Why in news?

Inverted duty structure discourages, The department of revenue has identified as many as 931 cases of fraudulent GST refund claims

Details

  • Input tax credit(ITC) frauds are most common way to evade GST
  • Shell companies and fly by nights entities are being used for fake ITC

Inverted Duty Structure Discourages

  • IDS, refers to taxation of inputs at higher rates than finished products that results in build-up of credits and cascading costs.
  • When the import duty on raw materials is high, it will be more difficult to produce the concerned good domestically at a competitive price.
  • Several industries depend on imported raw materials and components.
  • High tax on the raw materials compels them to raise price. On the other hand, foreign finished goods will be coming at a reduced price because of low tax advantage.
  • Thus, manufactured goods by the domestic industry become uncompetitive against imported finished goods.
  • The disadvantage of the inverted duty structure increases with the increased use of imported raw materials.
  • An IDS, discourages domestic value addition.
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