GST Refund under Inverted Duty Structure and other Heads

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The term "Inverted tax structure" describes a circumstance in which the input GST rate—that is, the GST paid on inputs received—is higher than the output GST rate—that is, the GST paid on supplies made to customers.

Simply expressed, when comparing purchases tax to sales tax, the taxpayer pays more tax overall. Because of the reverse tax system, a taxpayer is entitled to a return of the input tax credit (ITC).

Anyone who is registered can apply for a refund of any unused input tax credits (ITC). Because the input tax rate is higher than the output tax rate, ITC resulting from the reverse tax structure may be claimed at the conclusion of each tax period where the credit has accrued.

The time frame for which the return must be filed is known as the tax period. Section 54 (3) (ii) of the CGST Act, 2017 read with Rule 89 (5) of the CGST Rules, 2017,provides for a refund of accumulated input tax credit on account of the inverted duty structure.

A few scenarios where there can be accumulations of credit
on account of Inverted Duty Structure:

  1. Trader purchasing goods i.e., LPG gas at the rate of 18% and selling the same at 5% to domestic customers.
  2. Supply of information technology products by an IT Company to Government Departments, PSUs, and to other Research and Educational Institutes. In these instances, 18% GST is levied at the time of procurement from the Distributors and/or Original Equipment Manufacturers.

    When such goods are supplied to specified institutions (mentioned above) 5% GST is levied. However, the same goods, when supplied to other users attract 18% GST. In this case, to the extent of supplies to specified end users for which a concessional rate has been prescribed, there is accumulation of input tax credit on account of an inverted duty structure.

  1. A composite supply wherein the output is at a lower rate than the goods/services forming part of such composite supply.
  2. Goods exported on payment of IGST under the claim of rebate, wherein the IGST rate is lower than the GST rate applicable to the goods/services forming part of such exported supply.
  3. Accumulation of ITC due to rate change.
  4. It is available even when the input and output tax rates are the same, but there is accumulation of ITC for any other reasons.
  5. Where supply has been made to merchant exporters under Notification 40/2017- Central Tax (Rate) dated 23.10.2017 or Notification No. 41/2017-Integrated Tax (Rate) dated 23.10.2017 or both.

Key conditions for being eligible for a refund in terms of the above provisions are that:

  • Rate of tax on input is higher than rate of tax on output supplies
  • The output supplies are not exempt or nil rated supplies
  • Refund on such supplies is not specifically restricted by the Government

Exceptions, when it is not possible to apply for a refund of an unused input tax credit, are as follows:

  • Output supplies are zero-rated or wholly exempt except for supplies of goods or services or both as may be notified by the Government on the recommendation of the GST Council.
  • If goods exported from 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 IGST drawback on such supplies

Documents required for Claim

  1. Copy of tax invoice issued by the supplier.
  2. Copy of signed letter of undertaking in case export is done under LUT terms.
  3. Copy of receipt of payment made.
  4. Copy of filed shipping bill from customs.
  5. Copy of Bill of Lading or the Airway bill
  6. Copy of export declaration filed with customs
  7. Bank Reconciliation Certificate (BRC) or Foreign Inward Remittance Certificate (FIRC).
  8. Copy of GST returns (GSTR 3B) filed for the relevant periods.
  9. Copy of Form GSTR-2A of the relevant period for which the refund claim is filed.
  10. Any other document if required or asked by the tax authority.

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.

Refund of GST paid on excess tax amount or "any other" ground or reason:

The GST paid on the goods or services provided is accumulated in the e-cash ledger of your registered GST account. Pre-paid taxes or GST paid reflects on your GST portal account. In case of uncertainty in determining the value of tax or tax rate, sometimes the supplier pays the tax provisionally and later claims the excess tax refund in the final assessment. Any excess payment or GST paid by mistake can be claimed from the portal by submitting relevant documents.

All the balance of GST will be shown in the Electronic cash ledger from where you can claim the refund. Refund of excess balance in the electronic cash ledger can be filed, while the GSTR 3B is used for filing the yearly return.

Apart from the reasons mentioned earlier, if the taxpayer does not fall in any category and still has a refund, he can claim on the grounds of "any other".

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What is an Inverted Duty Structure under GST?

How can I claim a GST refund for an Inverted Duty Structure?

What documents are required to claim a GST refund for an Inverted Duty Structure?

Is there a time limit for claiming a GST refund for an Inverted Duty Structure?

Can I claim a refund for accumulated GST credits on capital goods under the Inverted Duty Structure?

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