Inverted Duty Structure in GST: How Indian Manufacturers Can Claim Blocked ITC Refund

Author : Getmy Ca | Published On : 13 Mar 2026

If you are a manufacturer in India, the government may owe you lakhs 
of rupees right now — and you may not even know it.

This is called an Inverted Duty Structure (IDS) refund under GST, and 
most manufacturers have never filed a single claim.

WHAT IS INVERTED DUTY STRUCTURE?

When GST on your raw materials is higher than GST on your finished 
product, the difference gets permanently stuck in your GST ledger 
every month. This is called Inverted Duty Structure.

Example: A footwear manufacturer buys leather at 12% GST but sells 
finished shoes at only 5% GST. That 7% difference keeps accumulating 
as blocked ITC month after month.

WHO IS AFFECTED?

- Pharma Manufacturers: API purchased at 18% GST, medicine sold at 5%
- Footwear Manufacturers: Leather at 12-18% GST, shoes sold at 5%
- Textile Manufacturers: Yarn at 12% GST, garments sold at 5%
- Corrugated Box Industry: Paper at 18% GST, boxes sold at 12%
- Steel Utensils: Metal at 18% GST, utensils sold at 12%
- EV Manufacturers: Components at 18% GST, EVs sold at 5%

HOW MUCH CAN YOU RECOVER?

- Pharma (Rs.10 Crore turnover) = up to Rs.1.05 Crore refund
- Footwear (Rs.10 Crore turnover) = up to Rs.10 Lakhs refund
- EV Manufacturing (Rs.10 Crore turnover) = up to Rs.12 Lakhs refund

LEGAL BASIS

Under Section 54(3) of the CGST Act, any registered taxpayer can 
claim a refund of accumulated Input Tax Credit due to Inverted Duty 
Structure. The refund is calculated using the Rule 89(5) formula and 
filed through Form RFD-01 on the GST portal.

CRITICAL DEADLINE

FY 2023-24 IDS refund must be filed before March 31, 2026. After 
that, it expires permanently with no extensions.

For the complete guide including Rule 89(5) formula, step-by-step 
filing process, and common rejection reasons, visit:
https://www.getmyca.com/inverted-duty-structure-gst