Defining what is GST Refund under Inverted Tax Duty Structure ?

There are circumstances especially in Textile business that the ITC Claimed is excess of output tax liability resulting in accumulation of Tax Credit in Credit ledger. Through GST Refund under Inverted Tax Duty Structure, the person or organization can claim refund of excess ITC.

Formula for calculation of GST Refund that can be claimed

Earlier the formula for calculation of Maximum refund was as under:

Maximum Refund = Turnover on Inverted Rated supply of Goods or Services * (Net ITC/Adjusted Total Turnover) - Tax Payable on such Inverted rated supply of Goods & Services

Here, Net ITC = ITC availed on Goods only i.e., ITC on Capital Goods and ITC on services are to be excluded

CBIC vide notification no. 14/2022-Central Tax dated 05-07-2022 has changed the formula of calculation of the Maximum Refund which is as under:

Maximum Refund = Turnover on Inverted Rated supply of Goods or Services * (Net ITC/Adjusted Total Turnover) - Tax Payable on such Inverted rated supply of Goods & Services * (Net ITC/ITC availed on input goods and services)

Understanding the above changes through example:

Turnover of Inverted Supply of Goods & Services (5%)	Other Turnover (18%)	Total Adjusted Turnover
7,50,000	2,50,000	10,00,000

 

ITC on Input Goods	60,000
ITC on Input Services	15,000
ITC on Capital Goods	10,000
Total ITC	85,000

 

 

Calculation of Refund -

Maximum refund before amendment = 7,50,000*(60,000/10,00,000) - (7,50,000*5%) = 45,000 - 37,500 = 7,500

Maximum refund after amendment = 7,50,000*(60,000/10,00,000) - (7,50,000*5%)*[60,000/(60,000+15,000)] = 45,000 - 30,000 = 15,000

Resultantly after amendment there is an increase in the refund amount by Rs. 7,500 which is beneficial to the Tax Payer.