The Inverted Duty Structure (IDS) under GST occurs when the tax rate on inputs exceeds that on output supplies, leading to unutilized Input Tax Credit (ITC). Section 54(3)(ii) of the CGST Act allows eligible taxpayers to claim refunds for this accumulated ITC. Refunds apply only to inputs, excluding input services and capital goods, and are calculated using Rule 89(5), which considers the turnover of inverted-rated supplies, net ITC, adjusted total turnover, and tax payable on outputs. The filing process involves computing and verifying ITC segregation, submitting Form GST RFD-01 through the GST portal, uploading Statement 1A with invoice details, and attaching supporting documents. Key documentation includes GSTR-1 and GSTR-3B copies, statutory declarations under Rules 89(2)(l) and (m), Section 54(3) confirmations, undertakings on unjust enrichment, CA certificates for claims above Rs. 2 lakh, and invoice records. Proper preparation ensures smoother processing and reduces deficiency notices while securing timely IDS refunds.
1. Key Definitions
- Input (Section 2(59)): Any goods other than capital goods used or intended to be used by a supplier in the course or furtherance of business.
- Input Service (Section 2(60)): Any service used or intended to be used by a supplier in the course or furtherance of business.
Crucial Note: For IDS refunds, “Net ITC” includes Inputs only. It excludes Input Services and Capital Goods.
2. Calculation Methodology (Rule 89(5))
To determine the maximum refund admissible, use the following formula:
Refund Amount = {Turnover of Inverted Rated Supply} * {Net ITC}/{Adjusted Total Turnover}} \right) – {Tax Payable on Such Inverted Rated Supply}
Where:
- Net ITC: ITC availed on inputs during the relevant period (Excludes ITC on input services and capital goods).
- Turnover of Inverted Rated Supply: The turnover of goods/services that attract a lower tax rate than their inputs.
- Adjusted Total Turnover: Total turnover in the State/UT, excluding the value of exempt supplies and zero-rated supplies (where refund is claimed under a different rule).
- Tax Payable: The actual tax liability payable on the inverted rated supply of goods and services.
3. Step-by-Step Filing Process
Step 1: Computation & Verification
- Segregate ITC into Inputs, Input Services, and Capital Goods.
- Ensure the “Net ITC” figure used in the formula strictly pertains to Inputs.
- Verify that the accumulation is due to tax rates and not due to other reasons (e.g., strictly domestic supply where input/output are same rate but output was undervalued).
Step 2: File Form GST RFD-01
- Login to the GST Portal.
- Navigate to Services > Refunds > Application for Refund.
- Select reason: “Refund on account of Inverted Tax Structure”.
- Select the relevant tax period.
Step 3: Upload Documents
- Download Statement 1A template, fill in the invoice details, and upload the JSON/CSV.
- The system will validate the data against GSTR-1 and GSTR-3B.
Step 4: Submission
- Attach the required supporting documents (listed below).
- Sign and file using DSC (Digital Signature Certificate) or EVC.
4. Documentation Checklist
Ensure these are ready before filing to avoid deficiency memos:
1. GSTR-1 & GSTR-3B: Copies for the relevant refund period.
2. Statement 1A: The computation statement detailing the invoices (auto-generated/uploaded).
3. Declarations:
- Rule 89(2)(l): Declaration regarding non-prosecution.
- Rule 89(2)(m): Declaration regarding no refund claimed earlier.
- Section 54(3) Provisos: Declaration that goods were not exported with payment of tax and not subject to Nil/Exempt tax.
4. Undertaking: Regarding “Unjust Enrichment” (Statement that the burden of tax has not been passed on).
5. CA Certificate: Required if the refund amount claimed exceeds ₹2 Lakhs.
6. Invoices: Copies of inward and outward supply invoices (typically required if the officer raises a query, but good to have handy).
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