Refund under Inverted Duty Structure – Anomaly
By: – CA Akash Phophalia
Goods and Services Tax – GST
Dated:- 19-5-2018<\/p>\n
1. Inverted Duty Structure – Meaning-
\nInverted Duty Structure means a situation where the tax rate on inputs is higher than tax rates on outward supplies. Thus where taxes paid on inputs are at a rate higher than the taxes paid on outward supplies, such situation is an Inward Duty Structure. For instance in case of steel utensils manufacturing firm, rate of tax on inputs i.e. SS Patti\/Patti is 18% whereas rate of tax on final product i.e. Utensils is 12%. This is good example of inverted duty structure.
\n2. Refund-
\nInverted duty structure generally results in accumulation of excess taxes credit. Since rate of tax on outward supplies is lesser than rate of tax on inputs this results in accumulations of unutilized input tax credit and thus need of refund arises.
\n3. Legal Provisions-
\nSection 54(3) of the CGST Act 2017 provides (relevant extracts)
\n“Sub<\/p>\n
= = = = = = = =<\/p>\n
Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n Meaning of refund is provided in the Explanation to the Section 54 which reads as under- = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n visions of sub-section (3) and sub-section (4) of section 9 of the respective State Goods and Services Tax Act; or = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n uts, input services or capital goods – As far as provisions carved out for refund of input tax credit on account of inverted duty structure the law no where imposes any restriction as to refund of taxes on inputs, input services or capital goods. Thus under section 54(3) taxes paid on inputs, input services or capital goods are admissible. However the same is to be understood with the explanation provided for meaning of refund. Meaning of refund for inverted duty structure is wide enough to cover taxes paid on inputs, input services and capital goods. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n","protected":false},"excerpt":{"rendered":" Refund under Inverted Duty Structure – AnomalyBy: – CA Akash PhophaliaGoods and Services Tax – GSTDated:- 19-5-2018 1. Inverted Duty Structure – Meaning- Inverted Duty Structure means a situation where the tax rate on inputs is higher than tax rates on outward supplies. Thus where taxes paid on inputs are at a rate higher than … Continue reading “Refund under Inverted Duty Structure – Anomaly”<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-11847","post","type-post","status-publish","format-standard","hentry"],"_links":{"self":[{"href":"https:\/\/goodsandservicetax.in\/GST\/index.php?rest_route=\/wp\/v2\/posts\/11847","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/goodsandservicetax.in\/GST\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/goodsandservicetax.in\/GST\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/goodsandservicetax.in\/GST\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/goodsandservicetax.in\/GST\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=11847"}],"version-history":[{"count":0,"href":"https:\/\/goodsandservicetax.in\/GST\/index.php?rest_route=\/wp\/v2\/posts\/11847\/revisions"}],"wp:attachment":[{"href":"https:\/\/goodsandservicetax.in\/GST\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=11847"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/goodsandservicetax.in\/GST\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=11847"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/goodsandservicetax.in\/GST\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=11847"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
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\n“Refund” includes refund of tax paid on zero-rated supplies of goods or services or both or on inputs or input services used in making such zero-rated supplies, or refund of tax on the supply of goods regarded as deemed exports, or refund of unutilized input tax credit as provided under sub-section(3).
\nThus the definition of refund conveys different meaning for different situations resulting in refund of unutilized input tax credit which can be summarized as:-
\nNature of Supply
\nRefund of taxes paid
\nRemarks
\nZero-rated supply (With payment of tax)
\nTaxes paid on Zero-rated supplies
\nTaxes can be paid either by utilization of input tax credit or can be paid using cash.
\nHere, input tax credit is wide enough to cover input, input services and capital goods.
\nZero-rated supply
\n(Without payment of tax)
\nInput tax credit of input and input services
\nInput tax credit of capital goods is restricted b<\/p>\n
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\n(e) the tax payable under the provisions of sub-section (3) and sub-section (4) of section 7 of the Union Territory Goods and Services Tax Act,
\nbut does not include the tax paid under the composition of levy.
\nThus input tax credit shall mean taxes paid on goods and services whether under direct charge or reverse charge whether on domestic procurement or on importation. But credit of composition fees shall not be admissible. Hence, the term used input tax credit is wide enough to cover all eligible input taxes paid by the registered taxable person. And wherever the said term shall be used it shall convey the same meaning of including all eligible input tax credits except where the meaning is restricted for the purpose of the particular section or rule.
\n(c) Eligibility
\nThe law provides the condition\/situation for eligibility of claiming refund of unutilized accumulated <\/p>\n
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\n(e) Rule 89(5) of CGST Rules 2017 – In the case of refund on account of inverted duty structure, refund of input tax credit shall be granted as per the following formula:-
\nMaximum Refund Amount = {(Turnover of inverted rated supply of goods and services) * Net ITC \/ Adjusted Total Turnover} – tax payable on such inverted rated supply of goods and services.
\nExplanation:- For the purposes of this sub-rule, the expressions-
\n(a)”Net ITC” <\/p>\n
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