INVERTED DUTY STRUCTURE

[BARUN MUKHERJEE]

Respected sir,

One of my clients manufacturing e-rickshaws where the rate of tax on inputs purchased is more than the rate of tax on outward supplies so the said taxpayer is eligible to get refund under inverted duty structure. And the taxpayer is also engaged to resale of batteries on which tax rate is 28% and also sale the same at the rate of 28%. Now my question is that when we calculate maximum refund amount as per rule 89(5) which figure will be considered as net input tax credit. Is there shown total input as raw materials purchased for manufacturing of e- rickshaws and batteries purchased for trading purpose or only considered raw materials purchased for manufacturing purpose….?

AI Summary

Inverted duty structure: refund entitlement may include ITC on higher tax inputs despite similar rate traded components.
The question is whether ITC on batteries purchased for resale or fitted into manufactured vehicles must be included in the Net Input Tax Credit when computing inverted duty refunds. The department's practice to exclude traded goods would reduce net ITC and skew adjusted turnover, potentially leaving accumulated inverted credit contrary to refund provisions. Judicial guidance affirms refund entitlement where accumulation arises from certain higher tax inputs and holds that administrative circulars cannot supplant statutory refund rights.