GST Council To Address Inverted Duty Structure Relief For Key Industries

New Delhi, Jun 18 (KNN) The Goods and Services Tax (GST) Council is expected to consider a proposal aimed at providing relief to industries such as textiles, fertilisers, and leather, which have been grappling with the challenges posed by the Inverted Duty Structure (IDS).

The IDS refers to a situation where the Goods and Services Tax (GST) rate on inputs is higher than the rate on the final product.

This inversion leads to the accumulation of input tax credit (ITC) for businesses, resulting in cash flow constraints as they are unable to effectively utilise the accrued credit.

Consequently, producers in affected sectors often apply for refunds, a process that has been hindered by complexities in calculation and litigation, as reported by businessline.

The issue of IDS is currently under review by the Group of Ministers (GoM), convened by Uttar Pradesh's Finance Minister Suresh Kumar Khanna and tasked with rate rationalisation.

While the GoM has yet to submit its final report, an interim report released in June 2022 suggested measures to address IDS in certain sectors.

According to the interim report, the non-availability of refunds for accumulated ITC on services and capital goods in cases of IDS has increased the cost of supply, rendering Indian manufacturers and suppliers less competitive in both domestic and international markets.

Additionally, the report highlighted that ITC blockage incentivises tax evasion.

The GoM asserted that correcting the inversion would enable domestic manufacturers to utilise the credit for taxes paid on inputs, preventing the burden from being passed on to consumers while benefiting manufacturers simultaneously.

(KNN Bureau)