GST's inverted duty structure costs Centre, states Rs 20k cr

Last Updated: Thu, Dec 26, 2019 14:31 hrs
GST (Image Courtesy: apct)

New Delhi: The Central and the state governments together are facing a Rs 20,000 crore revenue loss due to refunds claimed by companies on account of flaws in the GST rate structure, according to the findings disclosed 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 fertilisers, mobile phones, footwear, renewable equipments, 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 the 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 unutilised Input Tax Credit (ITC) on account of IDS at the end of any tax period where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies.

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

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

Sources said adding the Council was 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, however, did not make any observation on these findings to correct the duty structure by raising the tax rate on the final products facing IDS as the economy is currently facing a slowdown.