GST Council Will Correct the Inverted Duty Structure – Latest News from 45th Meeting of the GST Council

September 17, 2021: GST Council Will Correct the Inverted Duty Structure – Latest News from 45th Meeting of the GST Council

GST Council in 45th Meeting held in Lucknow on 17th September 2021 the GST council has agreed to correct the inverted duty structure on Footwear & Textile industries from 01-Jan-2022.

The Council on this matter “GST rate changes in order to correct inverted duty structure, in footwear and textiles sector, as was discussed in earlier GST Council Meeting and was deferred for an appropriate time, will be implemented with effect from 01.01.2022.”

In earlier meetings, New GST rates were proposed to make this correction but it was delayed due to the pandemic & it would had adversely affected either the GST revenue collections or consumer prices of the finished products

Past Updates on Inverted Duty Structure Under GST:

September 13, 2021: Inverted Rated Refund Will Not Include Input Services – Latest News from Supreme Court of India

Hon’ble Supreme court has overturned the decision of Gujarat HC in VKC Footsteps India Pvt. Ltd. In that judgment rule, 89(5) of CGST rules was held to be ultra vires. The said rule excludes the services from the refund of the inverted rated duty structure. It was hitting hard on many industries. A huge amount of ITC was accumulated due to the inverted rated structure.

The taxpayers went to Gujarat high court and Gujarat HC examined the provisions of Section 54(3) and Rule 89(5) and held that Rule 89(5) was ultra vires of Section 54 (3) of the CGST Act, 2017. But the Madras high court observed a reverse of it. They upheld rule 89(5). Since then there has been a lot of confusion.

Now the supreme court has put all the doubts to rest. They upheld the view taken by the Madras high court in the case of Tvl. Transtonnelstroy Afcons Joint Venture v. Union of India.

This Decision will result in the reduction in refund granted thus favoring the Revenue.

News from Court Room-Inverted Rated Refund Will Include Input Services

Inverted rated refund will include input services-

Hon’ble Gujarat High Court has pronounced the order in the Group of 10 Matters that *Net ITC in the formula given under Rule 89(5) of CGST Rules 2017 will include the value of input services also. In effect, the assessees will be eligible to claim a refund of input services in case of an inverted duty structure.*

Many cases were pending in Court. Argued by Senior Counsel Mr. Shridharan & Mr. Avinash Poddar. All of the cases were clubbed for the decision.

It was a long pending issue. Many Industries were facing this problem. Specially E-commerce etc. where there is accumulation due to the inverted rate and a bigger part is of services.

Section 54(3)

Proviso 1(ii) of section 54(3) of the CGST Act provides for the refund of the inverted rated supply.

(3) Subject to the provisions of sub-section (10), a registered person may claim a refund of any unutilized input tax credit at the end of any tax period: Provided that no refund of the unutilised input tax credit shall be allowed in cases other than––

“(i) zero-rated supplies made without payment of tax;

(ii) where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies (other than nil rated or fully exempt supplies), except supplies of goods or services or both as may be notified by the Government on the recommendations of the Council:”

Rule 89(5) provides the formula as-

[(5) In the case of refund on account of inverted duty structure, a refund of the input tax credit shall be granted as per the following formula:-

Maximum Refund Amount = {(Turnover of inverted rated supply of goods and services) x Net ITC ÷ Adjusted Total Turnover} – tax payable on such an inverted rated supply of goods and services.

Explanation:- For the purposes of this sub-rule, the expressions –

(a) ―Net ITC‖ shall mean input tax credit availed on inputs during the relevant period other than the input tax credit availed for which refund is claimed under sub-rules (4A) or (4B) or both; and

[―Adjusted Total turnover‖ and ―relevant period‖ shall have the same meaning as assigned to them in sub-rule (4).

Thus it is a huge relief for many taxpayers. Because lots of refunds were stuck due to this issue.

Read the copy of Judgement