GST's Inverted Duty Structure May Cost Centre, States Rs 20,000 Crore: Report

The Central and state governments together are facing Rs 20,000 crore revenue loss due to refunds claimed by companies on account of flaws in the GST rate structure, according to disclosures made by states and other stakeholders to the Committee of Officers.

The Committee of Officers was set up in October this year to suggest measures to augment GST revenue collection and administration to the GST Council.

The stakeholders have told the officers' panel that manufactured goods, such as fertilizers, mobile phones, footwear, renewable equipment and man-made yarns, which are in lower rates slab (5-12 per cent) suffer the "inverted duty structure" (IDS).

Several other items, including tractors, fabrics, pharma, edible oil, medical equipment, water pumps, LED lights, milling machines, utensils, ink, agri-machinery, job work, PP bags, also add to the IDS, said the sources quoting from the presentation of states and stakeholders to the panel.

According to tax website Cleartax, in case of IDS under GST, a registered person may claim a refund of un-utilized Input Tax Credit (ITC) on account of IDS at the end of any tax period where the credit has accumulated on account of tax rate on inputs being higher than the rate of tax on output supplies.

Sources said the IDS for manufactured goods led to demands for refunds of ITC on services and capital goods and also to litigations and distortions.

"The estimated refund on account of IDS is Rs 20,000 crore a year," the states and stakeholders have stated.

The Council was also reportedly informed by the Officers' Committee that with "the tax liability on certain finished products remaining lower than what is paid on raw materials and services, companies businesses claim refunds of the extra taxes paid".

Though the issues were presented to the Council in its meeting on December 18, it did not correct the duty structure by raising the tax rate on the final products facing IDS as the economy is facing a slowdown.