Refund arising due to Inverted Duty Structure

[Chandresh Gala]

Kindly guide us for the matter:

ITC accumulated through Inverted Duty Structure. Already filed for the refund application.

But now the scenario is after filing refund application IGST & CGST credit ledger is NIL.

Now major chunk of amount is lying in SGST credit ledger.

Kindly guide as to is there any way out to claim refund for the SGST amount.

[Sanjeev Agarwal]

Yes, SGST accumulated due to an inverted duty structure can itself be refunded under Section 54(3), subject to Rule 89(5). The difficulty here is procedural because a refund application has already been filed and the IGST/CGST ledgers have consequently been debited/NIL. Rule 89(3) requires the electronic credit ledger to be debited by the amount of refund claimed. (CBIC GST)

What can be done?

If the SGST balance existed at the time of filing the original refund application but was not included in that claim, you cannot ordinarily amend the already-filed RFD-01 merely to substitute/add SGST.

The practical route depends on the relevant period:

1. SGST pertains to a subsequent tax period:

There is no issue. File the next inverted-duty refund application and include the eligible SGST accumulation in that refund computation.

2. SGST relates to the same period already covered by RFD-01:

A second refund application for the same category and same tax period generally faces portal/procedural restrictions. In such a case, examine whether the existing application can validly be withdrawn/re-filed before processing, depending upon its current status.

3. Original refund is rejected/partly rejected:

The corresponding ITC debited for the refund is re-credited through FORM GST PMT-03, after satisfaction of the prescribed conditions. (CBIC GST)

Important point - SGST is not lost merely because CGST/IGST is NIL

The refund mechanism does not require SGST to be converted into CGST/IGST before claiming refund. If the SGST represents eligible Net ITC on inputs accumulated due to IDS, it forms part of the Section 54(3)/Rule 89(5) computation.

However, the maximum refund admissible for the relevant period remains governed by the Rule 89(5) formula. Merely having, say Rs. 10 lakh in the SGST ledger does not independently create entitlement to Rs. 10 lakh refund. (CBIC GST)

Recommended approach

Before taking action, reconcile:

Eligible refund under Rule 89(5

LESS: amount already claimed in RFD-01= balance refund, if any.

If there is a positive balance and the SGST relates to the same refund period, the precise remedy will depend on the status of your RFD-01 (ARN generated / RFD-02 issued / SCN issued / refund sanctioned).

If you provide (i) refund period, (ii) IGST/CGST/SGST amount claimed in RFD-01, (iii) current SGST balance, and (iv) present RFD-01 status, I can tell you the exact route for recovering the SGST without risking a duplicate refund claim.

[Chandresh Gala]

July - September 24

Jan - March 25

April - June 25

July - September 25

Jan - March 26

Above are the periods for which the refund has been claimed.

In all 4.5 lakhs have been claimed.

Current SGST balance 6.05 lakhs.

RFD 01 status in Acknowledgement stage.

[Sanjeev Agarwal]

Given these facts, I would not presently file/attempt another refund claim for the Rs. 6.05 lakh SGST balance. The existing RFD-01 should first be dealt with.

Your position

You have claimed IDS refund for:

• Jul-Sep 2024
• Jan-Mar 2025
• Apr-Jun 2025
• Jul-Sep 2025
• Jan-Mar 2026

Total refund claimed: Rs. 4.50 lakh

Current SGST ECL balance: Rs. 6.05 lakh

IGST/CGST: Nil

RFD-01: Acknowledgement stage

Rule 89(3) requires the electronic credit ledger to be debited by the amount claimed as refund. Therefore, the Rs. 4.50 lakh already debited is effectively linked with the pending applications. (CBIC GST)

Can the Rs. 6.05 lakh SGST also be refunded?

Potentially yes, but not merely because Rs. 6.05 lakh is presently lying in SGST.

Refund under inverted duty structure is determined period-wise under the Rule 89(5) formula. The critical question is whether this Rs. 6.05 lakh represents eligible Net ITC accumulated during periods not already exhausted by the refund claims.

If the Rs. 6.05 lakh largely represents SGST relating to the same periods for which RFD-01 has already been filed, filing another refund for those same periods/category can create duplicate-claim issues.

Recommended course

Since the applications are only at the acknowledgement stage, first prepare a period-wise reconciliation:

Eligible refund under Rule 89(5)

Less: Rs. 4.50 lakh already claimed

= Any eligible refund left unclaimed

If the Rs. 4.50 lakh was lower merely because the portal debited IGST/CGST first while substantial eligible SGST remained, we should examine the tax-head-wise debit made by the portal before concluding that Rs. 6.05 lakh is stranded.

Also, if an RFD-03 deficiency memo is issued, the amount originally debited is re-credited and a fresh RFD-01 for the same period can be filed after rectification. CBIC Circular 125/44/2019 specifically recognises this mechanism. (CBIC GST)

Key point

Do not withdraw/re-file merely to convert the claim into SGST without first checking the Rule 89(5) eligibility. The Rs. 6.05 lakh ledger balance is not automatically refundable.

If you give me a period-wise table showing

(1) turnover of inverted-rated supply,

(2) adjusted total turnover,

(3) input ITC,

(4) output tax and

(5) refund already claimed, I can calculate exactly how much of the Rs. 6.05 lakh SGST can still be recovered and through which period's RFD-01.

[Chandresh Gala]

Where shall I retrieve the above information from GST portal.

[Sanjeev Agarwal]

Yes. You can reconfirm the factual position directly from the GST portal. I suggest checking these items before deciding whether the Rs. 6.05 lakh SGST is actually stranded/refundable.

1. Check each RFD-01 and tax-head-wise refund claimed

Login Services Refunds Track Application Status select Filing Year/enter ARN Search.

Open each ARN for the five periods and download/view the RFD-01. The logged-in status also shows the tax period and tax amount claimed. (GST Tutorial)

For each ARN, note separately:

Period	IGST claimed	CGST claimed	SGST claimed	Total
Jul-Sep 24
Jan-Mar 25
Apr-Jun 25
Jul-Sep 25
Jan-Mar 26

This is the most important check.

1. Check actual debit from Electronic Credit Ledger

Go to Services Ledgers Electronic Credit Ledger and download the ledger covering the dates on which each RFD-01 was filed.

Identify entries corresponding to the refund applications and check exactly how much was debited from IGST / CGST / SGST.

We particularly need to establish whether the Rs. 4.50 lakh was substantially debited from IGST/CGST, leaving the present Rs. 6.05 lakh SGST untouched.

1. Check current status carefully

If the portal says "Refund Application Acknowledged", it means RFD-02 has already been issued. (GST Tutorial)

This is significant because RFD-01W withdrawal is permitted only before the officer issues RFD-02 or RFD-03. Therefore, if RFD-02 has actually been issued, the withdrawal/re-filing route is generally no longer available through that facility. (GST Tutorial)

What I need from you

Please send me screenshots/PDFs of one RFD-01 (preferably Jan-Mar 2026) showing:

Refund amount claimed Electronic Credit Ledger debit IGST/CGST/SGST breakup

and, if possible, a screenshot of the Rs. 6.05 lakh current SGST credit ledger balance.

I can then determine whether the SGST balance is (a) eligible for a subsequent IDS refund, (b) already factored into the earlier refund computation, or (c) effectively stranded because of the tax-head debit mechanism.

[Saqif Muchale]

Firstly, I would like to highlight where the error occurred.

As per paragraph 37 of Circular No. 125/44/2019-GST dated 18.11.2019, the utilization of ITC while filing a refund application should be in the following order:

(a) Integrated Tax, to the extent of the balance available;

(b) Central Tax and State Tax/Union Territory Tax, equally to the extent of the balance available. In the event of a shortfall in the balance available in one electronic credit ledger (say, Central Tax), the differential amount should be debited from the other electronic credit ledger (i.e., State Tax/Union Territory Tax).

Accordingly, the entire available IGST balance should have been utilized first. Thereafter, CGST and SGST should have been debited equally while filing Form GST RFD-01. Had this procedure been followed, the balances in the CGST and SGST electronic credit ledgers would have remained equal.

Now, considering the current situation, the following options may be explored:

1. Utilize the accumulated SGST balance in subsequent refund applications, to the extent possible.
2. Review your pattern of outward tax liability. If a significant portion of your outward liability is under IGST, the excess SGST balance can be utilized towards payment of IGST liability in accordance with the order of utilization prescribed under the GST law.
3. If any refund application has not yet been acknowledged, consider withdrawing the application and refiling it with the correct debit entries, ensuring equal utilization of CGST and SGST balances in Form GST RFD-01.

[Sanjeev Agarwal]

First, do not yet conclude that the Rs. 6.05 lakh SGST is stranded. For each of the five refund periods, obtain the RFD-01 and electronic credit ledger and prepare this reconciliation:

Period	Refund claimed	IGST debit	CGST debit	SGST debit	Refund sanctioned
Jul-Sep 2024
Jan-Mar 2025
Apr-Jun 2025
Jul-Sep 2025
Jan-Mar 2026

This is important because an IDS refund is governed by Section 54(3) and the prescribed refund computation; the mere existence of Rs. 6.05 lakh in the SGST electronic credit ledger does not automatically establish that Rs. 6.05 lakh is separately refundable. Section 54(3) permits refund of unutilised ITC where accumulation arises because the rate of tax on inputs is higher than the rate on output supplies, subject to the statutory conditions and exclusions.

What changes regarding the pending application

If the Jan-Mar 2026 RFD-01 is merely showing "Refund Application Acknowledged", that status alone should not rule out RFD-01W.

We should instead check whether any subsequent document has been issued-particularly RFD-04, RFD-05, RFD-06, RFD-07 or RFD-08. If none of those has been issued, withdrawal may potentially still be available under Rule 90(5).

But I would not withdraw it immediately merely to rebalance CGST and SGST. There is another significant point from Circular 125/44/2019-GST: although para 37 prescribes the debit sequence, para 38 provides protection where that sequence was not followed. Therefore, if the refund claim itself is otherwise correct, disturbing an acknowledged application solely because of the tax-head debit allocation may create unnecessary procedural and limitation complications.

Practical next step

Please obtain the Jan-Mar 2026 RFD-01 first. We need only four figures from it initially:

Total refund claimed IGST debit CGST debit SGST debit.

Also check whether anything beyond RFD-02 has been issued.

Once those figures are available, we can answer the real question much more precisely: whether the Rs. 6.05 lakh SGST represents genuine additional IDS accumulation capable of entering a subsequent refund computation, or merely an SGST ledger imbalance caused by the manner in which the earlier Rs. 4.50 lakh refund was debited.

That distinction is critical-I would not advise the client that Rs. 6.05 lakh is "refundable" until this reconciliation is completed.

[Shilpi Jain]

Irrespective of the fact it is in SGST the refund should be available. There is a clarification to this extent; also the utilisation of credit is as per the set rules in the law and that cannot lead to denial of the credit

AI Summary

Inverted duty refund eligibility includes SGST credit, but refund entitlement requires period-wise formula reconciliation and proper ledger debit review.
Refund of unutilised ITC from an inverted duty structure may include eligible SGST credit under Section 54(3) and Rule 89(5), without conversion into CGST or IGST. However, an SGST ledger balance is not automatically refundable and must be tested period-wise under the prescribed formula after adjusting refund already claimed. A filed RFD-01 generally cannot be amended to add omitted SGST, and another claim for the same period may raise duplicate-claim restrictions. Reconciliation of RFD-01 data, tax-head-wise ledger debits, formula eligibility and application status is necessary before pursuing a subsequent claim, withdrawal, refiling or utilisation against tax liability.