Refinement in formula for claiming refund of ITC in case of Inverted Duty Structure

After the 47th GST Council, the Government of India has refined the formula of Inverted Duty Structure vide notification no 14/2022, Central – tax notified in the Gazette that in the case of refund on account of inverted duty structure, refund of the input tax credit shall be granted as per the following formula:

Maximum Refund Amount = (Turnover of inverted rated supply of goods and services) * Net ITC ÷ Adjusted Total Turnover) – (tax payable on such inverted rated supply of goods and services * (Net ITC ÷ ITC availed on inputs and input services.

Vide Notification no 14/2022, Central Tax, only the tax payable attributed to the tax payable from the ITC on inputs will have to be considered for determining the eligible refund amount in terms of the accumulated ITC of inputs under the inverted rate structure. The said attributions shall be based on the proportion of ITC on inputs vis a vis ITC on inputs and input services.

After the notification, the eligible refund amount as per the amended formula shall increase in comparison to the earlier formula.

This can be understood with the help of the following illustration:

	Amount	Total
ITC on inputs	60	Total ITC = 100
ITC on input services	40	Total ITC = 100
Turnover of inverted duty structure	500	Total Turnover = 1500
Non-inverted turnover	1000	Total Turnover = 1500
Output tax on inverted turnover	25
Refund	Existing: (60*500/1500)-25 = Rs-5	New: (60500/1500-25(60/100) = Rs5

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