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Let’s Understand GSTR 7 Filing Process in Detail
Under GST, ITC gets accumulated when the tax paid on output is less than the tax paid on input. In such cases, the taxpayer having accumulated ITC needs to carry this forward to the next financial year until such accumulated ITC is utilized to discharge output tax liability.
However, the GST law allows the taxpayer to claim the refund of such unutilized ITC in two cases. These include:
- ITC accumulation due to zero-rated supplies
- The ITC accumulation due to Inverted Duty Structure
In this article, we will learn what is Inverted Duty Structure in GST, a refund of ITC in case of inverted duty structure and the process of claiming such a refund.
Inverted Duty Structure Under GST
Inverted Duty Structure relates to a case where the credit gets accumulated due to GST rate on inputs being higher than the GST rate on output supplies (these supplies do not include NIL rated or fully exempt supplies).
This, however, does not apply to supplies of goods and services which are notified by the government on the recommendation of the GST Council.
Example
To help you understand the concept of Inverted Duty Structure, the following is an example where GST on raw pulp (input) is higher than the GST rate on a paper bag (output).
| Products | GST Rate On | ||
| Finished Goods (Output) | Raw Material (Input) | Finished Goods | Raw Materials |
| Paper Bag | Raw Pulp | 5% | 12% |
Refund of Unutilized ITC
As mentioned above, the GST law allows the registered person to claim a refund of accumulated ITC in case of zero-rated supplies as well as Inverted Duty Structure.
Such a refund can be claimed under section 54 of the CGST Act, 2017 along with Rule 89 of the CGST Rules, 2017. However, there are certain exceptions to claiming a refund of unutilized ITC under GST law. In other words, the registered person cannot claim ITC Refund on account of an inverted duty structure in certain situations.
These include cases where:
- Goods are exported outside India and are subject to export duty
- The supplier of goods or services claims drawback in respect of Central Tax
- Supplier of goods or services claims refund of IGST paid on such supplies
- Where NIL Rated or Fully Exempt Supplies are made and such other supplies that are notified by the government on the recommendation of the GST Council.
Maximum Refund Amount
As per Rule 89 of CGST Rules, 2017, the refund due to Inverted Duty Structure is provided based on the following formula:
Maximum Refund Amount = [(Turnover of the Inverted Rated Supply of Goods and Services) x Net ITC/Adjusted Total Turnover] – Tax Payable on such Inverted Rated Supply of Goods and Services
Let’s consider an example to understand the calculation of the maximum refund amount under Inverted Duty Structure.
Example
| Information Pertaining to Inward Supplies | |||
| Particulars | Value | Rate of GST | GST Amount |
| Inward supplies utilized for producing manufactured goods taxed at 5% | Rs 50 Lakhs | 12% | Rs 6 Lakhs |
| Inward supplies utilized for producing manufactured goods taxed at 18% | Rs 10 Lakhs | 18% | Rs 1.80 Lakhs |
| Total | Rs 7.80 Lakhs | ||
| Information Pertaining to Outward Supplies | |||
| Particulars | Value | Rate of GST | GST Amount |
| Turnover of Inverted Rated Supply taxed at 5% | Rs 100 Lakhs | 5% | Rs 5 Lakhs |
| Turnover of Other Supplies taxed at 18% | Rs 20 Lakhs | 18% | Rs 3.60 Lakhs |
| Total | Rs 120 Lakhs | Rs 8.60 Lakhs | |
Turnover of Inverted Rated Supply
This refers to the value of inverted supply of goods made by the registered person during the relevant period. Thus, in the above example Turnover of Inverted Rated Supply = Rs 100 Lakhs.
Net ITC
Net ITC refers to the input tax credit claimed on inputs during the relevant period other than the ITC availed for which refund is already claimed under sub-rule 4A or 4B or both. Thus, in the above example, Net ITC = Rs 6 Lakhs + Rs 1.80 Lakhs = Rs 7.80 Lakhs.
Relevant Period
Relevant Period means the period for which claim has been filed by the registered person.
Adjusted Total Turnover
Adjusted Total Turnover refers to the aggregate of:
- Turnover in the state or UT as defined under clause 112 of section 2 excluding turnover of services
- The turnover of zero-rated supply of services and non-zero rated supply of services. Here turnover of zero-rated supply of services’ means the value of zero-rated supply of services that are made under Bond or LUT without payment of tax.
Adjusted Total Turnover does not include:
- Value of exempt supplies other than zero-rated supplies
- Turnover of supplies for which refund is claimed under sub-rule 4(A) or 4(B) or both.
Thus, in the example above, Adjusted Total Turnover = Rs 100 Lakhs + Rs 20 Lakhs = Rs 120 Lakhs.
Thus, Maximum Amount of Refund = [(Rs 100 Lakhs) x Rs 7.80 Lakhs/Rs 120 Lakhs] – Rs 5 Lakhs = Rs 1.5 Lakhs
How To Claim Refund of Unutilized ITC?
- File the refund application for unutilized ITC in form GST RFD01A on the common portal. Post this, the GST portal generates ARN.
- Take a print out of RFD01A along with ARN receipt generated on the common portal.
- Submit these printed documents together with other supporting documents to proper jurisdictional officer.
- Refund application is processed by the tax official. On processing of the refund application, the refund is provided manually.