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Inverted Duty Structure (IDS) under GST: How to Claim Refund
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....nverted Duty Structure (IDS) under GST: How to Claim Refund<br>By: - YAGAY andSUN<br>Goods and Services Tax - GST<br>Dated:- 28-4-2025<br><br>The Inverted Duty Structure (IDS) under GST arises when the rate of tax on inputs is higher than the rate of tax on output supplies, leading to an accumulation of Input Tax Credit (ITC) that cannot be fully utilized. Section 54(3)(ii) of the CGST Act, 2017 allows taxpayers to claim a refund of the unutilized ITC under IDS. 🔁 Step-by-Step Process to Claim Refund under Inverted Duty Structure ✅ 1. Eligibility Criteria You can claim refund under IDS when: * Input tax rate > Output tax rate (excluding exempt and nil-rated outputs). * Unutilized ITC accumulates due to this inverted str....
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....ucture. * You are not supplying nil-rated or fully exempt goods/services. * Exporters claiming refund under LUT or deemed exports are separate categories and not covered under IDS. ✅ 2. Determine Refund Period * Refund must be claimed on a monthly/quarterly basis (depending on your return filing frequency). * Due date: Within 2 years from the end of the financial year in which the claim arises. ✅ 3. Calculate Refund Amount Use the formula provided in Rule 89(5) of the CGST Rules: Refund Amount = (Turnover of inverted rated supply of goods and services x Net ITC / Adjusted Total Turnover) − Tax payable on such inverted rated supply of goods and services Where: * Net ITC = ITC availed on inputs only (not input....
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.... services or capital goods). * Turnover = Turnover of inverted-rated supplies during the refund period. ✅ 4. File Refund Application * File Form GST RFD-01 on the GST portal. * Select the option: "Refund on account of Inverted Tax Structure". * Upload statement 1A (auto-populated) and other required documents. * File refund application using DSC or EVC. 📌 Documents Required * GSTR-1 and GSTR-3B for the relevant refund period. * Statement 1A (auto-generated from portal). * Declaration under Rule 89(2)(l) and 89(2)(m). * Undertaking for no unjust enrichment (if applicable). * In some cases, CA certificate (if refund > Rs.2 lakh). * Invoices of both inward and outward supply (if asked). * Declaration und....
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....er second and third provisos to Section 54(3) (i.e., that goods have not been exported or subject to nil/exempt tax). ⚠️ Precautions Before Filing the Refund Application 1. Reconcile ITC * Ensure ITC in GSTR-2B matches books and GSTR-3B. * ITC must pertain to inputs only (not input services or capital goods). 2. Output Tax Rate Check * Confirm that output tax rate is lower than input tax rate. * Refund is not allowed where output is nil-rated or exempt. 3. Correct Return Filing * Ensure GSTR-1 and GSTR-3B are filed properly for the refund period. * If there is a mismatch between the two, refund will be delayed or rejected. 4. Avoid Blocked Credits * Ensure ITC claimed does not fall under blocked credits (e.g.....
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...., motor vehicles, personal expenses under Section 17(5)). 5. No ITC on Input Services * Under Rule 89(5), only ITC on inputs (goods) is allowed. * ITC on input services (like consultancy, freight) cannot be claimed as part of refund. 6. Matching with GSTR-2B * The portal checks ITC with GSTR-2B auto-populated values. Any mismatch can trigger queries from the officer. 7. Check Refund Amount Threshold * If refund > Rs.2 lakh, get a CA or CMA certificate certifying no unjust enrichment. 8. Avoid Double Claim * Make sure you are not claiming the same ITC in any other refund category like: * Export of goods under LUT * Deemed export * SEZ with zero-rated supply 📎 Recent Clarifications (Key Highlights) * Circular No....
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..... 135/05/2020-GST clarified ineligible ITC must be excluded. * Circular No. 173/05/2022-GST clarified on refund of accumulated ITC when there is a rate change in supply. * Supplies with concessional rate under Notification 40/2017 and 41/2017 are eligible for refund under IDS. 📝 Summary Table: Criteria Requirement Refund Form GST RFD-01 Refund Type Inverted Duty Structure Eligibility Inputs taxed higher than outputs ITC Permitted Only on Inputs (not on services/capital goods) Filing Time Within 2 years from end of FY Key Rule Rule 89(5) of CGST Rules Certificate Needed CA/CMA certificate if refund > Rs.2 lakh 🛠️ Practical Tip Keep a refund register period-wise with: * Input and output tax rate....
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....s * Invoices summary * ITC reconciliation * CA declaration (if needed) * Status of GSTR-1, 2B, 3B filings Annexure -1 Here's a sample Covering Letter format and checklist for filing a GST Refund under Inverted Duty Structure (IDS) via Form RFD-01: 📄 [On Your Company Letterhead] To, The Jurisdictional Officer [Name of the GST Division] [Address of GST Office] GSTIN: [Your GSTIN] Date: [DD/MM/YYYY] Subject: Submission of Refund Application under Inverted Duty Structure - Section 54(3) of the CGST Act, 2017 for the period [Month/Quarter] Dear Sir/Madam, We, [Your Company Name], registered under GSTIN [Your GSTIN], hereby submit our refund application for the accumulated unutilized Input Tax Credit (ITC) under Invert....
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....ed Duty Structure for the period [Month/Quarter - e.g., April 2023 to June 2023], in accordance with the provisions of Section 54(3)(ii) of the CGST Act, 2017 read with Rule 89(5) of the CGST Rules, 2017. We have filed the refund claim online via Form GST RFD-01 with ARN [Application Reference Number] dated [DD/MM/YYYY]. Please find the supporting documents attached for your kind perusal and necessary action. 🔖 Details of the Claim: * Tax Period: [Month/Quarter] * Type of Refund: Refund due to Inverted Duty Structure * Net ITC (as per Rule 89(5)): Rs. [Amount] * Turnover of Inverted Rated Supplies: Rs. [Amount] * Adjusted Total Turnover: Rs. [Amount] * Refund Amount Claimed: Rs. [Amount] 📎 List of Documents A....
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....ttached: * Copy of GST RFD-01 and ARN acknowledgment * Statement 1A (auto-generated from portal) * Copies of GSTR-1 and GSTR-3B for the refund period * Declaration under Rule 89(2)(l) - that incidence of tax has not been passed * Declaration under Rule 89(2)(m) - stating that no refund has been claimed under any other provision * Undertaking under Section 54(3) (if applicable) * CA Certificate (if refund amount > Rs.2 lakhs) * Copy of inward and outward tax invoices * Reconciliation of ITC with GSTR-2B * Copy of bank account details (cancelled cheque for refund credit) We hereby request you to kindly process the refund application at the earliest and credit the sanctioned amount to our bank account. Thanking you. Your....
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....s sincerely, [Authorized Signatory Name] Designation: [e.g., Director / Manager (Accounts)] Mobile: [Your Number] Email: [Your Email] Place: [City] Declaration Formats Below are the editable declaration formats you'll need for your GST refund under Inverted Duty Structure, as per Rule 89(2)(l), 89(2)(m), and Section 54(3) of the CGST Rules, 2017. 📄 1. Declaration under Rule 89(2)(l) (Incidence of tax not passed on - for refund up to Rs.2 lakhs) To Whomsoever It May Concern I, [Name of the Authorized Signatory], [Designation] of [Company Name], having GSTIN [GSTIN], hereby declare that the incidence of tax, interest, or any other amount claimed as refund has not been passed on to any other person. This declaration is bein....
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....g made under Rule 89(2)(l) of the CGST Rules, 2017. Date: [DD/MM/YYYY] Place: [City] (Signature) [Name of Authorized Signatory] [Designation] [Company Name] 📄 2. Declaration under Rule 89(2)(m) (Claim not under any other refund provision) Declaration I, [Name of the Authorized Signatory], [Designation] of [Company Name], having GSTIN [GSTIN], hereby declare that the refund of unutilized input tax credit claimed under Section 54(3)(ii) of the CGST Act, 2017, for the tax period [Month/Quarter/Year], is not claimed under any other category (e.g., export with/without payment, deemed export, SEZ, etc.). This declaration is made under Rule 89(2)(m) of the CGST Rules, 2017. Date: [DD/MM/YYYY] Place: [City] (Signature) [Name ....
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....of Authorized Signatory] [Designation] [Company Name] 📄 3. Undertaking under Section 54(3), Second & Third Proviso (For refund of accumulated ITC under IDS) Undertaking I, [Name of the Authorized Signatory], [Designation] of [Company Name], having GSTIN [GSTIN], do hereby undertake that: * The goods/services supplied during the refund period are not nil-rated or fully exempted under the CGST Act, 2017. * The refund claim pertains to accumulated Input Tax Credit on inputs only, and no claim is being made in respect of input services or capital goods. * No refund has been claimed on such ITC under any other refund category under Section 54(3). Date: [DD/MM/YYYY] Place: [City] (Signature) [Name of Authorized Signatory] ....
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.... [Designation] [Company Name] Reply By Nikunj Kishorbhai Tosar as = Different view against your sr. 8 Avoid Double Claim: As per section 54(3) Refund of unutilized ITC can be claimed in two cases: 1. zero rated supplies made without payment of tax 1.1 Export without payment of tax [Statment 3A & as per rule 89(4)] 1.2 SEZ supplies without payment of tax [Statement 5A as per rule 89(4)] 2. Inverted Duty Structure [Statement 1A as per rule 89(5)] The third proviso to section 54(3) provides that no refund is allowed, if the supplier avails of drawback in respect of central tax or claims refund of the integrated tax paid on such supplies. As per Circular 125/44/2019 Declaration is must under the above proviso while filing the re....
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....fund application for export without payment of tax, sez without payment of tax and Inverted duty structure. Query No.1 whether IGST refund on export with payment of tax is claimed then ITC refund under IDS can be granted? Query No.2 whether IGST refund on export with payment of tax is claimed then ITC refund under export without payment of tax can be grated? My View: The department is granting IGST refund on export with payment of tax and ITC refund on export without payment of tax for same period. then, the department CANNOT DENY the IGST refund on export with payment of tax and ITC refund on IDS for same period. Further the zero-rated supplies covers SEZ and EXPORT supplies and GST portal has two different categories for t....
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....hese supplies. Hence, for same period these two applications shall be filed and accepted by the gst department. Dated: 1-9-2025<br> Scholarly articles for knowledge sharing by authors, experts, professionals ....