GST Refunds Under Inverted Duty Structure - MyGST Refund

Introduction

The situation of Inverted Duty Structure (hereinafter referred to as “IDS”) arises when the supplier has purchased the goods at a higher rate of tax and sells the final product at a lower rate of tax. In other words, Inverted Duty Structure is a situation where the tax on inward supply is more than the tax on outward supply.

For Example a dress sold at a 5% tax rate, with raw materials like non-woven fabric, thread, buttons, lace, and zippers purchased at a 12% tax rate.

Provisions related to GST refund under Inverted Duty Structure

Section 54 (3) (ii) of the CGST Act, 2017, read with Rule 89 (5) of the CGST Rules, 2017, provides for a refund of accrued input tax credit on account of the inverted duty structure.

The CBIC issued Circular 125/44/2019 dated 18^th November 2019 (hereinafter referred to as ‘Refund Circular’) that clarified various aspects of GST refunds such as refunds under inverted duty structure, refunds on the account of exports, the requirement to mention HSN / SAC, changes in the manner of claiming of refund of IGST on supplies other than zero-rated supplies, and so on.

Basic conditions for being eligible for a refund under IDS

1. The rate of tax on input is higher than the rate of tax on output supplies.
2. The output supplies are not exempt or nil-rated supplies.
3. Refund on such supplies is not specifically restricted by the Government

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