Inverted Duty Structure Refund

Notified goods lists and refund formulas can change. This article is for general information and does not constitute tax advice.

What Qualifies

Under Section 54(3)(ii) of the CGST Act, a refund of accumulated ITC is available where the tax rate on inputs exceeds the rate on the output supply, resulting in credit that can’t be used up through normal output liability. A specific notified list excludes certain goods and sectors from this refund even where the rate mismatch technically exists, so eligibility isn’t automatic just because rates differ.

Services Are Explicitly Excluded

This refund is available only for goods, not services, and only where the accumulation genuinely arises from a rate difference between inputs and output, not from other reasons like inefficient utilisation or timing mismatches. A business trading in services with an input-output rate mismatch simply doesn’t have this refund route available.

The Formula, and What It Excludes

The refundable amount is computed as (turnover of inverted-rated supply × net ITC ÷ adjusted total turnover) minus tax payable on that inverted-rated supply. Net ITC in this formula covers only inputs, not input services or capital goods, so credit accumulated specifically on services or capital goods used in the same output isn’t captured by this particular refund route, even though it may be eligible ITC in the general sense.