Inverted-Duty Refund (RFD-01) Queries

In short

• What you can claim. When your inputs carry a higher GST rate than the goods you sell, input tax credit (ITC) builds up. You can claim a refund of it under section 54(3) of the CGST Act. The amount follows the formula in rule 89(5), shown in the box below.
• How you claim. You file the claim in Form RFD-01.
• What happens next. The officer issues one of these:
  • an acknowledgement (RFD-02);
  • a deficiency memo (RFD-03), which means you file a corrected, fresh claim;
  • a show cause notice proposing to reject part or all of the claim (RFD-08), which you answer in RFD-09.
• Why claims get queried. Most queries come down to three things:
  • the figures used in the formula;
  • ITC that is not in GSTR-2B;
  • goods or credits the law excludes.

The law behind it

• Who can claim. Section 54(3)(ii) allows a refund of unused ITC where it builds up because the tax rate on inputs is higher than the rate on outward supplies. Goods notified by the government are excluded; see the box below.
• Inputs, input services and capital goods. The formula in rule 89(5) uses "Net ITC". Net ITC means ITC on inputs only: not input services and not capital goods.
  • The GST Council has recommended changes to include input services, and later capital goods.
  • The dates this site uses for those changes are in the box below.
  • Treat them as applying only once they are notified.
• Same goods, different rates. CBIC has clarified that no refund is due where the inputs and the output are the same goods and the build-up comes only from a change in their rate (Circular 135/05/2020-GST).
• Time limit. The claim must be filed within the time limit from the "relevant date"; see the box below. For an inverted-duty claim, the relevant date is the due date of the return for the period of the claim.
• Deficiency memo. Under rule 90(3), after a deficiency memo you file a fresh claim. The time between the first claim and the memo is left out when the time limit is counted.
• Provisional refund. The GST Council recommended risk-based provisional refunds for inverted-duty claims, in line with exports. The share this site uses, if any, is in the box below.
• Interest on delay. Interest is payable to you if a refund is not paid in time (section 56).

Why ecommerce sellers file these claims

The rate rationalisation of September 2025 moved many finished goods to a lower rate, while their inputs stayed at a higher one. Typical cases:

• apparel and footwear made from higher-rated trims and accessories;
• packaged foods and personal-care products that use higher-rated packaging.

Marketplace commission, advertising and logistics fees carry GST at the standard rate. They are input services, so they stay outside Net ITC until the recommended change is notified.

What officers usually query

• Net ITC includes the wrong credits. The claim includes ITC on input services, on capital goods, or on goods used for exempt supplies.
• ITC not in GSTR-2B. Credits that suppliers did not report, or reported after the period. Refunds follow the ITC available in GSTR-2B.
• Turnover figures. "Adjusted total turnover" or the inverted-rated turnover does not match your GSTR-1 and GSTR-3B. A common cause is that some figures include returns and others exclude them.
• Tax payable on the inverted supplies. The second part of the formula uses a different rate or value from your returns.
• Excluded goods, or a "same goods, rate change" case. These are not eligible at all.
• Missing statements or declarations. The invoice-wise statement of inputs, or the declarations the form asks for.
• Electronic credit ledger. The amount claimed is more than the balance in the ledger at the time of filing. The refund is debited from the ledger when you file.

Step-by-step: when a query arrives

1. Identify the document. An RFD-03 means you correct the claim and file a fresh one. An RFD-08 needs a reply in RFD-09 within the time stated, and you can ask for a hearing.
2. Rebuild the formula from your returns. Use the inverted-rated turnover and adjusted total turnover from GSTR-1 and GSTR-3B, and Net ITC from GSTR-2B and your purchase register for the period. Match each input to the inverted output it goes into.
3. Remove what the officer is right about. Take out input services, capital goods and credits that are not in GSTR-2B, and recompute. Pursue only the defensible amount.
4. Answer each point with evidence. Attach:
   • the invoice-wise statement of inputs;
   • HSN-wise rates showing why the rates are inverted;
   • the reconciliation of turnover to GSTR-1/3B;
   • the ledger balance at filing.
5. Keep the dates. Note the date of the original claim, the deficiency memo, and the fresh claim, so the time-limit exclusion can be shown.
6. After the order. If the refund is sanctioned, check the payment order. If part is rejected, the order (RFD-06) states the reasons. The rejected amount goes back to the credit ledger where the law provides for that, and the order can be appealed within the time limit from its date.

Documents to gather

• GSTR-1, GSTR-3B and GSTR-2B for each period of the claim.
• The purchase register, with HSN codes and tax rates for inputs, and the sales register, with HSN codes and rates for outputs.
• The invoice-wise statement of inputs filed with the claim.
• The electronic credit ledger for the claim period and the date of filing.
• The formula working: the refund calculator's output, or your own sheet.
• The declarations the claim form asks for.

How to word a reply

Net ITC of [amount] comprises ITC on inputs only. ITC on input services ([amount]) and capital goods ([amount]) has been excluded; the invoice-wise statement is at Annexure A. Every invoice included appears in GSTR-2B for the period. The inverted-rated turnover and adjusted total turnover agree with GSTR-3B for [periods]; the reconciliation is at Annexure B. The outputs, [HSN, rate], are not notified as ineligible, and the inputs are different goods from the outputs, so the clarification on rate changes for the same goods does not apply.

Common mistakes

• Including input-service ITC. Marketplace fees and ads are input services, and including them is the most common error. Keep them out until the change is notified.
• Using turnover figures that do not match the returns.
• Claiming ITC that is not in GSTR-2B.
• Filing late. Count the time limit from the return due date for each period.
• Grouping periods incorrectly. A claim can cover more than one tax period, but only within the same financial year.

Preventing it next time

• Tag each purchase. In the purchase register, mark every purchase as an input, an input service or a capital good, with its HSN code and rate.
• Work out the refund each quarter. The refund calculator below follows the rule 89(5) formula. File each claim well within the time limit.
• Re-check the excluded list and rates. Do it after every GST Council meeting that changes rates, before you file the next claim.

When to take professional help

Take help when:

• a large claim is proposed for rejection;
• the officer raises a "same goods" objection;
• a notified change, such as the input-services change, affects the formula for the period.

Refund orders can be appealed, but the time limits are strict and run from the date of the order.