The Goods & Services (GST) Council is expected to resolve issues related with inverted duty structure for various sectors in its 37th meeting scheduled to take place in Goa on September 20.
The inverted duty structure, where there is higher duty on inputs and lower duty on output, has caused two problems. First is the refund in the GST regime, and second such a structure encourages imports hurting the domestic industry. There are at least seven industries including textiles and railway wagon facing difficulties on account of inverted duty structure.
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Senior officials from the Ministry of Finance have indicated that attempts are underway to solve the problems related to reimbursement, and therefore prices related to inverted duty structure are being restructured under GST.
According to MS Mani, a partner with Deloitte India, in a few sectors there is a need to correct inverted duty situations to assist both input suppliers and their buyers from a working capital perspective. “In a situation where growth has diminished, the emphasis would be on all cost elements, particularly indirect taxes,” he said.
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Any licensed assesee can demand reimbursement of unused input tax credit due to inverted duty structure at the end of any tax period where the credit has accrued due to higher input tax and lower output tax.
Exceptions to this are in four categories—
- if product suppliers are NIL-rated or entirely exempt supplies including supplies of goods or services or both;
- goods imported from India are subject to export duty;
- if the supplier demands refund of production tax paid under IGST (integrated Products & Services Tax);
- or if the supplier seeks waiver or reimbursement of IGST duty.
The refund issue came to the Council at least twice— once at the 31st meeting on December 22, 2018, and the second at the 35th meeting on June 21.
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At the December meeting, it was decided that clarification would be issued on certain reimbursement related issues such as reimbursement of ITC incurred on account of inverted duty structure, disbursement of reimbursement within the specified time, time allowed for ITC access to invoices, reimbursement of accumulated ITC reimbursement of termination of payment, etc.
It was explained that in the case of an inverted tax structure, refund of unused ITC is possible where ITC remains unused even after the ITC has been set up for payment of production tax liability.
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Where multiple inputs attract different tax rates, the definition of’ Net ITC ‘ would apply as defined in the formulae prescribed by the CGST rules.
This definition encompasses the ITC used in the relevant period on all products, irrespective of their tax rate. Industries, however, argue that this policy has not completely resolved their problems.
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The minutes of the 35th meeting said West Bengal Finance Minister Amit Mitra had written a letter to Finance Minister Nirmala Sitharaman about the’ wagon sector’ inverted duty structure and asked for it to be sent to the Fitment Committee.
Sitharaman promised the Fitment Committee would be sent.
