Inverted duty refund for input services under GST…end of uncertainty

Ganesh Kumar, Bhavik Thanawala & Rushabh Luhar – [2021] 130 taxmann.com 452 (Article)

Inverted Duty Structure refers to a situation where tax rate on input goods or services are higher than the tax rates on finished goods. The Rule 89(5) of CGST Rules provides the mechanism of calculating the refund of ‘Net ITC’ in case of inverted duty structure. It would be pertinent to note that the term ‘input services’ has not been included in the definition thereby, leading to a situation where the refund of input services cannot be availed by the claimants.

Recently, the Apex Court has held that Rule 89(5) of the CGST Rules is not ultra vires and upheld the validity of Rule 89(5), and therefore over-turns the industry favourable decision passed by the Gujarat HC. In this article, the authors has analysed the anomaly in Rule 89(5), decision of Apex Court and way forward.

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