GST Refund Under Inverted Duty Structure: Rule 89(5) Policy Shift
An inverted duty structure arises where the rate of tax on inputs is higher than the rate of tax on output supplies, causing input tax credit (ITC) to accumulate. Section 54(3) of the Central Goods and Services Tax Act, 2017 (CGST Act) permits a registered person to claim refund of unutilized ITC in specified cases, including accumulation arising from such rate inversion, except where the output supplies are nil-rated or wholly exempt and subject to notified exclusions. For sectors such as footwear, textiles, fertilizers and renewable-energy equipment, the refund mechanism is not merely procedural: it determines whether tax remains embedded in cost and whether working capital is locked in the electronic credit ledger.
