Refund under Inverted Duty Structure: My client is the dealer in retrofitted two wheelers. They procure material at 5% and 28% GST and manufacture the retrofitted vehicle which attracts tax at 5%. Apart from this, they also purchase and sell other items at same rate for inward and outward supply. The client wishes to claim refund under Section 54 of the CGST Act under inverted tax structure of all the eligible tax as he has not claimed any refund till date. Request you to clarify on the Rule 89(5) of the CGST Rules for maximum refund available to the client with the detailed explanations, as there is no clarity on Net ITC and Adjusted Total Turnover provided in the 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. Is the sale of items (retrofit) used in manufacture of vehicle which is purchased at 5% to be considered as Turnover of inverted rated supply of goods? This also states that tax payable on such inverted rated supply of goods and services should be deducted to arrive at the Maximum refund under Inverted duty. My query here is as the client has already paid the output tax liability, whether this tax on inverted outward supply should be deducted for 2018-19 and 2019-20 to arrive at Maximum refund of duty? An early response is appreciated.

Reply:- Rule 89(5) states that 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 and services) x Net ITC ÷ Adjusted Total Turnover} - tax payable on such inverted rated supply of goods and services.

Explanation:- For the purposes of this sub-rule, the expressions –

(a) Net ITC shall mean input tax credit availed on inputs during the relevant period other than the input tax credit availed for which refund is claimed under sub-rules (4A) or (4B) or both; and

8[Adjusted Total turnover" and "relevant period" shall have the same meaning as assigned to them in sub-rule (4).]]

Therefore, Net ITC and Adjusted Total turnover are very much defined under the said rule. 

Turnover of inverted rated supply of goods would only include the value of supplied goods. 

Formula prescribed maximum refund Amount mentions "tax payable on inverted rated supply" and does not mention "tax paid on inverted rated supplies". Therefore, only tax payable would be subtracted.