14 Feb 2018Posted By: Mudit Handa

How to avail the Input Tax Credit accumulated in a quarter on account of Inverted Tax Structure?

 It is beyond any doubt that instigation of Goods and Services Tax mechanism has efficiently wiped clean all the bottlenecks to smooth economic growth. With the seamless and unhindered process of tax assessment and unrestricted movement of goods across the nation, the GST registration has been proved as the guarantee towards accelerated economic growth.

However, there are certain setbacks that are inevitable in every system. Despite the tremendous pace of the assessment under the GST structure, some trivial issues are still faced by the taxpayers. One of the most persistent issues is regarding the claiming the refund of the rate of tax on purchases by a supplier or the Input Tax Credit accumulated in a quarter on account of Inverted Tax Structure. Here, it is worth mentioning that the government has laid down broad policy guidelines apropos refund of Input Credit. Before going in the depth of the process for availing Input Credit reimbursement, one must understand the concept of Inverted Tax Structure, a scenario that impacts in the accumulation of ITC.

What is Inverted Tax Structure?

Inverted Tax Structure is a complicated situation where the amount of the Input Credit received exceeds the amount of GST paid by him on the output supplies.

This results in the accrual of the excess of ITC in the Electronic Credit Ledger of the taxpayer. This input credit can be claimed by the taxpayer by filing the Refund Application form RFD-01 A.


What all you require for claiming the refund of Input Credit?

The foremost requirement for availing the accumulated Input Tax Credit in a quarter on account of Inverted Tax Structure, is that the taxpayer must have duly filed the GSTR-1 and GSTR-3B for the particular tax period for which he has to claim the refund of the accumulated ITC, that can be calculated on the basis of the balance in the Electronic Credit Ledger. Evidently, no refund can be claimed if GST return filing has not been done.

However, if the registered taxpayer has the aggregate turnover of up to INR 1.5 crores in the previous fiscal year and is supposed to file GSTR-1 on the quarterly basis, he can avail the ITC refund on the quarterly basis.

Very importantly, the ITC refund on account of Inverted Tax Structure can’t be availed in case of nil supplies and exempted goods.


The process of availing the Input Credit:

As discussed above, the user needs to file the GSTR-1 and GSTR-3B for the particular quarter for which he has to avail the ITC refund.

  • After fulfilling the aforesaid compliance, the user has to fill the Refund Application form RFD-01 A.

  • Thereafter, the ARN will be generated on the GST portal.

  • Now, the user must take the print out of his application for refund and the refund ARN receipt, and submit both to the jurisdictional authority, along with other supporting testimonials.

  • Within few days, the ITC refund will be disbursed manually by the GST department.


Note: in case the tax assessee is living in an area where no jurisdictional Authority of the state has been allotted, he must contact the nodal officer of that state.


Where will be ITC refund credited?

The refund of accumulated input credit will be credited to the user’s bank account that he has linked to his profile on GST portal. If he wants the refund to be credited to some other bank account, he must add that account in GST registration through amendment of non-core fields that exclude the changes in details of business name, address, and shareholders.


Constitution of Refund Approval Committee by Delhi government

One of the major ambiguities of the taxpayers hitherto was that they didn’t have any guarantee of receiving the refund of GST if applied for. To rule out this problem, the Delhi government on 8th February 2018 had set up the Refund Approval Committee to presided over by the GST Special Commissioner as to authorize the department for the refund of IGST, SGST, CGST and additional cess exceeding INR 50 lakhs. This has empowered the GST officials to issue the ITC refund as per the powers conferred to them under section 54 of DGST act.

For issuing refund between INR 10 lakhs and 50 lakhs, prior approval of Special Commissioner and Zonal in-charge will be needed, and for refund exceeding INR 50 lakhs, prior approval of RAC is required.

If you have any inquiry regarding GST registration process in India or GST return filing or you need any assistance with the GST return filing procedure, feel free to contact us at 8881-069-069.


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