In a move aimed at addressing liquidity concerns stemming from the Inverted Duty Structure (IDS) under the Goods and Services Tax (GST) regime, the Central Board of Indirect Taxes and Customs (CBIC) has directed field officers to release 90% of refund claims on a provisional basis.
The directive, issued via a letter dated October 3, 2025, comes after the GST Council's recent rate rationalisation exercise, which created fresh instances of inverted duty across key manufacturing sectors. The Board has instructed Principal and Chief Commissioners of Central Tax to sanction refunds on a case-to-case basis depending on the system's risk evaluation.
According to the CBIC, where provisional refunds are not permitted, officers must record the reasons in writing, ensuring transparency and accountability in the refund process.
Addressing Manufacturers' Concerns
The decision comes as a relief to manufacturers who have been grappling with blocked working capital following the recent rate changes. The government's rationalisation move placed raw materials at 18% GST, while lowering finished goods to 5%, creating an inverted duty gap of 13%.
Industry players had expressed that such disparities hampered cash flows and strained liquidity, particularly for micro, small and medium enterprises (MSMEs) operating in sectors such as medical devices, electronics, and engineering goods.
To mitigate this, the GST Council had earlier recommended an amendment to Rule 91(2) of the CGST Rules, 2017, mandating that 90% of the claimed refund amount be provisionally sanctioned within seven days of filing.
Expert Insights
Commenting on the CBIC's directive, a tax expert said,
"Due to delayed GST refunds, many Indian manufacturers, especially MSMEs, have faced severe working-capital crunches. The medical devices industry, in particular, suffered from the accumulation of 13% input tax after the rate revision."
He added,
"With this new approach, releasing 90% of refunds upfront for low-risk taxpayers will significantly ease cash-flow constraints and support smoother business operations."
Implementation and Next Steps
While the GST Council's recommendation is yet to be formally incorporated into the Finance Act, the CBIC clarified that, as an interim trade facilitation measure, refund claims filed on or after October 1, 2025, will be sanctioned provisionally, in a manner similar to zero-rated supply refunds.
The Board also urged state governments to adopt corresponding amendments in their GST legislations to maintain uniformity in implementation across the country.
Experts, however, emphasised that the next phase of GST reform (GST 2.0) should focus on extending refund eligibility to include input services and capital goods, thereby ensuring a comprehensive solution to credit accumulation.
"Modern manufacturing depends heavily on investments in machinery, technology, logistics, and professional services. Unless ITC on input services and capital goods is refunded, the inverted duty challenge will continue," the expert noted.
A Step Toward Liquidity and Ease of Doing Business
The CBIC's proactive move underscores the government's commitment to improving liquidity, enhancing ease of doing business, and ensuring timely tax refunds for legitimate taxpayers.
By fast-tracking refund disbursals and reducing procedural bottlenecks, the initiative aims to revive confidence among manufacturers and strengthen India's industrial supply chain under the evolving GST 2.0 framework.
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