The “Inverted Duty Structure” is the term used under GST for a scenario 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 exempt supplies). Or to say when a registered dealer deals in a business where the input credit available on the inputs is more than the output tax liability on finished product.
However, the Government also has the power to notify supplies where refund of ITC will not be admissible even if such credit accumulation is on account of an inverted duty structure. As per Section 54(3) of the CGST Act, 2017 read with Rule 89 of the CGST Rules, 2017, refund of accumulated ITC will be granted where the credit accumulation has taken place on account of inverted duty structure provided the refund is not specifically denied by the Government through some notification.
In exercise of the powers conferred by this section, the government has issued Notification no.15/2017-Central Tax (Rate) dated 28th June 2017 wherein it has been notified that no refund of unutilised 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 services specified in sub-item (b) of item 5 of Schedule II of the Central Goods and Services Tax Act. The supplies specified under item 5(b) of Schedule II are construction services. In respect of goods, the central government has issued Notification no.5/2017- Central Tax (Rate) dated 28th June 2017, amended by Notification no. 29/2017- Central Tax (Rate) dated 22nd September, 2017 and further amended by Notification no. 44/2017- Central Tax (Rate) dated 14th November, 2017. The list of notified goods in respect of which unutilized ITC will not be admissible could be obtained on CBEC website under these notifications.
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.
For refund of unutilised ITC where credit accumulation is on account of inverted duty structure, subject to certain riders, time lines have also been set for processing of refund claims and claims not settled within 60 days will be paid with interest @6%. Moreover, 90% of the claim would be paid within 7 days of acknowledgement of claim on provisional basis. Claims are to be filed with minimum documentation and the refund amount will be credited directly to the claimant’s bank account. As per Rule 89(3) of CGST Rules, 2017 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.
Hence for registered dealer who are dealing in goods where refund is available due to inverted duty structure it is imperative on his part that the refund claims should be filed periodically so that there would not be any cash flow problem on this count. The registered dealer with the help of good accounting software can keep the track of its refund and could find the necessary information for filing the refund application as defined under the relevant rule. Hence, it is advisable for the registered user that the proper accounting and keeping of records with the help of some cloud based accounting software is essential for the rightful and timely refund.