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CMA Final · Indirect Tax Laws and Practice · GST Refunds - Inverted Duty Structure and Zero Rated Supplies

A manufacturer has an inverted rate structure for the refund period. Turnover of inverted rated supply of goods is ₹40,00,000; Adjusted Total Turnover is ₹100,00,000; Net ITC (on inputs) is ₹10,00,000; ITC availed on inputs and input services is ₹12,50,000; tax payable on the inverted rated supply is ₹2,00,000. Using the Rule 89(5) formula as given, what is the maximum refund amount?

The maximum refund is ₹2,40,000. The first term is ₹4,00,000 (40 lakh × 10 lakh ÷ 100 lakh). The deduction is tax payable of ₹2,00,000 multiplied by Net ITC over ITC on inputs and input services (0.8), which is ₹1,60,000.

  1. A₹1,60,000Correct
  2. B₹2,40,000
  3. C₹4,00,000
  4. D₹2,00,000

Explanation

First term: 40,00,000 × 10,00,000 ÷ 1,00,00,000 = ₹4,00,000. Second term: 2,00,000 × (10,00,000 ÷ 12,50,000) = 2,00,000 × 0.8 = ₹1,60,000. Refund = 4,00,000 − 1,60,000 = ₹2,40,000. Hence the correct option is ₹2,40,000; ₹4,00,000 omits the deduction, and ₹2,00,000 deducts the full tax payable without the ITC ratio.

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