Denied Inverted Duty Structure (IDS) Refund

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....enied Inverted Duty Structure (IDS) Refund<br>By: - Pradeep Reddy<br>Income Tax<br>Dated:- 12-4-2025<br>Denied Inverted Duty Structure (IDS) Refund......just because input and output have the same tax rate? &#128531; Let's decode &#119826;&#119838;&#119836;&#119853;&#119842;&#119848;&#119847; &#120787;&#120786; &#119848;&#119839; &#119853;&#119841;&#119838; &#119810;&#119814;&#119826;&#119827; &#....

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....119808;&#119836;&#119853; To claim an ITC refund under IDS, these conditions must be met: &#9989; Input tax rate must be &#119841;&#119842;&#119840;&#119841;&#119838;&#119851; than output supply &#9989; ITC must be &#119834;&#119836;&#119836;&#119854;&#119846;&#119854;&#119845;&#119834;&#119853;&#119838;&#119837; &#119837;&#119854;&#119838; &#119853;&#119848; &#119853;&#119841;&#119842;&#119852....

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....; &#119851;&#119834;&#119853;&#119838; &#119837;&#119842;&#119839;&#119839;&#119838;&#119851;&#119838;&#119847;&#119836;&#119838; &#9989; Output should &#119847;&#119848;&#119853; &#119835;&#119838; &#119847;&#119842;&#119845;-&#119851;&#119834;&#119853;&#119838;&#119837; or fully exempt &#9989; Output should &#119847;&#119848;&#119853; &#119835;&#119838; &#119847;&#119848;&#119853;&#119842;&#11....

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....9839;&#119842;&#119838;&#119837; as ineligible &#9989; Claim must be filed &#119856;&#119842;&#119853;&#119841;&#119842;&#119847; &#120784; &#119858;&#119838;&#119834;&#119851;&#119852; from end of relevant FY &#119830;&#119841;&#119834;&#119853; &#119837;&#119848;&#119838;&#119852; &#119853;&#119841;&#119838; &#119810;&#119809;&#119816;&#119810; &#119852;&#119834;&#119858;? &#128196; Circular ....

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....125/44/2019 & AP Circular 3/2020 &#9989; Refund can't be denied just because input tax rate = or < output &#9989; Rule 89(5) includes &#119834;&#119845;&#119845; &#119842;&#119847;&#119849;&#119854;&#119853; &#119816;&#119827;&#119810; &#128196; Circular 135/05/2020 &#10060; Refund not allowed if accumulation is &#119851;&#119834;&#119853;&#119838; &#119836;&#119841;&#119834;&#119847;&#119840;....

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....&#119838;&#119852; &#119848;&#119855;&#119838;&#119851; &#119853;&#119842;&#119846;&#119838; (trading businesses, for example) &#119830;&#119841;&#119834;&#119853; &#119837;&#119848; &#119853;&#119841;&#119838; &#119836;&#119848;&#119854;&#119851;&#119853;&#119852; &#119852;&#119834;&#119858;? &#129489;&zwj;&#9878;&#65039; Delhi HC - Indian Oil Corporation and Kerala HC - Malabar Fuel Corporatio....

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....n &#9989; Same rate on inputs & output can't lead to refund denial &#129489;&zwj;&#9878;&#65039; Calcutta HC - Shivaco Associates &#9989; Refund allowed even if main input = output, if other inputs are taxed higher Another &#119853;&#119851;&#119842;&#119836;&#119844;&#119858; &#128024; issue &#128073; The key condition to claim the IDS refund is that ITC must be accumulated due to the rate d....

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....ifference But accumulation can also happen due to: * High inventory * Loss-making business * Pricing/marketing strategy And till now, &#119847;&#119848; &#119836;&#119842;&#119851;&#119836;&#119854;&#119845;&#119834;&#119851; &#119836;&#119845;&#119838;&#119834;&#119851;&#119845;&#119858; &#119838;&#119857;&#119849;&#119845;&#119834;&#119842;&#119847;&#119852; &#119841;&#119848;&#119856; &#11....

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....9853;&#119848; &#119838;&#119852;&#119853;&#119834;&#119835;&#119845;&#119842;&#119852;&#119841; that ITC must have been accumulated due to the rate difference &#119825;&#119854;&#119845;&#119838; &#120790;&#120791;(&#120787;) gives the formula to compute the refund, &#10145;&#65039; but it should apply &#119848;&#119847;&#119845;&#119858; &#119834;&#119839;&#119853;&#119838;&#119851; &#119836;&....

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....#119848;&#119847;&#119839;&#119842;&#119851;&#119846;&#119842;&#119847;&#119840; that accumulation happened due to IDS (i.e., higher GST rate on some or all inputs vs outputs) &#119826;&#119848;, &#119856;&#119841;&#119834;&#119853; &#119852;&#119841;&#119848;&#119854;&#119845;&#119837; &#119858;&#119848;&#119854; &#119837;&#119848;? &#128073; Don't rely only on rate comparison &#128073; Focus....

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.... on actual ITC accumulation due to structure &#128073; Apply Rule 89(5) only after checking rate-based accumulation &nbsp;<br> Scholarly articles for knowledge sharing by authors, experts, professionals ....