Inverted Duty Structure, What is Inverted Duty Structure, Inverted Tax Structure, GST Inverted Duty Structure, Ebizfiling

A complete guide on Inverted Duty Structure under GST

“What is Inverted Duty Structure?” And information on Refund under GST Inverted Duty Structure

Introduction

When the GST system was established in 2017, it aimed to rationalize the ‘inverted duty structure in GST’ by allowing refunds of utilized ITCs (Input Tax Credits) and enabled refunds of credits for both goods and services. This means that a GST (Goods and Service) taxpayer can claim the Inverted Tax ITC whenever the tax has accumulated as a result of the Inverted Duty Structure. In this article information on “What is Inverted Duty Structure?” And refund under GST Inverted Duty Structure information is mentioned.

What is Inverted Duty Structure?

When import tariffs on input products are greater than on completed goods, an inverted duty structure emerges. In other words when the GST rate on purchases is higher than the GST rate on sales at that time Invert Duty Structure comes into the picture. Inverted Duty Structure is also termed Inverted Tax Structure.

Information on GST Refund Inverted Duty Structure

Unused Input Tax Credit (ITC) may be refunded to a registered individual. The ITC for inverted tax structures can be claimed at the conclusion of any tax period in which the credit has accrued as a result of the input tax rate being higher than the output tax rate. A tax period is a period for which a return must be filed.

 

The following are examples of situations when a refund of an un-utilized input tax credit cannot be claimed:

  • If items exported from India are subject to export tariffs.

  • Except for the supply of goods or services or both that may be notified by the government based on the GST Council’s recommendations, output supplies are nil rated or entirely exempt.

  • If a supplier requests a refund of IGST-paid output tax.

  • If the supplier receives a duty drawback or IGST refund on these supplies.

Inverted Tax Structure in the Pre-GST (Goods and Service Tax)

Prior to the GST (Goods and Service Tax), there was an inverted duty structure in place where the import duty on raw materials used in the manufacture of completed items was higher than the import duty on finished goods themselves.

 

Finished Goods

Inverted Duty on Finished Goods

Raw Materials

Inverted Duty on Raw Materials

Electrical Transformer

7.50%

Micro-organism

30%

Solar Modules

Nil

Components for Solar Modules

5-10%

Dehydrates Culture Media

10%

Components

18-28%

Seaweed

10%

Agar

30%

Railway Locomotives

5%

Steel Tubes

10%

What is Inverted Tax Structure in Post-GST (Goods and Service Tax)?

Where the credit has been collected as a result of the rate of duty on inputs being higher than the rate of assessment on yield supplies, other than nil appraised or completely excluded supplies, with the exception of labour and product provisions, or both, as the Government may be informed on the Council’s proposals.

 

The formula for Calculating refund under Inverted Tax Structure:

 

(Adjusted total turnover X Net input tax credit / Turnover of inverted rated supply of goods and services) – Tax owed on such inverted rated supply of goods and services, is the formula for calculating refund under Inverted Tax Structure.

The process to claim a refund under GST Inverted Duty Structure

The Prerequisites: To obtain a refund due to the inverted tax/duty structure, the following GST criteria must be met.

  • The registered taxpayer must submit GSTR-1, 3B for the relevant or particular period.

  • There should be an ITC balance.

  • The required form to be completed is: The RFD 01 is the appropriate form for filing a refund claim, and it is also available online.

Filing Time Limitation: For the financial year in which the claim arises, the refund claim in RFD-01 must be filed within two years of the end of the relevant inverted duty period’s FY (Financial Year).

 

Below is the process on refund on account of ITC (Input Tax Credit) accumulated due to Inverted Tax Structure:

  • Fill out RFD-01 and submit it to the GST Portal. The GST Portal will create an ARN (Application Reference Number).

  • From the portal, print the completed application as well as the created Refund application ARN Receipt.

  • Submit the printed documents to the appropriate jurisdictional authorities, together with any necessary supporting evidence.

  • A tax officer will process the refund application. Once the application has been processed, a refund will be issued manually.

  • Contact the applicable state/Nodal center’s officer if the state/jurisdictional center’s authority has not yet been assigned.

Conclusion

The GST Law gives zero-rated providers a variety of methods for claiming refunds of taxes paid on the input side. One possibility is to export under a bond or LUT and claim a refund of the ITC that was not used. Subject to specific conditions, the law also allows for the reimbursement of unused ITC when credit is accumulated as a result of an inverted duty structure. Refund requests must be processed within a certain amount of time, and claims that are not resolved within 60 days will be subject to a 6% interest charge. Furthermore, 90% of the claim would be reimbursed on a temporary basis within 7 days of receipt of the claim. Claims must be submitted with the bare minimum of evidence, and the reimbursement will be credited to the claimant’s bank account.

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Author: zarana-mehta

Zarana Mehta is an MBA in Finance from Gujarat Technology University. Though having a masters degree in Business Administration, her upbeat and optimistic approach for changes led her to pursue her passion i.e. Creative writing. She is currently working as Content Writer at Ebizfiling.

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