GST REFUND DUE TO INVERTED DUTY STRUCTURE

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Garment manufacturers cannot claim GST refunds for job work charges such as stitching under the inverted duty structure. While the GST law allows refunds for unutilised Input Tax Credit (ITC) due to an inverted duty structure, this is strictly limited to ITC on input goods. ITC on input services, including job work, and capital goods are specifically excluded from refund claims, as confirmed by recent amendments and Supreme Court rulings. This means unutilised ITC on services cannot be refunded, even if it relates to the main expenses of the business.

RATI MALU

RATI MALU (Querist)
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29 September 2025 Can we claim refund of job work charges like stiching and all in garments manufacturing company as it is the main expenses incurred by them while filing claim for refund on account of inverted duty structure

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)
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29 September 2025 The inverted duty structure refund under Section 54(3) of the CGST Act allows refunds only when the GST rate on inputs (goods) is higher than the output tax rate.
ITC on input services (such as stitching, embroidery, fabric processing, etc.) and capital goods is specifically excluded from refund eligibility under Rule 89(5) of the CGST Rules (as amended), as confirmed by the Supreme Court in the case of VKC Footsteps.
Although accumulated ITC from input services can be used to offset output tax liability, any unutilized portion relating to services is not refundable due to the inverted duty structure.

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Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)
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29 September 2025 Job work charges such as stitching—considered input services—cannot be claimed for a refund under the inverted duty structure when filing for GST refunds for a garments manufacturing company. Under the current GST law, the refund of unutilized Input Tax Credit (ITC) due to an inverted duty structure is strictly limited to ITC on input goods and does not extend to input services or capital goods.

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Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)
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29 September 2025 Section 54(3) of the Act and Rule 89(5) clearly outline these restrictions.

Recent amendments and Supreme Court judgments reinforce that this is a legislative choice and only ITC on goods is to be considered.

In short, stitching and similar job work charges are not eligible for refund under the inverted duty structure claim in the context of a garment manufacturing company.

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Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)
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29 September 2025 Good luck..

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