Term Inverted duty structure under GST
The details about Inverted duty structure are explained here.
Inverted duty structure
An important drawback of commercial policy or the import tariff policy is the problem of inverted duty structure prevailing in different industries.
Inverted duty structure is a situation where import duty on finished goods is low compared to the import duty on raw materials that are used in the production of such finished goods. For example, suppose the tariff (import tax) on the import of tyres is 10% and the tariff on the imports of natural rubber which is used in the production of tyres is 20%; this is a case of inverted duty structure.
When the import duty on raw materials is high, it will be more difficult to produce the concerned good domestically at a competitive price. Several industries depend on imported raw materials and components.
High tax on the raw materials compels them to raise price. On the other hand, foreign finished goods will be coming at a reduced price because of low tax advantage. In conclusion, manufactured goods by the domestic industry become uncompetitive against imported finished goods.
The disadvantage of the inverted duty structure increases with the increased use of imported raw materials. An inverted duty structure discourages domestic value addition.
For India, there are several examples of inverted duty structure especially after the signing of the India-ASEAN FTA.
Inverted Duty Structure in GST- Uncertainty looms over refund:
Inverted duty structure means situation where the tax on input is more than tax on output. At present, Central Laws do not provide for any refund of credit accumulation on account of differential tax rates, particularly when the rate of tax on inputs is more than rate of tax on output.
Glance at provisions of Section 38(2) of GST Act, 2016
Section 38 refund of tax
Subject to the provisions of sub-section (8), a taxable person may claim refund of any unutilized input tax credit at the end of any tax period:
Provided that no refund of unutilized input tax credit shall be allowed in cases other than exports or in cases where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on outputs:
Provided further that no refund of unutilized input tax credit shall be allowed in cases where the goods exported out of India are subjected to export duty.
In the case of refund on account of inverted duty structure, refund of input tax credit shall be granted as per the following formula -
Maximum Refund Amount = {(Turnover of inverted rated supply of goods) x Net ITC ÷ Adjusted Total Turnover} - tax payable on such inverted rated supply of goods
Explanation.- For the purposes of this sub rule, the expressions “Net ITC” and “Adjusted Total turnover” shall have the same meanings as assigned to them in the GST rules.
This post describes about Inverted duty structure. Comment below your thoughts about this post Inverted duty structure.
Learn Exports Imports Free, Click here
Click here to know GST rate of your goods or service
When to file Annual Return of GST online?
Procedures to claim reduction in output tax liability of GST in India
Procedures to claim Input Tax Credit under GST in India
When to file first Return of GST tax in India?
GST Tax returns filing – Who, How and When?
How is time of supply accounted under GST Tax Calculation
Valuation of GST under special cases
Valuation of GST Taxable supply
When to pay GST for supply of services?
When to pay GST?
GST on short supplied goods and services by nature
Impact of GST on imports in India
Applicable import duty after GST implantation
How to calculate IGST under imports?
Term Provisional Identification Number(PID)under GST
Term provisional assessment under GST
Migration of existing taxpayers under GST
Meaning of term Principles of levy under GST
Term Principle of supply under GST
Term place of supply under GST
Meaning of term GST Returns under GST
Payment voucher under GST
Sanction of refund under GST
How is IGM filed under high sea sale?
How many of you know the meaning of Exports and Imports in India?
How many types of imports in India. Types of bills of Entry in India
How many types of shipping bills in export
How to add Line number in Import General Manifest in Custom in India
How to amend AWB number in Import General Manifest (IGM)
How to amend BL number in Import General Manifest (IGM)
How to amend consignee (importer) name in Import General Manifest (IGM)
How to amend container number in Import General Manifest IGM
How to amend date of bill of lading in Import General Manifest (IGM) in India
How to amend description of goods in Import General Manifest (IGM)
How to amend measurements in IGM (Import General Manifest) in India
Documents required for Export from Bhutan
Customs procedures for Bhutan Export
Registration required to export from Bhutan
Documents needed for Bhutan import
Import Customs processes in Bhutan
Import Registration and import Licence procedures in Bhutan
How to export from Angola?
How to Import to Angola?
How to import to India from Angola?
How to export from India to Angola
Documents required for Export from Angola