GST Refunds - Inverted Duty Structure and Zero Rated Supplies: formula sheet

Key formulas

General time limit

Last date to apply = relevant date + 2 years

Section 54(1). The application must be made before the two years expire.

Relevant date: goods exported

Sea or air: date the ship or aircraft leaves India. Land: date goods pass the frontier. Post: date of despatch by the Post Office.

Applies where refund is available on the goods or on inputs and input services used in them.

Relevant date: services exported

Payment received after completion: date of receipt of payment in convertible foreign exchange (or Indian rupees where RBI permits). Advance payment: date of issue of invoice.

The date depends on whether payment came before or after the service was completed.

Relevant date: deemed exports

Date on which the return relating to such deemed exports is furnished

Explanation clause (2)(b).

Relevant date: zero rated supply to SEZ developer or unit

Due date for furnishing the return under section 39 for such supplies

Explanation clause (2)(ba).

Relevant date: unutilised ITC (inverted duty)

Due date for furnishing the return under section 39 for the period in which the claim arises

Applies to a refund under clause (ii) of the first proviso to Section 54(3).

Relevant date: court or appellate order

Date of communication of the judgment, decree, order or direction

Covers Appellate Authority, Appellate Tribunal or any court.

Relevant date: provisional payment

Date of adjustment of tax after final assessment

Where tax was paid provisionally.

Relevant date: person other than the supplier

Date of receipt of goods or services by such person

Applies to a recipient who claims the refund.

Relevant date: any other case

Date of payment of tax

Residual rule.

UN bodies, embassies and notified persons

Apply within 2 years from the last day of the quarter in which the supply was received

Section 54(2).

Minimum refund

No refund under Section 54(5) or 54(6) is paid if the amount is less than ₹1,000

Section 54(14).

Order timeline

Order under sub-section (5) within 60 days from receipt of a complete application

Section 54(7).

Provisional refund

90% of the claim on zero rated supplies, then final order after verification

Section 54(6). Not available to categories of registered persons notified by the Government.

Unjust enrichment evidence threshold

Claim below ₹2 lakh: a declaration is enough; otherwise documentary evidence

Proviso to Section 54(4).

Meaning of zero rated supply

Zero rated supply = export of goods or services or both + supply of goods or services or both to an SEZ developer or SEZ unit

Taken from Section 16 of the IGST Act. Both limbs must be remembered.

Export of services (conditions)

Supplier in India + recipient outside India + place of supply outside India + payment in convertible foreign exchange (or Indian rupees where RBI permits) + supplier and recipient are not merely establishments of a distinct person

All conditions must be met. If one fails, it is not an export of services.

Two options for the supplier

(a) Supply under bond/LUT without IGST → refund of unutilised ITC; (b) Supply with IGST paid → refund of IGST paid

Option (a) needs no IGST cash outflow. Option (b) blocks funds until refund.

Refund of unutilised ITC (supply without payment of tax)

Refund = Turnover of zero rated supply of goods and services × Net ITC ÷ Adjusted total turnover

Net ITC is credit on inputs and input services, not capital goods. Turnover of zero rated goods is the lower of FOB value and invoice value.

Exempt versus zero rated

Exempt: no tax, no ITC (reversal needed). Zero rated: no tax, ITC available and refundable

Use this as the one-line answer to the difference question.

Time limit for refund claim

Claim within two years from the relevant date

The relevant date depends on the case, such as the date goods leave India or the date of receipt of foreign exchange for services.

Rule 89(4) refund formula

Refund = (Turnover of zero-rated supply of goods + Turnover of zero-rated supply of services) × Net ITC ÷ Adjusted Total Turnover

Gives the maximum refund admissible. It applies to zero-rated supplies made without payment of tax under bond or LUT.

Net ITC

Net ITC = ITC availed on inputs and input services during the relevant period

Relevant period is the period for which the claim is filed.

Turnover of zero-rated supply of goods

Lower of (value of zero-rated goods supplied without payment of tax) and (1.5 × value of like goods supplied domestically by the same or a similarly placed supplier, as declared by the supplier)

For goods exported out of India, value is the lower of the FOB value in the Shipping Bill or Bill of Export and the value in the tax invoice or bill of supply.

Turnover of zero-rated supply of services

Payments received in the relevant period for zero-rated services + zero-rated services completed in the period for which payment came in advance earlier − advances received for zero-rated services not completed in the period

This is a receipts-based measure, not an invoice-based one.

Adjusted Total Turnover

(a) Turnover in the State or UT, excluding turnover of services + (b) Turnover of zero-rated supply of services (as computed above) and non-zero-rated supply of services, excluding the value of exempt supplies other than zero-rated supplies during the relevant period

Goods turnover and services turnover come in through separate limbs. Services enter on the zero-rated basis above.

Rule 89(5) maximum refund

Maximum Refund = {(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 × (Net ITC ÷ ITC availed on inputs and input services)}

The result is the maximum admissible refund. If it is zero or negative, no refund is due.

Net ITC (rule 89(5))

Net ITC = ITC availed on inputs during the relevant period

Input services are not part of Net ITC for this formula. They appear only in the denominator of the second part.

Adjusted Total Turnover (as in rule 89(4))

Adjusted Total Turnover = turnover in the State/UT excluding services turnover + turnover of zero-rated services + non-zero-rated services, less exempt supplies other than zero-rated

Rule 89(5) takes this meaning from rule 89(4). Exempt supplies (other than zero-rated) are left out.

Relevant period

Relevant period = the period for which the refund claim is filed

Turnover and ITC are taken for the same period.

Debit of ledger

Electronic credit ledger is debited by the refund amount claimed

Rule 89(3). The debit is made when the application relates to refund of ITC.

Shipping bill as application

Shipping bill of exporter of goods = deemed refund application (Rule 96(1))

Applies to goods only. The application is deemed filed only when the conditions in clauses (a) to (c) are met.

Conditions for deemed filing

Departure/export manifest or export report filed + valid GSTR-3B furnished + Aadhaar authentication (Rule 10B)

All three are needed. The manifest is filed by the person in charge of the conveyance, not by the exporter.

Mismatch proviso

Mismatch between Shipping Bill and GSTR-1 (as amended in GSTR-1A, if any) → application deemed filed on the date the mismatch is rectified

The claim is delayed, not rejected. The date moves to the rectification date.

Amount refunded

Refund = IGST paid on each shipping bill or bill of export (Rule 96(3))

Credited electronically to the bank account in your registration particulars, as intimated to Customs.

Services exports

Refund of IGST on services = FORM GST RFD-01, processed under Rule 89 (Rule 96(9))

No deemed application for services.

Upward price revision

Additional IGST on upward price revision after export = FORM GST RFD-01 under Rule 89 (proviso to Rule 96(1))

Only where IGST paid at export has already been refunded under Rule 96(3).

Withholding grounds

Withhold if: (a) request under section 54(10) or (11); (b) export violates Customs Act, 1962; (c) Board-authorised risk-based verification of exporter credentials, including ITC availment

Rule 96(4).

Who files and how

FORM GST RFD-01, electronically, on the common portal (directly or via notified Facilitation Centre)

Rule 89(1). Not for refund of IGST paid on exported goods. Subject to Rule 10B. Persons covered by a section 55 notification are excluded.

Unjust enrichment: claim up to ₹2 lakh

Claim ≤ ₹2,00,000 → declaration that incidence of tax has not been passed on

Rule 89(2)(l). The text says 'does not exceed two lakh rupees', so exactly ₹2 lakh needs only a declaration.

Unjust enrichment: claim above ₹2 lakh

Claim > ₹2,00,000 → Annexure 2 certificate from a CA or cost accountant

Rule 89(2)(m). No certificate for an unregistered person who has borne the incidence of tax.

Exempt from declaration/certificate

Only where the claim falls within clauses (a), (b), (c), (d) or (f) of section 54(8)

The provisos to Rule 89(2)(l) and (m) say neither a declaration nor a certificate is needed in these cases. Rule 89 does not describe what those clauses cover, so confirm which clause your claim falls under in section 54(8) itself before claiming the exemption.

ITC refund ledger debit

Debit electronic credit ledger by the refund of ITC claimed

Rule 89(3).

Zero-rated supply without tax (bond/LUT)

Refund = (Turnover of zero-rated goods + Turnover of zero-rated services) × Net ITC ÷ Adjusted Total Turnover

Rule 89(4). Goods turnover is the lower of the zero-rated value and 1.5 times the value of like goods supplied domestically, as declared by the supplier. Export value is the lower of FOB value in the shipping bill and the invoice value.

Inverted duty structure

Max refund = {(Turnover of inverted rated supply of goods and services × Net ITC) ÷ Adjusted Total Turnover} − {tax payable on such supply × (Net ITC ÷ ITC availed on inputs and input services)}

Rule 89(5). Net ITC here means ITC availed on inputs during the relevant period.

Time to issue refund order

Order within 60 days from date of receipt of application complete in all respects

Section 54(7). An incomplete application does not start the clock.

Provisional refund

Provisional refund = 90% × amount claimed (zero-rated supplies)

Section 54(6). Available to registered persons other than notified categories. Final order follows after verification.

Interest on delayed refund

Interest = refund × rate (not exceeding 6% p.a., as notified) × days of delay beyond 60 days ÷ 365

Section 56. Period runs from the end of 60 days from receipt of application till the date of refund. The day-count formula is a working method; the Act says computation is as prescribed.

Interest after finality of an order

Rate not exceeding 9% as notified

Proviso to Section 56. Applies when the claim arises from an order that has attained finality and is not refunded within 60 days of the application filed after the order.

Minimum refund

No refund under Section 54(5) or (6) if amount < ₹1,000

Section 54(14).

Withholding of refund

Defaulted return or unpaid tax, interest or penalty not stayed by the specified date: withhold or deduct

Section 54(10). The specified date is the last date for filing an appeal.

Core rule on unjust enrichment

Amount referred to in Section 54(5) → credited to the Fund (Section 57(a)), unless it is paid to the applicant in a case listed in Section 54(8)

Section 57(a) only says the Section 54(5) amount is credited to the Fund. The cases where the applicant is paid instead, including tax whose incidence was not passed on, are in Section 54(8).

Rule 97(1) first proviso: integrated tax

Amount deposited in Fund = 50% × integrated tax determined under Section 54(5)

Read with Section 20 of the IGST Act, as in the Rule text. This proviso names integrated tax only.

Rule 97(1) second proviso: cess

Amount deposited in Fund = 50% × cess determined under Section 54(5)

Read with Section 11 of the Goods and Services Tax (Compensation to States) Act, 2017.

Publicity share (Rule 97(7A))

Board gets 50% of the amount credited to the Fund each year, provided funds for consumer welfare activities of the Department of Consumer Affairs are not less than ₹25 crore a year

Used for publicity or consumer awareness on GST.

Standing Committee meetings (Rule 97(5))

Meets as necessary, generally four times a year; at least ten days' written notice; valid only if presided by Chairman or Vice-Chairman and attended by at least three other members

Notice must state place, date, hour and business.

Fund credits (Section 57)

Credits = amount referred to in Section 54(5) + income from investment of Fund + other monies received

The mode is as prescribed.

Quick revision

• Application is electronic in FORM GST RFD-01 on the common portal (Rule 89(1)).
• Refund of integrated tax paid on goods exported is outside the Rule 89(1) application route.
• Zero rated without payment of tax: Refund = (Turnover of zero rated goods + services) × Net ITC ÷ Adjusted Total Turnover.
• Zero rated goods turnover is the lesser of the value of zero rated supply and 1.5 times the value of like goods supplied domestically.
• Export goods value is the lesser of the FOB value in the shipping bill or bill of export and the value in the invoice.
• Zero rated services turnover is based on payments received, adjusted for advances where services are not completed.
• Inverted duty: Max refund = {Turnover of inverted rated supply × Net ITC ÷ Adjusted Total Turnover} − {Tax payable on that supply × (Net ITC ÷ ITC availed on inputs and input services)}.
• In the inverted duty formula, Net ITC means ITC availed on inputs only.
• For ITC refund, the electronic credit ledger is debited by the refund amount claimed (Rule 89(3)).
• Refund up to ₹2,00,000: declaration of no pass-on. Above ₹2,00,000: CA or CMA certificate in Annexure 2. Exceptions apply for section 54(8) clauses (a), (b), (c), (d) and (f).
• Inverted duty claims need a statement of invoices received and issued in the tax period.
• Refund of tax paid on an intra-State supply later held inter-State may be claimed within two years of payment of the tax on the inter-State supply (Rule 89(1A)).

Common mistakes

• Counting two years from the date of filing the return or the date of discovering the excess payment. Fix: Always start from the relevant date in the Explanation. If no specific rule fits, use the date of payment of tax.
• Using the six month limit for embassies and UN bodies. Fix: The text now says two years from the last day of the quarter in which the supply was received.
• Treating zero rated supply and exempt supply as the same Fix: Ask about input credit. Zero rated keeps ITC and gets a refund. Exempt gives no ITC and needs reversal.
• Treating supply to an SEZ as a domestic supply Fix: Remember the second limb of the definition. Supply to an SEZ developer or unit is zero rated by law.
• Taking the full export value without the lower-of test. Fix: Always compare FOB with invoice value, then compare the result with 1.5 times the domestic value of like goods if the question gives it. Use the lowest.
• Including ITC on capital goods in Net ITC. Fix: Net ITC means ITC availed on inputs and input services during the relevant period. Capital goods are not in it.
• Including ITC on input services in Net ITC. Fix: In rule 89(5), Net ITC is ITC on inputs only. Use input services credit only in the denominator of part 2.
• Ignoring the ratio in the second part and deducting the full output tax. Fix: Multiply the tax payable by Net ITC ÷ ITC on inputs and input services. It equals 1 only when there are no input services.
• Saying the exporter of goods must file FORM GST RFD-01 for IGST paid on exports. Fix: For goods, the shipping bill is the deemed application. RFD-01 is for services and for additional IGST on upward price revision.
• Applying the shipping-bill route to exports of services. Fix: Rule 96(9) requires RFD-01 for services, dealt with under Rule 89.

Exam tips

• In a case scenario, write the relevant date rule first and then the arithmetic. Examiners award marks for the correct date rule.
• Memorise the Explanation to Section 54 as a list of situations and dates. MCQs often test one row of it.
• Keep the ₹1,000 minimum, the ₹2 lakh declaration threshold and the 60-day order timeline apart. They are three separate numbers in different sub-sections.
• If the question mentions a defaulted return or unpaid tax, mention Section 54(10): the officer may withhold the refund or deduct dues.
• Quote the sub-section number with each point in a descriptive answer. It shows precision.
• Write the definition of zero rated supply with both limbs, exports and SEZ supplies, before anything else. It earns the first marks.
• In a services question, list each export condition and tick it against the facts. Missing one condition changes the answer.
• For difference between exempt and zero rated supply, answer on three points: tax, ITC and refund.