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Central TaxHigh impact for ecommerce sellers

Rule 89(5) inverted duty refund formula and Rule 88B interest on delayed GSTR-3B

Reviewed by CA Apurav GargSummary reviewed

Document
Notification No. 14/2022–Central Tax
Issued
5 Jul 2022
Effective
2022-07-05 (Rule 88B with effect from 2017-07-01)
Issued by
Ministry of Finance (Department of Revenue), CBIC
Official PDF(opens in a new tab)

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What it means for ecommerce sellers

Two changes matter to ecommerce brands. First, the inverted duty refund formula in Rule 89(5) now deducts only the share of output tax that is paid from input credit: tax payable on the inverted rated supply × (Net ITC ÷ ITC availed on inputs and input services). This usually raises the refund for brands that buy inputs at a higher rate than they sell at, for example fabric at 5% or 12% and garments at 5%. Second, Rule 88B (deemed inserted from 1 July 2017) confirms that interest on a late GSTR-3B is charged on the part of tax paid in cash, for the days of delay.

Who it affects

  • Brands with an inverted duty structure (input rate above output rate)
  • Anyone who files GSTR-3B after the due date
  • Taxpayers with ITC wrongly availed and utilised

Before and after

  • Rule 89(5): amount deducted from the refund

    Before
    Tax payable on the inverted rated supply of goods and services
    After
    Tax payable on the inverted rated supply × (Net ITC ÷ ITC availed on inputs and input services)

  • Interest on late GSTR-3B

    Before
    Disputed whether on gross or net tax
    After
    Rule 88B(1): on the portion of tax paid by debiting the electronic cash ledger

  • Interest on ITC wrongly availed

    Before
    No rule on when it is "utilised"
    After
    Rule 88B(3): from the date of utilisation (as explained in the rule) till reversal or payment

What to do

  1. Recompute inverted duty refund claims for applications filed on or after 5 July 2022 using the revised formula.
  2. Keep the Net ITC and the ITC on inputs and input services as separate figures for each refund period.
  3. Compute interest on a late GSTR-3B on the cash portion only, for the days of delay.

Provisions referred to: Rule 89(5) CGST Rules; Rule 88B CGST Rules; Section 50 CGST Act; Section 39 CGST Act; Section 54(3) CGST Act

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Official text

As issued by Ministry of Finance (Department of Revenue), CBIC. Where the text starts with “Extract”, only the parts that concern ecommerce sellers are reproduced; the official PDF (opens in a new tab) is the authoritative version.

Type a word, number or section to highlight it below.

Extract: the parts of the official text that this update relates to. Omitted passages are marked […]. The complete document is at the official link above. [TO BE PUBLISHED IN THE GAZETTE OF INDIA, EXTRAORDINARY, PART II, SECTION 3, SUB-SECTION (i)] GOVERNMENT OF INDIA MINISTRY OF FINANCE (DEPARTMENT OF REVENUE) CENTRAL BOARD OF INDIRECT TAXES AND CUSTOMS NOTIFICATION No. 14/2022 – Central Tax New Delhi, the 5th July, 2022 G.S.R... (E). –In exercise of the powers conferred by section 164 of the Central Goods and Services Tax Act, 2017 (12 of 2017), the Central Government, on the recommendations of the Council, hereby makes the following rules further to amend the Central Goods and Services Tax Rules, 2017, namely: — 1. Short title and commencement. -(1) These rules may be called the Central Goods and Services Tax (Amendment) Rules, 2022. (2) Save as otherwise provided in these rules, they shall come into force on the date of their publication in the Official Gazette. […] 7. In the said rules, with effect from the 1st July, 2017, after rule 88A, the following rule shall be deemed to have been inserted, namely: - “88B. Manner of calculating interest on delayed payment of tax.-(1) In case, where the supplies made during a tax period are declared by the registered person in the return for the said period and the said return is furnished after the due date in accordance with provisions of section 39, except where such return is furnished after commencement of any proceedings under section 73 or section 74 in respect of the said period, the interest on tax payable in respect of such supplies shall be calculated on the portion of tax which is paid by debiting the electronic cash ledger, for the period of delay in filing the said return beyond the due date, at such rate as may be notified under sub-section (1) of section 50. (2) In all other cases, where interest is payable in accordance with sub section (1) of section 50, the interest shall be calculated on the amount of tax which remains unpaid, for the period starting from the date on which such tax was due to be paid till the date such tax is paid, at such rate as may be notified under sub-section (1) of section 50. (3) In case, where interest is payable on the amount of input tax credit wrongly availed and utilised in accordance with sub-section (3) of section 50, the interest shall be calculated on the amount of input tax credit wrongly availed and utilised, for the period starting from the date of utilisation of such wrongly availed input tax credit till the date of reversal of such credit or payment of tax in respect of such amount, at such rate as may be notified under said sub-section (3) of section 50. Explanation. —For the purposes of this sub-rule, — (1) input tax credit wrongly availed shall be construed to have been utilised, when the balance in the electronic credit ledger falls below the amount of input tax credit wrongly availed, and the extent of such utilisation of input tax credit shall be the amount by which the balance in the electronic credit ledger falls below the amount of input tax credit wrongly availed. (2) the date of utilisation of such input tax credit shall be taken to be, — (a) the date, on which the return is due to be furnished under section 39 or the actual date of filing of the said return, whichever is earlier, if the balance in the electronic credit ledger falls below the amount of input tax credit wrongly availed, on account of payment of tax through the said return; or (b) the date of debit in the electronic credit ledger when the balance in the electronic credit ledger falls below the amount of input tax credit wrongly availed, in all other cases.”; 8. In the said rules, in rule 89, – […] (d) in sub-rule (5), for the words “tax payable on such inverted rated supply of goods and services”, the brackets, words and letters “{tax payable on such inverted rated supply of goods and services x (Net ITC ÷ ITC availed on inputs and input services)}.” shall be substituted; […] [F. No. CBIC-20001/2/2022-GST] (Rajeev Ranjan) Under Secretary

Questions sellers ask

What is the revised Rule 89(5) formula?

Maximum refund = (Turnover of inverted rated supply of goods and services × Net ITC ÷ Adjusted Total Turnover) − {tax payable on such inverted rated supply × (Net ITC ÷ ITC availed on inputs and input services)}. Notification 14/2022–Central Tax substituted the second part.

From which date does the revised Rule 89(5) formula apply?

The notification came into force on its publication, 5 July 2022. CBIC has clarified that the amended formula applies to refund applications filed on or after that date.

How is interest on a late GSTR-3B calculated under Rule 88B?

Where the supplies are declared in the return for the period and the return is filed late, interest is calculated on the portion of tax paid by debiting the electronic cash ledger, for the period of delay beyond the due date, unless proceedings under section 73 or 74 had started.

From when does Rule 88B apply?

Rule 88B is deemed to have been inserted with effect from 1 July 2017.

Want help working out what this means for your business?

We handle GST and TDS compliance, returns and notice replies for D2C and marketplace sellers, and can walk you through how a change applies to your books.

Contact usWhatsApp us

General information only, not professional advice. The summary is ecomca’s reading of the document; the official PDF is the authoritative version, and later amendments may change it. Check the official source before you act.