Interestingly the name itself Inverted Duty Refund as per GST is synonymous with its meaning. Long story short, the Inverted Duty structure is a mechanism wherein the rate of the tax on the inputs is greater than the rate of the tax on the output supplies. Consequently, in the aforesaid cases. The input tax credit is accumulated and the registered person possesses the right to claim the refund.
Latest Update in Inverted Duty
- 17th September 2021: New corrections have amended in inverted duty structure on textiles & footwear sector. The decision was taken within the panel by FM Smt. Nirmala Sitharaman in 45th council meeting under GST act 2017. The latest law will be applicable from 1st January 2022
Section 54 of the CGST Act, 2017 is the paramount section for claiming the refunds. As per the first proviso to the sub-section (3) of section 54. Given the provision that no refund of the unutilised input tax credit shall be allowed in cases other than:
- Zero Rated Supplies that are made without payment of the tax.
- Wherein the credit has been accumulated due to the rate of the tax on the inputs that is higher than the rate of tax on the output supplies (excepting fully exempted or nill rated supplies), excepting the case when the supply or supplies of the goods and services is notified by the government on the basis of recommendations of the council:
- The Notification bearing number 5/2017-Central Tax (Rate) is dated June 28, 2017. The aforesaid notification is related to specifying supplies of the goods in respect of which nil refund of the unutilised input tax credit will be allowed.
- Notification bearing number 15/2017-Central Tax (Rate) that is dated June 28, 2017. No refund of the unutilised input tax credit as per section 54(3) in case of the supply of services that is specified in the item 5(b) of schedule || of the CGST Act.
- Other Exception: They are mentioned in the second and the third proviso to section 54(3) and are below mentioned:
- Given the fact that no refund of the unutilised input tax credit will be facilitated in cases of exported goods that are subject to export duty.
- Given the fact that no refund of the unutilised input tax credit shall be facilitated if the supplier of the goods or services or both takes benefit to take advantage from drawback in respect of the Central Tax or the refund of the claims of the integrated tax that is paid on the aforesaid supplies.
Period Relevant Under Section 54(1)
As per Section 54(1), a refund can be claimed before the lapse of 2 years from the relevant date. The relevant period encompasses 2 years from the due date of the GSTR-3B 
The Prior Condition for Claiming the Refund
The GSTR-3B & GSTR-1 for the period for which refund has to be claimed has to be duly filed before filing the refund application.
Calculation of Refund & Other Associated Estimates
Maximum Amount of Refund = (( The Turnover of the inverted rated supply of the goods and services) × Net Input Tax Credit (ITC) ÷ Adjusted Total Turnover) – a tax that is payable on the said inverted rated supply of goods and services 
The Adjusted Total Turnover Encompasses:
- The total turnover in the state or the Union Territory shall exclude the turnover of sales.
- The turnover of the zero-rated supply of the services
Net Input Tax Credit
The Input tax credit claimed on the inputs in the concerned duration other than the input tax credit claimed for which the refund is availed beneath sub-rule (4A) or (4B) or both;
- Input – according to section 2(59) of CGST Act, 2017- input states for the goods rather than capital goods practised or wanted to use through the supplier in the course or continuance of the business.
- Input Service – As Section 2(60) of CGST Act, 2017 – input service reveals that services practised or urged to be practised through the supplier in the course or for the business continuance.
- Capital Goods – According to section 2(19) of CGST act 2017- capital goods stated that the goods the value of which is capitalized in the account records of the individual claiming the ITC and which is practised or intended to get used for the concern or future business.
- Essential Thing – It is to be signified that beneath the inverted tax structure, a refund can be claimed for Inputs and not on Input Services or Capital Goods.
