on whatsapp GROUP LINK

Join us on Whatsapp

taxguru on whatsapp GROUP LINK

Join us on Whatsapp

taxguru on whatsapp GROUP LINK

Join us on Whatsapp

taxguru on whatsapp GROUP LINK

Join us on Telegram

taxguru on telegram GROUP LINK

Review us on Google

More Under Goods and Services Tax

One Comment

  1. prabha says:

    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.

Leave a Comment

Your email address will not be published. Required fields are marked *

Search Posts by Date

March 2023
M T W T F S S
 12345
6789101112
13141516171819
20212223242526
2728293031