The registered dealer owns mines for lime stone and pays Royalty to State Government and on that he is required to pay GST @ 18% on RCM basis. The mineral extracted from such mines is crushed and crushed stone is sole on which rate of GST is 5%. Please advise whether this can be a case of inverted duty structure? Whether refund may be claimed. Please guide.

Reply—As per section 54(3) of CGST Act, 2017, A registered person can claim a refund of unutilized ITC on account of Inverted duty structure 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.

Section 2(59) of CGST Act clearly define that “input” means any goods other than Capital goods used or intended to be used by a supplier in the course or furtherance of business.

In respect of refund related to input service— 

In latest judgment of VKC footsteps India pvt. ltd, Gujarat HC held that Explanation (a) to Rule 89(5) which denies the refund of “unutilised input tax” paid on “input services” as part of “input tax credit” accumulated on account of inverted duty structure is ultra vires the provision of Section 54(3) of the CGST Act. Thus the Net ITC should mean “input tax credit” availed on “inputs” and “input services” both for the purpose of calculation of the refund.

This will not allow other taxpayers to claim refund including input services until unless department will issue any notification in this regard. The above judgment is not binding on department, department can challenge this order in next appellate authority. 

In contrary to above judgment, in latest judgment Madras high court held that "Restricting benefit of Refund of “unutilised input tax” paid on “input services” under inverted duty structure is a valid exercise of legislative power, it does not infringe Article 14 of of the Constitution".  (TVL. Transtonnelstroy Afcons Joint Venture vs Union of India dated 21.09.2020)