INVERTED DUTY STRUCTURE

What is Inverted duty structure (IDS)?

Section 54(3)(iii) of the Central Goods and Service Tax Act 2017 provides that, 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 exempted supplies), except supplies of goods or services or both as may be notified by the Government on the recommendations of the Council. Such scenario of accumulation of input credit due the variance in the rate of GST rates is referred to as Inverted Duty Structure.

Refund of Accumulated Input Tax Credit

The GST Law permits refund of unutilised ITC in two scenarios only:

1. If such credit accumulation is on account of zero rated supplies
2. On account of inverted duty structure, subject to certain exceptions

Specific inclusion to Inverted Duty Structure 

Inverted Duty Structure would include even those cases where supply has been made to merchant exporters under Notification no. 40/2017- Central Tax (Rate) dated 23.10.2017 or notification No. 41/2017-Integrated Tax (Rate) dated 23.10.2017 or both.

What cases are excluded from IDS?

Cases excluded from refund under Inverted Duty Structure refund claim:

1. Output supplies are nil rated
2. Output supplies are fully exempted
3. Output goods are exported out of India and are subjected to export duty
4. 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
5. Supply of services excluded via Notification no. 15/2017-Central Tax (Rate) dated 28.06.2017
6. Supply of goods excluded Notification no. 5/2017- Central Tax (Rate) dated 28.06.2017 as amended by Notification no. 44/2017-Central Tax (Rate) dated 14.11.2017 and Circular no. 18/18/2017- GST dated 16.11.2017.

Maximum amount of refund to be issued

Maximum Refund Amount = (Turnover of inverted rated supply of goods x Net ITC) ÷Adjusted Total Turnover – Tax payable on such inverted rated supply of goods

Where, –

(A) “Net ITC” means input tax credit availed on inputs during the relevant period other than the input tax credit availed for which refund is claimed under rule 89(4A) or 89(4B) or both;

(B) “Turnover of inverted rated supply of goods” means the value of inverted rated supply of goods made during the relevant period

(C) “Adjusted Total turnover” means the turnover in a State or a Union territory, as defined under clause (112) of section 2, excluding – (a) the value of exempt supplies other than inverted-rated supplies

(D) “Relevant period” means the period for which the claim has been filed.

Tax payable on such inverted rated supply of goods” means the tax payable on such inverted rated supply of goods under the same head, i.e. IGST, CGST, SGST.

Time limit to claim refund

Application for refund shall be filed on a monthly basis. If tax payers turnover is up to 1.5 crores and has opted for a quarterly return, then form can be filed on a quarterly basis. Person making a claim of the refund may make an application before the expiry of two years from the relevant date in such form and manner prescribed.

Procedure to apply for refund

1. The application for refund shall be filed in FORM GST RFD01 on the portal
2. The portal shall generate the ARN- Acknowledgement Receipt Number
3. FORM GST RFD-01 to be submitted manually, to the jurisdictional officer, and with all necessary documentary evidences as applicable (as per details in statement 3 or 5 of Annexure to FORM GST RFD-01)
4. The proper shall issue the order within 60 days from the date of receipt of application complete in all respects.

Refund on hold

• Default in filing of return (or) payment of tax

Where any refund is due under to a registered person who has defaulted in furnishing any return or who is required to pay any tax, interest or penalty, which has not been stayed by any court, Tribunal or Appellate Authority by the specified date, the proper officer may:

1. withhold payment of refund due until the said person has furnished the return or paid the tax, interest or penalty, as the case may be;
2. Deduct from the refund due, any tax, interest, penalty, fee or any other amount which the taxable person is liable to pay but which remains unpaid under this Act or under the existing law.

• Appeal or further proceedings

Where an order giving rise to a refund is the subject matter of an appeal or further proceedings or where any other proceedings under this Act is pending and the Commissioner is of the opinion that grant of such refund is likely to adversely affect the revenue in the said appeal or other proceedings on account of malfeasance or fraud committed, he may, after giving the taxable person an opportunity of being heard, withhold the refund till such time as he may determine.

Other matters

a. 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.

b. The amount claimed as refund shall get debited in accordance with sub-rule (3) of rule 86 of the CGST Rules, 2017 from the amount in the electronic credit ledger to the extent of the claim.

c. 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).

d. The refund and/or interest sanctioned, if any, will be directly credited to the bank account of the applicant.

e. Input doesn’t include input services and capital goods for this purpose.