Goods Where Inverted Duty explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Even when your inputs are taxed higher than your output, the refund can be blocked if your goods are on a government list. That list is Notification 5/2017-Central Tax (Rate). It has been amended five times, and two High Courts have ruled on how its later additions apply to old credit. This guide sets out what the list covers, how it has changed and what to do if your goods are on it.
Section 54(3)(ii) allows inverted duty refund "except supplies of goods or services or both as may be notified". The notified list is Notification 5/2017-CT(R) dated 28.06.2017, amended by Notifications 29/2017 (22.09.2017), 44/2017 (14.11.2017), 20/2018 (26.07.2018), 9/2022 (13.07.2022, effective 18.07.2022) and 20/2023 (19.10.2023). It includes fabrics items and items related to railways. For fabrics, the bar does not apply to credit on supplies received from 01.08.2018. Fabric job workers remain eligible. Restrictions added in 2022 apply prospectively: credit accumulated earlier stays refundable (Patanjali Foods, Gujarat HC; Gemini Edibles, AP HC, SLP dismissed 09.05.2025).
How the restriction works
The bar sits inside section 54(3)(ii) itself. The clause allows refund where credit accumulates because the input rate is higher than the output rate, "except supplies of goods or services or both as may be notified by the Government on the recommendations of the Council". Notification 5/2017-CT(R) is that notification.
Three points follow from the wording:
- The bar is tied to the output goods. It applies where credit has accumulated because inputs are taxed higher than the output supplies of such goods.
- It only closes the inverted duty route under clause (ii). It does not touch refunds of zero-rated supplies under clause (i), such as exports under LUT.
- The credit is not lost. It stays in the electronic credit ledger and can be used to pay output tax. It simply cannot be refunded in cash under clause (ii).
If you are unsure whether your HSN is caught, our inverted duty structure refund team can check the consolidated notification against your product list.
The notification and its amendments
| Notification | Date | Effect (as described in the ICAI texts) |
|---|---|---|
| 5/2017-CT(R) | 28.06.2017 | Original list. Includes fabrics items and items related to railways |
| 29/2017-CT(R) | 22.09.2017 | Amendment |
| 44/2017-CT(R) | 14.11.2017 | Amendment |
| 20/2018-CT(R) | 26.07.2018 | Fabric bar lifted for credit on supplies received on or after 01.08.2018; fabric credit accumulated up to 31.07.2018 lapses |
| 9/2022-CT(R) | 13.07.2022 | Further restriction, effective 18.07.2022; applied to deny edible oil refunds |
| 20/2023-CT(R) | 19.10.2023 | Amendment |
We have described only what the ICAI Refunds Handbook and the ICAI background material state. The full HSN-wise schedule, as it stands after each amendment, should be read from the consolidated notification on the CBIC site before you decide that a claim is barred or clear.
Fabrics: the most litigated entry
Fabrics were on the original list, which blocked inverted duty refunds for weavers and fabric makers for the first year of GST. Notification 20/2018-CT(R) changed this in two ways:
- From 01.08.2018: the restriction does not apply to credit on inward supplies received on or after that date, in respect of fabrics.
- Up to 31.07.2018: credit accumulated and lying unutilised on supplies received up to that date lapses. Circular 56/30/2018 explained the lapse calculation.
Job workers. A fabric processor who dyes or prints someone else's fabric supplies a job work service, not fabric. Circular 48/22/2018 clarified that such processors are eligible for inverted duty refund even where the fabric they work on is covered by Notification 5/2017-CT(R). The full textile picture is in inverted duty refund for the textile industry.
Railway goods
Items related to railways are on the list. A manufacturer supplying such goods, where credit accumulates because inputs are taxed higher, cannot claim inverted duty refund. The credit remains usable for output tax. Check the specific tariff entries in the consolidated notification, as the coverage depends on HSN.
The 2022 addition and the courts
Notification 9/2022-CT(R) added further restrictions from 18.07.2022. CBIC's Circular 181/13/2022-GST (10.11.2022), at para 2.2, then said that no refund would be allowed on any application filed after that date, even for credit that had accumulated earlier.
Two High Courts rejected that reading:
- Patanjali Foods Ltd. v. Union of India (Gujarat HC): Notification 9/2022 is prospective from 18.07.2022. Para 2.2 of Circular 181 was struck down as arbitrary, ultra vires section 54 and violative of Article 14. Eligibility is decided by the law in force during the refund period.
- Gemini Edibles and Fats India Ltd. (Andhra Pradesh HC): credit accumulated before 18.07.2022 remains refundable, whenever the application is filed. The Supreme Court dismissed the Revenue's SLP on 09.05.2025.
So the date that matters is when the credit accumulated, not when you filed. For the edible oil context, see edible oil GST refund in India. For the wider challenge to circulars, see Circular 181 cannot override section 54(3).
Worked illustration: what the bar does to a claim
Illustration (round figures). A manufacturer makes two products: X, which is on the restricted list, and Y, which is not. Both are taxed lower than their inputs. In the quarter, Y's turnover is ₹50,00,000 and X's is ₹50,00,000.
- On the approach commonly taken, only Y's turnover is treated as "turnover of inverted rated supply" for the refund, while X's turnover still sits in Adjusted Total Turnover. Discuss the working with your officer if your ranges overlap heavily.
- With Net ITC of ₹8,00,000, total ITC on inputs and input services of ₹9,00,000, tax payable on Y of ₹2,50,000, and ATT of ₹1,00,00,000:
Refund = (50,00,000 × 8,00,000 ÷ 1,00,00,000) − (2,50,000 × 8,00,000 ÷ 9,00,000) = 4,00,000 − 2,22,222 = ₹1,77,778
- Credit relating to X stays in the ledger for future tax payments.
Run your own split on the GST refund calculator.
Need help with a restricted-goods question?
Whether a claim is barred depends on the exact HSN, the period in which the credit built up and the amendment in force at that time. We can check all three, file where the claim is open and challenge a rejection where the officer has applied the bar too widely. See GST refund for inverted duty structure, or for a refused claim, GST refund rejection help.
Key takeaways
- Notification 5/2017-CT(R) lists goods for which inverted duty refund is not allowed. It includes fabrics items and railway items.
- It has been amended by Notifications 29/2017, 44/2017, 20/2018, 9/2022 and 20/2023.
- Fabric credit on supplies received from 01.08.2018 is refundable; earlier fabric credit lapsed. Fabric job workers are eligible.
- Restrictions added from 18.07.2022 apply prospectively: Patanjali Foods (Gujarat HC) and Gemini Edibles (AP HC, SLP dismissed 09.05.2025).
- The bar blocks only the inverted duty route. Export refunds and use of the credit for tax payment are unaffected.
Read next
- Inverted duty refund where output is exempt or nil
- Inverted duty refund rejected: common grounds
- Inverted duty refund for the textile industry
- Inverted duty refund: when input exceeds output
Disclaimer: Positions stated as on 30 September 2026, based on the CGST Act and Rules as amended, the Finance Act 2026, and the ICAI Handbook on Refunds under GST (January 2026). Verify current notifications before filing.