As per Section 54(3) of the CGST Act, 2017, a registered person may claim a refund of unutilized input tax credit on account of Inverted Duty Structure (Rate of tax on Inputs > Rate of tax on Outputs & Output services) at the end of any tax period. A tax period is a period for which return is required to be furnished. Thus, a taxpayer can claim the refund of unutilized ITC on monthly basis.

It has been notified that no refund of unutilized input tax credit shall be allowed under sub-section (3) of section 54 of the said Central Goods and Services Tax Act, in case of supply of Construction Services.

In respect of goods, the Central Government has notified a list of goods in Notification No. 5/2017- Central Tax (Rate) dated 28th June 2017 in respect of which unutilized ITC will not be admissible as refund.

Further, Rule 89(2)(h) of CGST Rules, 2017 stipulate that refund claim on account of accumulated ITC (where such accumulation is on account of inverted duty structure) has to be accompanied by a statement containing the number and date of invoices received and issued during a tax period. Rule 89(3) of CGST Rules, 2017 also provides that where the application relates to refund of input tax credit, the electronic credit ledger shall be debited by the applicant in an amount equal to the refund so claimed.

Refund of input tax credit shall be granted as per the following formula:—

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.

  • “Refund amount” means the maximum refund that is admissible;
  • “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-rules (4A) or (4B) or both;
  • “Turnover of inverted rated supply of goods” means the value of inverted supply of goods made during the relevant period;
  • “Tax payable on such inverted rated supply of goods” means tax payable on such inverted rated supply of goods under the same head i.e. IGST, CGST, SGST;
  • “Adjusted Total turnover” means the turnover in a State or a Union territory, as defined under clause (112) of section 2 of CGST Act, excluding the value of exempt supplies other than inverted-rated supplies, during the relevant period;
  • “Relevant period” means the period for which the claim has been filed.

1. Refund claims on account of inverted duty structure shall be filed for a tax period on a monthly basis in FORM GST RFD-01A. However, the registered persons having an aggregate turnover of up to Rs.1.5 crore in the preceding financial year or the current financial year and who have opted to file FORM GSTR-1 on a quarterly basis (Notification No. 71/2017-Central Tax dated 29.12.2017 refers) shall apply for a refund on a quarterly basis.

2. Further, it is stated that the refund claim for a tax period may be filed only after filing the details in FORM GSTR-1 for the said tax period. It is also to be ensured that a valid return in FORM GSTR-3B has been filed for the last tax period before the one in which the refund application is being filed.

3. Once the eligibility to file for refund is established, fill-out the FORM GST RFD-01A and file it on the GST Portal

4. Access the GST Portal. Navigate to the Services > Refunds > Application for Refund option. Select the Refund on account of ITC accumulated due to Inverted Tax Structure button.

5. Upon filing the FORM GST RFD-01A, GST Portal will generate an ARN. After ARN generation, the taxpayer needs to take print outs of the filed application and the Refund ARN Receipt generated on the portal and submit the same along with supporting documents to the jurisdictional authority.

6. The registered persons applying for refund must give an undertaking to the effect that the amount of refund sanctioned would be paid back to the Government with the interest in case it is found subsequently that the statutory requirements of the CGST Act, 2017 have not been complied with in respect of the amount refunded.

Where the application relates to refund of input tax credit, the electronic credit ledger shall be debited by the applicant by an amount equal to the refund so claimed as per Rule 89(3) of CGST Rules, 2017.

Also, interest will be paid for any delay in sanctioning of Refund beyond the mandated period of 60 days (as per Rule 94 of CGST Rules, 2017). The refund and/or interest sanctioned, if any, will be directly credited to the bank account of the applicant.

The refund application in FORM GST RFD-01A needs to be filed within 2 years from the end of financial year in which such claim for the refund arises.

Contentious Issues-

Whether the refund of accumulated credit on account of inverted duty structure is available only for those inputs where the rate of GST is higher than the output supplies or for all kinds of inputs?

In this regard, it is pertinent to note that the explanation to the formula for computation of refund amount states that Net ITC is input tax credit availed on inputs during the relevant period and does not categorically specify inputs having higher GST rate than output supplies. Hence, taxpayers can consider entire credit of inputs for the purpose of calculating refund claim on account of inverted duty structure.

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5 responses to “Refund In Case of Inverted Duty Structure under GST”

  1. ARVIND AGARWAL says:

    CASE ON REFUND CLAIM DUE TO INVERTED TAX STRUCTURE
    1 . OUR OUTPUT GST IS AS UNDER FOR A MONTH
    IGST CGST SGST TOTAL
    860611 0 0 860611
    2. AND INPUT GST IS AS UNDER FOR THE SAME MONTH
    IGST CGST SGST TOTAL
    149138 407855 407855 964848
    3. TAX PAID THROUGH ITC
    IGST CGST SGST TOTAL
    149138 407855 303618 860611
    4. BALANCE LEFT
    IGST CGST SGST TOTAL
    0 0 104237 104237
    The above ITC is accumulated due to Inverted tax structure
    We , therefore , applied to proper authorities for refund of the above amount by filing RFD-02.
    As , there is only ITC available is SGST Rs 104237/- , we applied for refund of SGST of Rs 104237-
    However , the refund was granted to us only proportionate , calculated as under :
    IGST = 149138 15.48% 16137 NO REFUND ALLOWED AS NO BALANCE IN
    CREDIT LEDGER
    CGST = 407855 42.26% 44050 NO REFUND ALLOWED AS NO BALANCE IN
    CREDIT LEDGER
    SGST= 407855 42.26% 44050 REFUND ALLOWED 44050/-
    TOTAL=963322 100% 104237 BALANCE 60187- REJECTED
    QUERY :
    1) IS THAT CALCULATION OK TO ALLOW ONLY PROPORTIONATE
    2) BALANCE RS 60187/- ALLOWED TO BE RECREDIT TO ELECTRONIC CREDIT LEDGER
    3) WHO WILL RECREDIT THE REJECTED BALANCE
    4) WHAT WILL HAPPEN TO C/F BALANCE AS THIS IS PILING UP MONTH BY MONTH UNDER SGST IN ELECTRONIC LEDGER

  2. Nikhil Tiwari says:

    Our client is exporting with payment of IGST.
    But there is a lot of accumulated ITC, even after claiming refund of IGST paid on exports, as the Output GST Rate is less than the GST Rates on Inputs.
    CAN WE CLAIM REFUND UNDER INVERTED DUTY STRUCTURE ?

  3. KALIDAS V RAJVI says:

    SIR
    INVERTED DUTY STUCTRE REFUND IS ADMISSIBLAE ON LIGNITE CESS

  4. srinivasa.g says:

    Dear Ramesh
    As per formula refund amount is eligible for approximately 100000/-. However, for July-2017 we do not have closing balance of IGST and SGST but we have closing balance of CGST including transitional credit availed : In portal after working out refund amount one more statement insists refund amount to be mentioned respectively i.e., IGST CGST and SGST: Is it mandatory to bifurcate or can we claim entire amount in closing balance available in CGST? Kindly update – Thanks in advance

  5. satbir singh wahi says:

    Sir
    whether igst paid on machinery imported, is eligible for refund under inverted duty structure.Kindly guide.

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