Financial planning

Vkc Footsteps Inverted Duty Services
Compliance and filing guide

Expert brief on Vkc Footsteps Inverted Duty Services for businesses, promoters, and individuals. Reconcile with latest notifications before filing.

Last fact-checked: 2026-06-25

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Official-source cautious

India specific

Dispute Details

Facts & Lower Court History

Facts: Taxpayers claimed refunds of accumulated Input Tax Credit (ITC) under the Inverted Duty Structure (tax on inputs higher than tax on outputs) on both input goods and input services.
Lower Court History: The Gujarat High Court allowed refunds on input services, while the Madras High Court disallowed it, leading to a Supreme Court appeal.
Key Issues: Whether Rule 89(5) of the CGST Rules, which restricts the refund of unutilized ITC to inputs (goods) and excludes input services, is ultra vires Section 54(3).

Court Ratio

Validity of Rule 89(5): The Supreme Court in VKC Footsteps held that Rule 89(5) is valid. The legislature has the authority to restrict the scope of refunds.
Statutory Right: A tax refund is a statutory right created by law, and cannot be claimed as an inherent constitutional right unless explicitly provided by the statute.
Anomalies Acknowledged: The Court acknowledged that the formula creates minor anomalies for service-heavy businesses but left it to the GST Council to resolve.

Key Evidence

Input vs Output Invoices: Records showing GST rates on raw materials (goods) vs GST rates on professional/rental services (input services).
Refund Applications: RFD-01 forms and calculation sheets submitted on the GST portal.
GST Council Minutes: Discussions showing the intent behind limiting refunds under Rule 89(5).

Action Points

Optimize ITC Utilization: Plan business purchases to utilize input services ITC against domestic sales rather than expecting refunds.
Re-evaluate Supply Chains: Where possible, source inputs as goods rather than services to maximize inverted duty refund eligibility.
Maintain Clean Books: Maintain separate ledgers for ITC on input goods, input services, and capital goods to simplify audits.