GST Refund for Inverted Duty Structure: How the New 90% Provisional Refund Rule Under Section 54(6) Works

GST refund for inverted duty structure on a provisional basis is no longer stuck waiting for months of scrutiny and if you're a manufacturer or MSME sitting on blocked input tax credit, this one change could unlock your working capital in days, not months.

If you've ever sold finished goods at 5% or 12% GST while paying 18% on your raw materials, you already know the pain. Your Input Tax Credit (ITC) piles up, your cash gets stuck, and the refund process used to feel like it took forever. That's the classic inverted duty structure (IDS) problem, and until recently, only exporters got the fast-track "provisional refund" benefit under Section 54(6) of the CGST Act. IDS taxpayers had to wait for full verification before seeing a single rupee.

That changed with the 56th GST Council Meeting and the follow-up CBIC Instruction No. 06/2025-GST. Here's the properly verified, up-to-date breakdown of what's new, who qualifies, and how to actually use it.

What Is Section 54(6) of the CGST Act

Section 54(6) lets the GST department release 90% of your claimed refund upfront, on a provisional basis, before the officer finishes full verification of your documents. The remaining 10% comes after final scrutiny under Section 54(5).

Until October 2025, this fast-track option was written into law only for zero-rated supplies - meaning exports and SEZ supplies. If your refund claim was on account of an inverted duty structure, you had no choice but to wait out the entire verification cycle before getting a single rupee, even though your money was legitimately due.

What Actually Changed: GST Council's Inverted Duty Structure Relief

At its 56th meeting held on 3 September 2025, the GST Council recommended extending the same 90% provisional refund treatment to IDS claims. Here's the important nuance that most blogs skip: the amendment to Section 54(6) itself still needs to go through the Finance Act and matching state legislation, which takes time. So, as an interim trade-facilitation measure, the government acted through two administrative steps instead of waiting for Parliament:

1.) Notification No. 13/2025–Central Tax (17 September 2025) amended Rule 91(2) of the CGST Rules, effective from 1 October 2025, introducing a system-based risk evaluation for provisional refund sanctioning.

2.) CBIC Instruction No. 06/2025-GST, dated 3 October 2025, directed field officers to apply this same 90% provisional sanction to IDS refund applications filed on or after 1 October 2025 even though the parent Act hasn't been formally amended yet.

In short: today's relief comes through a rule change plus an administrative instruction, not a finalized statutory amendment to Section 54(6). It works the same way for taxpayers, but it's worth knowing the legal mechanics if you're relying on it for compliance planning.

Old Rules vs New Rules: Quick Comparison
 

How Does the New "Risk-Based" GST Refund System Work for IDS Claims

This is where the inverted duty structure GST refund 90 percent rule gets its teeth. Your refund application isn't sanctioned provisionally just because you asked a system that now auto-classifies your claim as low-risk or high-risk based on your compliance history, filing patterns, and data consistency.

Low-risk claims: get 90% sanctioned provisionally, usually within about 7 days of acknowledgment.

High-risk claims: go through complete, manual scrutiny before any amount is released — no shortcut.

Officers still retain discretion to withhold a provisional refund even for low-risk cases, but only if they record specific written reasons under the provision to Rule 91(2).

Who Is NOT Eligible for the Provisional Refund

A few categories are carved out and won't get the fast-track treatment:

Step-by-Step: How to Claim GST Refund Under Inverted Duty Structure

1. File Form GST RFD-01 electronically on the GST portal for the relevant tax period.

2. Attach Statement 1 and Statement 1A showing your inverted-rate turnover and net ITC calculation.

3. Declare that you haven't claimed duty drawback or IGST refund on the same supply.

4. The officer issues Form GST RFD-02 (acknowledgment) or RFD-03 (deficiency memo) as per the usual timeline.

5. If your application is flagged low-risk, expect Form GST RFD-04 confirming the 90% provisional sanction.

6. The final order under Section 54(5), covering the balance amount, follows after complete verification within 60 days of a complete application, as required under Section 54(7).

How Much Refund Can You Actually Claim (Rule 89(5) Formula)

The maximum refundable amount under an inverted duty structure isn't your entire accumulated ITC — it's calculated using a specific formula:

Maximum Refund Amount = [(Turnover of inverted-rated supply × Net ITC) ÷ Adjusted Total Turnover] − Tax payable on such inverted-rated supply

Only ITC on inputs counts here , credit on input services and capital goods is excluded from this refund calculation.

What If the Final Refund Is Lower Than the Provisional Amount

This is a genuinely useful bit of practical detail. If, after full verification, your eligible refund turns out lower than the 90% already paid out provisionally, the excess isn't simply forgiven, it gets recovered along with applicable interest, typically through Form GST DRC-07. So while the provisional refund helps your cash flow immediately, it's not a final word - keep your documentation airtight to avoid a recovery notice later.

Conclusion

The 90% provisional refund extension to inverted duty structure claims is one of the most meaningful cash-flow reliefs GST has offered manufacturers and MSMEs in years but it's currently running on an interim administrative footing, not a finalized law. Keep your GSTR-1, GSTR-3B, and export/input documentation clean, make sure Aadhaar authentication is done, and file your RFD-01 accurately to land in the "low-risk" bucket.

Need help filing your GST refund claim correctly the first time? gstfilling.co can walk you through documentation, risk-proofing your application, and tracking your refund status end to end.