Inverted Duty Structure – Indian Economy – Free PDF Download


  • An inverted duty structure arises when the taxes on output or final product is lower than the taxes on inputs, creating an inverse accumulation of input tax credit which in most cases has to be refunded.
  • In November, the Finance Ministry notified a uniform 12% rate for manmade fiber (MMF), yarn, fabrics and apparels, along with a 12% uniform rate for footwear.
  • Earlier tax rate on manmade fiber, yarn and fabrics was 18%, 12% and 5%, respectively.
  • Apparel and clothing up to Rs 1,000 per piece attracts 5% GST.
  • Synthetic and artificial yarn have been changed to 12% but natural yarn like cotton, silk, wool yarn are still in 5% slab.


  • In the pre-GST regime, a situation of an inverted duty structure arose in cases where import duty on raw materials that were used in the production of finished goods was higher than the import duty on finished goods itself.
  • Example : Duty on the import of tyres (Finished Good) = 10% Duty on the imports of natural rubber (Raw Material) = 20%
  • In GST Regime ,the rate of tax on inputs purchased (i.e.GST rate paid on inputs received) is more than the rate of tax on outward supplies (i.e. GST rate payable on sales).

Effect on manufacturing sector in India

  1. Domestic production like Make in India suffers while foreign imports benefit
  2. MSME hit hard leading to job losses


  1. Lower price to consumers, profits to corporates
  2. More competitiveness in Indian manufacturing market

What are the problems with the current inverted duty structure under GST?

  • Taxpayers will have accumulated credits in the form of refund claims with the tax Department.
  • The inverted duty structure is a revenue loss for the government as it has to refund the tax already paid (in inputs).
  • Under GST, the inverted duty structure is identified for goods and not for services. Or in other words, there is recognition for ‘input good’ and not for ‘input services’.




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