In an inter-ministerial review chaired by Cabinet Secretary TV Somanathan ahead of the September 22 rollout of GST reforms, officials discussed ways to deal with sectoral concerns over compensation cess, unused input tax credit (ITC), and the inverted duty structure, Business Standard has reported.

According to the report, proposals on the table included permitting unutilised ITC to be applied toward state GST (SGST), offsetting Customs duty, or converting the credit into tradable scrips. These ideas were floated as potential relief mechanisms for industries grappling with blocked tax credits and working-capital strain.

The discussions come in the backdrop of several sectors highlighting that, after the recent GST rate rationalisation, many finished goods such as FMCG products, food, and medicines now face a 5 per cent levy, while key inputs, including services, continue to attract 18 per cent GST. This mismatch, Business Standard noted, has intensified the inverted duty structure and left large portions of ITC stranded, hitting liquidity and operational flexibility—particularly for smaller manufacturers.

“Inverted duty structure was one of the primary issues flagged by ministries,” an official told Business Standard on condition of anonymity. The meeting was attended by top representatives from the finance, textiles, agriculture, consumer affairs, commerce, heavy industries, chemicals and fertilisers, and steel ministries, among others.

While the government currently permits refunds of up to 90 per cent of input-related GST under inverted structures, experts cited by Business Standard pointed out that no such relief applies to GST paid on capital goods and input services. “This makes it essential for policymakers to step in, so that the benefits of lower tax rates can actually flow to consumers,” one tax expert said.

Source: Money Control