{"id":24116,"date":"2021-12-04T10:30:51","date_gmt":"2021-12-04T10:30:51","guid":{"rendered":"https:\/\/www.legalraasta.com\/blog\/?p=24116"},"modified":"2021-12-01T08:20:25","modified_gmt":"2021-12-01T08:20:25","slug":"inverted-duty-structure","status":"publish","type":"post","link":"https:\/\/www.legalraasta.com\/blog\/inverted-duty-structure\/","title":{"rendered":"Inverted Duty Structure under GST"},"content":{"rendered":"<p>The term &#8220;inverted duty structure tax&#8221; refers to a situation in which the tax rate on inputs is higher than the tax rate on outputs for sale. It&#8217;s possible that the problem isn&#8217;t present in all industries. The article explains the concept and the rules that must be followed.<\/p>\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_73 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/www.legalraasta.com\/blog\/inverted-duty-structure\/#Inverted_Tax_Structure_in_the_pre-GST_regime\" title=\"Inverted Tax Structure in the pre-GST regime\">Inverted Tax Structure in the pre-GST regime<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/www.legalraasta.com\/blog\/inverted-duty-structure\/#Inverted_Tax_Structure_under_the_GST_regime\" title=\"Inverted Tax Structure under the GST regime\">Inverted Tax Structure under the GST regime<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/www.legalraasta.com\/blog\/inverted-duty-structure\/#Refund_in_case_of_Inverted_Tax_Structure_under_GST\" title=\"Refund in case of Inverted Tax Structure under GST\">Refund in case of Inverted Tax Structure under GST<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/www.legalraasta.com\/blog\/inverted-duty-structure\/#Maximum_Amount_of_Refund_Formula_and_Terms\" title=\"Maximum Amount of Refund, Formula, and Terms\">Maximum Amount of Refund, Formula, and Terms<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/www.legalraasta.com\/blog\/inverted-duty-structure\/#Various_Terms_used_in_the_Computation_of_Maximum_Refund_Amount\" title=\"Various Terms used in the Computation of Maximum Refund Amount\">Various Terms used in the Computation of Maximum Refund Amount<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/www.legalraasta.com\/blog\/inverted-duty-structure\/#Track_the_filed_refund_application\" title=\"Track the filed refund application\">Track the filed refund application<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/www.legalraasta.com\/blog\/inverted-duty-structure\/#Issues_Contentions\" title=\"Issues &amp; Contentions\">Issues &amp; Contentions<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/www.legalraasta.com\/blog\/inverted-duty-structure\/#According_to_the_description_of_the_formula_for_calculating_the_refund_amount\" title=\"According to the description of the formula for calculating the refund amount,\">According to the description of the formula for calculating the refund amount,<\/a><\/li><\/ul><\/nav><\/div>\n<h2><span class=\"ez-toc-section\" id=\"Inverted_Tax_Structure_in_the_pre-GST_regime\"><\/span><strong>Inverted Tax Structure in the pre-GST regime<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>An inverted duty structure existed prior to the GST in circumstances where the import duty on raw materials used in the production of finished goods was greater than the import duty on finished goods themselves.<\/p>\n<p>An example of an inverted duty structure is as follows: The duty on imported tires (finished goods) is 10%. Natural rubber (Raw Material) imports are subject to a 20% duty.<\/p>\n<p><strong>Other Examples:<\/strong><\/p>\n<table width=\"834\">\n<thead>\n<tr>\n<td colspan=\"2\"><strong>Products<\/strong><\/td>\n<td colspan=\"2\"><strong>Import duty on<\/strong><\/td>\n<\/tr>\n<\/thead>\n<tbody>\n<tr>\n<td>Finished Goods<\/td>\n<td>Raw Materials<\/td>\n<td>Finished Goods<\/td>\n<td>Raw Materials<\/td>\n<\/tr>\n<tr>\n<td>Solar Modules<\/td>\n<td>Components for Solar Modules<\/td>\n<td>Nil<\/td>\n<td>5-10%<\/td>\n<\/tr>\n<tr>\n<td>Seaweed<\/td>\n<td>Agar<\/td>\n<td>10%<\/td>\n<td>30%<\/td>\n<\/tr>\n<tr>\n<td>Dehydrated culture media<\/td>\n<td>Microorganism<\/td>\n<td>10%<\/td>\n<td>30%<\/td>\n<\/tr>\n<tr>\n<td>Electrical Transformer<\/td>\n<td>Steel Tubes<\/td>\n<td>7.50%<\/td>\n<td>10%<\/td>\n<\/tr>\n<tr>\n<td>Railway locomotives<\/td>\n<td>Components<\/td>\n<td>5%<\/td>\n<td>18-28%<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<h2><span class=\"ez-toc-section\" id=\"Inverted_Tax_Structure_under_the_GST_regime\"><\/span><strong>Inverted Tax Structure under the GST regime<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>The term &#8220;inverted tax structure&#8221; refers to a situation in which the tax rate on purchased inputs (i.e. the GST rate paid on inputs received) is higher than the tax rate on outbound deliveries (i.e. GST rate payable on sales).<\/p>\n<table width=\"834\">\n<thead>\n<tr>\n<td colspan=\"2\"><strong>Products<\/strong><\/td>\n<td colspan=\"2\"><strong>GST on<\/strong><\/td>\n<\/tr>\n<\/thead>\n<tbody>\n<tr>\n<td>Finished Goods (Output)<\/td>\n<td>Raw Materials (Input)<\/td>\n<td>Finished Goods<\/td>\n<td>Raw Materials<\/td>\n<\/tr>\n<tr>\n<td>Fabric Bag<\/td>\n<td>Non-Woven Fabric<\/td>\n<td>5%<\/td>\n<td>12%<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<h2><span class=\"ez-toc-section\" id=\"Refund_in_case_of_Inverted_Tax_Structure_under_GST\"><\/span><strong>Refund in case of Inverted Tax Structure under GST<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>Unused Input Tax Credit may be refunded to a registered individual (ITC). The ITC for inverted tax structures can be claimed at the end of any tax period in which the credit has accumulated as a result of the tax rate on inputs being greater than the tax rate on output supply. A tax period is a time period for which a return must be filed.<\/p>\n<p>The following are the exceptions to claiming a refund of any unutilized input tax credit:<\/p>\n<ul>\n<li>Except for supplies of goods or services or both, as may be specified by the Government based on the GST Council&#8217;s recommendations, output supplies are nil rated or entirely exempt.<\/li>\n<li>Whether or not the items exported from India are subject to export duties.<\/li>\n<li>If the supplier is entitled to a refund of output tax paid under the IGST Act.<\/li>\n<li>If the supplier is entitled to a duty drawback or IGST refund on such deliveries.<\/li>\n<\/ul>\n<h3><span class=\"ez-toc-section\" id=\"Maximum_Amount_of_Refund_Formula_and_Terms\"><\/span><strong>Maximum Amount of Refund, Formula, and Terms<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p><strong>Maximum Refund Amount =\u00a0<\/strong>(Adjusted total turnover X Net input tax credit \/Turnover of inverted rated supply of goods and services)\u2013 Tax due on such inverted rated supply of goods and services<br \/>\n<strong>Illustration:<\/strong><br \/>\nSupply of Fabric Bags (Output) Value: Rs.1,400<br \/>\nGST on the above: 1400\u00d75%= Rs.70<br \/>\nSupply of Woven fabric of Silk: Value Rs.1,500<br \/>\nGST on the above: Rs.1,500\u00d75%=Rs.75<br \/>\nThe purchase value of Silk yarn: Rs.1,000\u00d75%<br \/>\nGST on the above: Rs.1,000\u00d75%=50<br \/>\nPurchase Value of Non woven fabric Rs.1,000<br \/>\nGST on the above: Rs.1,000\u00d712%=Rs.120.<br \/>\nTurnover of inverted rated supply which in this case is Rs.1,400.<br \/>\n<strong>Maximum Refund\u00a0<\/strong>= {(1400\u00d7120)\/1400}-70 = Rs.50<\/p>\n<h2><span class=\"ez-toc-section\" id=\"Various_Terms_used_in_the_Computation_of_Maximum_Refund_Amount\"><\/span><strong>Various Terms used in the Computation of Maximum Refund Amount<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<ul>\n<li><strong> Turnover of inverted rated supply of goods<\/strong><\/li>\n<\/ul>\n<p>The value of an inverted supply of goods or services made without payment of tax under a bond or letter of undertaking throughout the relevant period. Turnover of inverted rated supply of products = Rs.1,400 in the example above.<\/p>\n<ul>\n<li><strong> Net input tax credit<\/strong><\/li>\n<\/ul>\n<p><strong><a href=\"https:\/\/www.legalraasta.com\/blog\/know-input-tax-credit-itc\/\">Input tax credit<\/a><\/strong> obtained on inputs during the relevant period other than the input tax credit for which a refund is claimed under sub-rules (4A) or (4B) or both must be referred to as net ITC. It&#8217;s 50+120-50=Rs. 120 in the example above.<\/p>\n<ul>\n<li><strong> Adjusted Total Turnover<\/strong><\/li>\n<\/ul>\n<p>&#8220;Adjusted Total turnover&#8221; means the turnover in a State or Union territory during the relevant period, subtracting the value of exempt supplies other than zero-rated supplies and the turnover of supplies in respect of which a refund is sought under sub-rules (4A) or (4B) or both, if applicable.<\/p>\n<p>In the preceding example, the turnover in a state or union territory, as defined under sub-section (112) of section 2, is 1500+1400-1500 = Rs. 1400: &#8220;Turnover in State&#8221; or &#8220;turnover in Union territory&#8221; means the total value of all taxable and exempt supplies made within a State or Union territory by a taxable person, exports of goods or services or both, and inter-State supplies of goods or services or both made from the State or Union territory by the said taxable person, but excluding the central tax, State tax.<\/p>\n<ul>\n<li><strong> Tax payable on such inverted rated supply of goods<\/strong><\/li>\n<\/ul>\n<p>The tax amount payable under the same head, i.e. IGST, CGST, and SGST, on such inverted rated supply of goods. In the example above, it is 14005% = Rs.70.<\/p>\n<ul>\n<li><strong> Relevant period<\/strong><\/li>\n<\/ul>\n<p>The time frame in which the claim was lodged.<\/p>\n<p><strong>How to claim Refund of ITC unutilized<\/strong><\/p>\n<ol>\n<li><strong> Pre-requisites:\u00a0<\/strong>For the tax period for which you intend to apply for a refund of the accrued ITC, you must file GSTR-1 and GSTR-3B.<\/li>\n<li><strong> Form to be filed: \u00a0<\/strong><strong>RFD-01<\/strong><\/li>\n<\/ol>\n<p><strong>Note:<\/strong>\u00a0RFD-01 is an online application that allows you to submit a refund claim.<\/p>\n<ol>\n<li><strong> Time limit to file:<\/strong><\/li>\n<\/ol>\n<p>RFD-01 must be filed within two years of the end of the fiscal year in which the refund claim is made.<\/p>\n<p><strong>Step 1: <\/strong>Complete and submit RFD-01 on the GST Portal. The GST Portal will create an ARN.<\/p>\n<p><strong>Step 2: <\/strong>Print the completed application and the produced Refund application ARN Receipt from the portal.<\/p>\n<p><strong>Step 3:<\/strong> Submit the printed documents to the appropriate jurisdictional authorities, together with any supporting evidence.<\/p>\n<p><strong>Step 4:<\/strong> The refund application will be processed by a tax official. A refund will be manually distributed once the application has been processed.<\/p>\n<p><strong>Step 5:<\/strong> Contact the applicable state\/Nodal center&#8217;s office if the state\/jurisdictional center&#8217;s authority has not yet been assigned.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"Track_the_filed_refund_application\"><\/span><strong>Track the filed refund application<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<ul>\n<li>Use the My Saved \/ Submitted Applications option under Refunds to download PDFs of the Filed applications (ARNs).<\/li>\n<li>Use the Track Application Status option under Refunds to keep track of the status of your filed applications.<\/li>\n<\/ul>\n<h2><span class=\"ez-toc-section\" id=\"Issues_Contentions\"><\/span><strong>Issues &amp; Contentions<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<ul>\n<li>In the manufacturing industry, there may be several inputs with different tax rates. In the nature of the inverted duty structure, some have a lower rate than output, while others have the same rate as output.<\/li>\n<li>Correlating the output with the inputs is quite tough in this scenario. As a result, the amount of the refund is calculated incorrectly.<\/li>\n<li>Is the reimbursement of accumulated credit due to an inverted duty structure accessible only for inputs where the GST rate is higher than the outbound supply rate or is it available for all inputs?<\/li>\n<\/ul>\n<h2><span class=\"ez-toc-section\" id=\"According_to_the_description_of_the_formula_for_calculating_the_refund_amount\"><\/span><strong>According to the description of the formula for calculating the refund amount,<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>Input tax credit obtained on inputs during the relevant period other than the <strong><a href=\"https:\/\/www.legalraasta.com\/blog\/know-input-tax-credit-itc\/\">input tax credit<\/a><\/strong> for which a refund is claimed under sub-rules (4A) or (4B) or both must be referred to as net ITC.<\/p>\n<p>It&#8217;s worth noting that the above does not clearly state that inputs have a higher GST rate than output supply.<\/p>\n<p>As a result, the complete credit of inputs might be considered when calculating a refund claim due to an inverted tariff structure.<\/p>\n<blockquote><p>Read, also:\u00a0<a href=\"https:\/\/www.legalraasta.com\/blog\/gst-on-works-contract\/\">Impact of GST on works contract<\/a><\/p><\/blockquote>\n","protected":false},"excerpt":{"rendered":"<p>The term &#8220;inverted duty structure tax&#8221; refers to a situation in which the tax rate on inputs is higher than the tax rate on outputs for sale. It&#8217;s possible that the problem isn&#8217;t present in all industries. The article explains the concept and the rules that must be followed. Inverted Tax Structure in the pre-GST regime [&hellip;]<\/p>\n","protected":false},"author":4,"featured_media":24534,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[125],"tags":[4682,4677,4678,4679,4681,4680,4684,4683],"class_list":["post-24116","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-gst","tag-gst-regime","tag-inverted-duty-structure","tag-inverted-duty-structure-under-gst","tag-inverted-tax-structure-in-the-pre-gst-regime","tag-inverted-tax-structure-under-the-gst-regime","tag-pre-gst-regime","tag-refund-in-case-of-inverted-tax-structure","tag-refund-in-case-of-inverted-tax-structure-under-gst"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.3 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Inverted Duty Structure under GST | GST regime - LegalRaasta<\/title>\n<meta name=\"description\" content=\"The term &quot;inverted duty structure tax&quot; refers to a situation in which the tax rate on inputs is higher than the tax rate on outputs for sale.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.legalraasta.com\/blog\/inverted-duty-structure\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Inverted Duty Structure under GST | GST regime - 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