Refund of ITC in case of Inverted Tax Structure Under GST

Introduction

A situation where the Input GST rate is more than the output GST rate is called an Inverted Tax Structure. Here, The Input GST rate is the rate paid on Inputs received whereas the Output GST rate is the rate payable on Output supplies of goods or services.

To explicate further, in this case, the taxpayer will be paying more tax on purchases in comparison to the tax on sales. So, due to the inverted Tax Structure, the Taxpayer will be eligible for Input Tax Credit (ITC) refund.

Taxpayers would have to file Form RFD-01 within two years from the end of the Financial year in which the claim for refund arises. Furthermore, a GST refund can be applied for the claim of multiple months in a single refund application.

Moreover, the application for a refund, at any stage of completion, can be saved for up to 15 days maximum. If the application is not submitted within 15 days, the saved draft will be deleted from the GST portal. To view the Saved Applications, taxpayers after logging in may go to “services” > “refunds” > “My Saved/Filed Application”.

The constitution of Goods and Services Tax laws is the multistage Tax and consistent availability of credit through the supply chain. Hence, the tax paid at the earlier stages of the supply chain with the inputs can be adjusted later on against the tax imposed on the output liability of the taxpayer. This enables consistent credit for the taxpayer.

Section 52(3) of the Central Goods and Services Tax Act, 2017 states that the refund of Input Tax Credit is available in Only two Situations, that are:

a. In Export Transactions and Transactions involving an inverted Tax Structure

Where inputs are taxed higher than outputs, resulting in an inverted structure and consequentially leading to an accumulation of Input taxes at the Taxpayers’ end.