All you need to know regarding Refunds under Inverted Duty Structure

All you need to know regarding Refunds under Inverted Duty Structure

Before the GST regime, cases of inverted duty structure were seen where import duty on raw materials that were used in the production of finished goods was more than the import duty on finished goods. Inverted tax structure is a situation wherein the rate of tax on purchased inputs is more than the rate of tax on the outward supplies. In this article, we shall look at refund under Inverted duty structure. 

Refund under Inverted Duty Structure (IDS)

A registered person can claim the refund of unutilized Input tax credit on account of IDS at the end of a tax period where credit has accumulated due to the rate of tax on inputs being higher than rate of tax on the output supplies.

There are certain exceptions where refund of unutilized Input tax credit won’t be allowed:

  • Output supplies are nil rated or are fully exempt supplies except supplies of goods and or services, as notified by the government on the council’s recommendations.
  • In case the goods exported are subject to export duty.
  • In case supplier claims refund of output tax paid under IGST Act.
  • In case the supplier avails duty drawback or refund of IGST on such supplies.

What is the Time limit to claim the refund under Inverted Duty Structure?

As per Section 54(1) of the CGST Act 2017[1], the time limit of 2 years is provided from the relevant date in which refund can be filed by the registered taxable person.

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Now let’s look at the impact of the time limit for refund due to IDS before amendment and after amendment with effect from 1st Feb, 2019.

ParticularsBefore AmendmentAfter Amendment
  Refund Period  July 2017  July 2017
  Explanation 2(e) to Section 54(14) of the CGST Act 2017  2 years from the end of FY, in which claim for such accumulated credit arises.  2 years from the due date for furnishing return under Section 39 for the period where claim for refund arises.
  Trigger date for calculating 2 years  2 years from the end of FY 2017-18  2 years from the due date of furnishing GSTR-3B for the month of July 2017.
  Due date for filing refund  31st March, 2020  25th Aug, 2019

Steps to claim refund of ITC unutilized

It may be noted that Form GSTR-3B and GSTR-1 should be filed for the relevant tax period for which you wish to file refund application of the ITC accumulated.

The steps to claim refund is as follows:

Steps to claim refund of ITC unutilized - Under Inverted Duty Structure
  • File Form RFD-01A on GST portal. ARN will be generated by the GST portal. Form RFD-01A is similar to Form RFD-01, which is introduced as a temporary solution for application till the time the online facility is enabled to claim refund.
  • Print the application and the refund application ARN receipt available on the portal.
  • Submit these documents with relevant supporting documents to the jurisdictional authority.
  • Then the tax official will process the refund application, and once the application is processed, refund is disbursed manually.
  •  Reach out to the nodal officer if the jurisdictional authority of the state/centre is not yet allotted.
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In order to track the application of refund, you may download PDFs of the filed application using the My saved/ Submitted application option provided under refunds. You can track the status of the filed application with the option- Track Application Status under refunds.

Declarations and Statements to be filed-

While making a refund application under IDS, various declarations and statements should be filed. These are as follows:

  • Declaration under second and third proviso to section 54(3);
  • Declaration under section 54(3)(ii);
  • Undertaking in relation to section 16(2)(c) and section 42(2);
  • Statement 1 under rule 89(5) and statement 1A under rule 89(2) (h); and
  • Self-declaration under rule 89(2) (I) in case where amount claimed doesn’t exceed 2 lakh rupees.

The Perplexity of refund under GST inverted duty structure

The refund process under GST can be tedious, and it also creates additional compliances requirements and ultimately leads to the increased cost of compliance. In this way, IDS has posed refund related issues under GST. Moreover, the IDS uplifts imports and weakens the domestic industry.

 Any proposal that affects GST revenues should pass the GST fitment committee. The officials of the finance ministry have attempted to solve the conundrum of GST refund issues related to the IDS.

The issues of refund under IDS have popped up before the GST council during past meetings.  Many a time clarifications have been provided on issues related to GST refund.

The GST rates concerning the IDS are to be realigned under GST, and they should be corrected from the working capital view point that helps input suppliers and buyers. There have been quite a few industries that has faced difficulties due to the IDS.

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Therefore the government should come up with a special refund mechanism for the taxpayers who apply for the refund of ITC unutilized under IDS. Through this, the government would be able to process refunds much faster and also lessen the burden on taxpayers.


There are taxpayers who have difficulty in understanding refunds under Inverted Duty Structure, which should be cleared and clarified as soon as possible. As stated above, the issues of refund under IDS have popped up before the GST council during past meetings, and clarifications have been sent out as well.

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