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An integrated Indian specialty chemicals complex running a Dahej phenol-acetone plant under the Hock process — benzene plus propylene converting to cumene, cumene oxidising to cumene hydroperoxide, cumene hydroperoxide cleaving to phenol plus acetone — produces a mixed output portfolio at an illustrative quarterly scale of the order of Rs 4,050 crore. The portfolio splits into a Chapter 27 leg of the order of Rs 850 crore covering heavy aromatic solvent by-product streams under HSN 2707.50 and a Chapter 29 leg of the order of Rs 3,200 crore covering phenol under HSN 2907.11, acetone under HSN 2914.11 and cumene under HSN 2902.70. Notification 09/2022-Central Tax (Rate) dated 13 July 2022 effective 18 July 2022 permanently bars Section 54(3) refund on the Chapter 27 output line, drops the Chapter 27 turnover out of the Rule 89(5) numerator while retaining it in the Adjusted Total Turnover denominator, and dilutes the refund on the Chapter 29 leg by the Chapter 27 output share — creating an illustrative permanent working-capital cost of the order of Rs 40 to 60 crore per year on the Chapter 27 portfolio.
Build a per-tax-period Rule 89(5) refund workbook keyed on the plant's state GSTIN that decomposes outward supply by output HSN chapter. Extract the Chapter 27 output turnover from GSTR-1 into a distinct register — flagged as barred under Notification 09/2022. Extract the Chapter 29 output turnover into the Turnover of inverted-rated supply base. Sum both into Adjusted Total Turnover per the Section 2(112) turnover-in-State definition. Extract the Net ITC pool from GSTR-2B — Chapter 29 feedstock (benzene, propylene, cumene), catalyst, packaging and eligible inputs; hold input services and capital goods separately. Apply the amended Rule 89(5) formula with the Chapter 27 output line explicitly excluded from the numerator. Compute the Chapter 27 dilution as (Chapter 27 output turnover divided by Adjusted Total Turnover) and disclose it as a distinct line in the Statement 1A annexure. File Form GST RFD-01 monthly against the Chapter 29 leg only. Track the permanent working-capital cost of the Chapter 27 dilution against a rolling treasury projection.
Plant master with GSTIN, state, integrated-complex identifier, and expected quarterly Chapter 27 and Chapter 29 output value; output HSN register with per-invoice HSN chapter classification against the Chapter 27 barred list (headings 2707, 2710, 2711, 2713, 2714, 2715) and the Chapter 29 eligible list (2902, 2907, 2914 for phenol-acetone chemistry); input HSN register with per-vendor per-invoice HSN classification anchored to Chapter 29 for feedstock and Chapters 28, 38, 39, 48 for catalysts, chemicals, packaging; Net ITC composition register per input HSN chapter per tax period; input-services ledger and capital-goods ledger held separate; Rule 89(5) refund workbook per plant per tax period with the amended-formula computation and the Chapter 27 dilution disclosure line; Statement 1A invoice-level annexure builder that carries the barred-chapter line explicitly; Form GST RFD-01 electronic filing feed; permanent-cost tracker for the Chapter 27 dilution against a rolling year-on-year comparison.
A month-end mixed-portfolio Rule 89(5) refund pack: per-plant per-GSTIN Turnover of inverted-rated supply (Chapter 29 only), Adjusted Total Turnover (both Chapter 27 and Chapter 29), Net ITC decomposed by input HSN chapter with the Chapter 27 output share disclosed as a distinct dilution line, input-services and capital-goods ITC identified and excluded from the numerator, the amended-formula maximum refund computation, the Statement 1A invoice-level annexure with the barred-chapter line explicitly, and the Form GST RFD-01 draft ready for portal submission. A rolling permanent-cost tracker quantifies the working-capital impact of the Chapter 27 dilution — the illustrative Rs 40 to 60 crore per year on the Chapter 27 portfolio — against year-on-year output-mix shifts. The pack surfaces the Chapter 27 output HSN classification decisions that drive the dilution size so the finance team can escalate any classification refinement that could reduce the barred-line exposure.
An integrated Indian specialty chemicals complex running a Dahej phenol-acetone plant under the Hock process — benzene plus propylene converting to cumene at high pressure over an acid catalyst, cumene oxidising with air to cumene hydroperoxide, cumene hydroperoxide cleaving under acid catalysis to phenol plus acetone — closes its books for the September 2026 quarter. The complex produces a mixed output portfolio at an illustrative quarterly scale of the order of Rs 4,050 crore. The Chapter 29 leg covering phenol under HSN 2907.11, acetone under HSN 2914.11 and cumene under HSN 2902.70 accounts for approximately Rs 3,200 crore. The Chapter 27 leg covering heavy aromatic solvent by-product streams under HSN 2707.50 — the aromatic recovery bottoms from the cumene process and the heavy solvent fraction from the aromatics extraction column — accounts for approximately Rs 850 crore. Both legs consume the same input GST pool: benzene at 18 percent, propylene at 18 percent, catalyst and process chemicals at 18 percent under HSN Chapters 28 and 38, packaging at 18 percent under HSN Chapters 39 and 48. And Notification 09/2022-Central Tax (Rate) dated 13 July 2022, effective 18 July 2022, permanently bars Section 54(3) refund of unutilised input tax credit on the Chapter 27 output line — irrespective of how much input GST has accumulated in the electronic credit ledger. This is Chapter 27 IDS refund bar Notification 09/2022 chemicals at operating scale, and the finance team’s reconciliation discipline is a per-tax-period Rule 89(5) workbook that pulls the Chapter 27 output line out of the numerator, retains it in the Adjusted Total Turnover denominator, and quantifies the permanent working-capital cost of the resulting dilution on the Chapter 29 leg.
The reconciliation in one paragraph
A chemicals manufacturer with mixed Chapter 27 and Chapter 29 output faces a two-part refund mechanic under Notification 09/2022-Central Tax (Rate) read with the amended Rule 89(5). First, the Chapter 27 output line — heavy aromatic solvent under HSN 2707, petroleum distillate under HSN 2710, petroleum coke or bitumen residue under HSN 2713, bituminous mixture under HSN 2715 — is permanently barred from Section 54(3) refund by the operation of clause (ii) of the first proviso to Section 54(3), which the Notification invokes. Second, the Rule 89(5) formula operationalises the bar by excluding the Chapter 27 output turnover from the Turnover of inverted-rated supply in the numerator while continuing to include it in the Adjusted Total Turnover in the denominator (because it remains a taxable supply under Section 2(112) CGST). The result is that the refund ratio on the Chapter 29 leg — where refund IS available — is diluted by exactly the Chapter 27 output share of total portfolio turnover. For a Rs 850 crore quarterly Chapter 27 line against a Rs 4,050 crore total portfolio, the dilution runs at 21 percent — a permanent working-capital cost that shows up as accumulated ITC in the electronic credit ledger and translates to an illustrative Rs 40 to 60 crore per year on the Chapter 27 portfolio at operating scale. The reconciliation workbook must decompose the output turnover by HSN chapter at invoice level, disclose the Chapter 27 dilution line explicitly in the Statement 1A annexure, and hold the permanent working-capital cost against a rolling treasury projection so the finance team can size the year-on-year drag against the Chapter 29 refund receipt.
What the scenario looks like in India
The Indian specialty chemicals sub-cluster with meaningful Chapter 27 output exposure concentrates in the Gujarat industrial corridor that runs from Dahej PCPIR (Petroleum Chemicals and Petrochemical Investment Region) through Ankleshwar, Panoli, Jhagadia and Vapi. The Dahej cluster in particular hosts integrated phenol-acetone complexes, cracker downstream units, benzene-derivatives value chains and hydrocarbon-fractionation lines that all produce at least one output stream falling under HSN Chapter 27. Illustrative large-industry brand references for the persona this article walks through include Deepak Nitrite and its downstream integrated subsidiary Deepak Phenolics at Dahej for the phenol-acetone-cumene chemistry, Aarti Industries for the benzene-derivatives value chain with heavy-aromatic by-product streams, GACL (Gujarat Alkalies and Chemicals Limited) for the integrated soda-ash and chlorochemicals complex at Vadodara, ONGC Petro-additions (OPaL) at Dahej for the polymer and petrochemical downstream, and SRF Limited for the specialty polymer films line that consumes Chapter 27 solvents. Adjacent geographies with similar exposure include the Maharashtra bulk-drug-intermediate belt (Tarapur, Roha, Mahad, Ambernath), the Andhra Pradesh Vishakhapatnam-Nakkapalli petchem downstream, and the Tamil Nadu SIPCOT clusters at Cuddalore and Panruti.
For the reconciliation this article walks through, the reference persona is an integrated Dahej phenol-acetone complex modelled on the Deepak Nitrite plus Deepak Phenolics chemistry footprint at illustrative quarterly turnover scale. The Hock process produces phenol and acetone as co-products from cumene, which is itself an intermediate produced by alkylation of benzene with propylene. The aromatic recovery bottoms from the cumene process and the heavy solvent fraction from the aromatics extraction column produce a Chapter 27 output line under HSN 2707.50 — sold as an industrial heavy aromatic solvent to downstream paint, adhesive and specialty chemistry buyers. The persona’s finance team runs the plant under a single Gujarat state GSTIN, files monthly GSTR-1 and GSTR-3B, and — under Section 54(3) read with Rule 89(5) — files a monthly Form GST RFD-01 refund claim against the accumulated inverted-duty ITC on the Chapter 29 phenol-acetone-cumene leg only. The Chapter 27 heavy aromatic solvent leg does not enter the refund claim. It sits in the Adjusted Total Turnover denominator, dilutes the Chapter 29 refund ratio, and accumulates a permanent working-capital cost against the electronic credit ledger.
The regulatory overlay — Section 54(3), Notification 09/2022, and the Rule 89(5) exclusion mechanic
Three regulatory anchors govern the Chapter 27 refund block for a chemicals manufacturer. All three predate the 56th GST Council rate reset of September 2025 and continue to operate on their standing basis.
Section 54(3) of the Central Goods and Services Tax Act 2017 permits a registered person to claim refund of unutilised input tax credit where the credit has accumulated on account of the rate of tax on inputs being higher than the rate of tax on output supplies — the inverted duty structure. The first proviso to Section 54(3) empowers the government to notify supplies against which refund of unutilised ITC shall not be allowed; clause (ii) of the proviso is the specific gateway that a rate-notification uses to bar refund on a class of output. The Supreme Court in Union of India v. VKC Footsteps India Pvt Ltd (2021) 10 SCC 674 upheld the statutory scheme and confirmed that the refund is confined to unutilised credit on inputs — input services and capital goods stand excluded. The judgment is the constitutional-validity anchor for both the refund-availability side and the exclusion side of Rule 89(5).
Notification 09/2022-Central Tax (Rate) dated 13 July 2022, effective 18 July 2022, invokes clause (ii) of the first proviso to Section 54(3) and bars refund of unutilised input tax credit on output supplies falling under HSN Chapter 15 (animal or vegetable fats and oils; prepared edible fats; waxes) or HSN Chapter 27 (mineral fuels, mineral oils and products of their distillation; bituminous substances; mineral waxes). For the chemicals sub-cluster the Chapter 27 leg is the primary exposure. The Chapter 27 scope spans heading 2707 (oils and other products of the distillation of high-temperature coal tar and similar aromatic-dominant products — with sub-heading 2707.50 catching the aromatic hydrocarbon mixtures of which 65 percent or more by volume distils at 250 degrees Celsius under the ASTM D 86 test), heading 2710 (petroleum oils and light distillates — naphtha, kerosene, lubricating oils), heading 2711 (petroleum gases and LPG), heading 2713 (petroleum coke, petroleum bitumen and other residues of petroleum oils), heading 2714 (bitumen and asphalt), and heading 2715 (bituminous mixtures). The Notification does not carve out low-volume by-product streams — any output falling under any of these headings is barred, regardless of whether the plant’s primary output is Chapter 27 or the barred line is a secondary by-product.
Rule 89(5) of the Central Goods and Services Tax Rules 2017, as amended by Notification 14/2022-Central Tax dated 5 July 2022 (which applies prospectively to refund applications filed on or after 5 July 2022), gives the operational formula. Maximum Refund Amount equals (Turnover of inverted-rated supply of goods and services multiplied by Net ITC divided by Adjusted Total Turnover) minus (Tax payable on such inverted-rated supply multiplied by Net ITC divided by ITC availed on inputs and input services). The critical mechanic for a mixed-portfolio chemicals plant is the interaction between the numerator and the denominator. Turnover of inverted-rated supply in the numerator excludes any output turnover for which Section 54(3) refund is barred under a clause-(ii) Notification — the Chapter 27 output line therefore drops out. Adjusted Total Turnover in the denominator continues to include the Chapter 27 output line because it remains a taxable supply under the Section 2(112) turnover-in-State definition. The mathematical result is that the refund ratio on the Chapter 29 leg falls below unity by exactly the Chapter 27 output share of total portfolio turnover. Net ITC in the numerator continues to draw from the entire input GST accumulated across the plant regardless of which output line consumed which input — the dilution runs purely on the turnover ratio, not on any input-side attribution. Input services and capital goods are excluded from Net ITC per the amendment.
A worked example — the Dahej phenol-acetone complex at quarterly close
Illustrative — the following figures represent the operating pattern of an integrated Indian phenol-acetone complex at Dahej PCPIR at the scale that large-cap Indian specialty chemicals producers operate. Public disclosures do not reveal per-plant per-quarter inverted-duty refund quantum in the granularity below; cross-verify against your own plant’s GSTR-1 and GSTR-2B extracts before action.
The complex closes its September 2026 quarter with the following outward and inward supply position on the Gujarat GSTIN, converted to Rs crore:
| Reconciliation line | HSN | Value (Rs crore) | Rate | GST (Rs crore) |
|---|---|---|---|---|
| Output — heavy aromatic solvent (Chapter 27 by-product) | 2707.50 | 850.0 | 18 percent | 153.0 |
| Output — phenol (Chapter 29 primary) | 2907.11 | 1,650.0 | 18 percent | 297.0 |
| Output — acetone (Chapter 29 co-product) | 2914.11 | 1,050.0 | 18 percent | 189.0 |
| Output — cumene (Chapter 29 intermediate) | 2902.70 | 500.0 | 18 percent | 90.0 |
| Aggregate outward supply (Dahej GSTIN) | 4,050.0 | 729.0 | ||
| Input — benzene feedstock | 2902.20 | 1,320.0 | 18 percent | 237.6 |
| Input — propylene feedstock | 2901.22 | 640.0 | 18 percent | 115.2 |
| Input — catalyst and process chemicals | 3815, 2807 | 180.0 | 18 percent | 32.4 |
| Input — packaging (HDPE, cartons, drums) | 3923, 4819 | 95.0 | 18 percent | 17.1 |
| Input — utilities inputs (gases, chemicals) | mixed | 55.0 | 18 percent | 9.9 |
| Aggregate eligible-input ITC (Net ITC base) | 2,290.0 | 412.2 | ||
| Input service — freight, laboratory, engineering (EXCLUDED from Net ITC) | 65.0 | 18 percent | 11.7 | |
| Capital goods — reactor and column additions (EXCLUDED from Net ITC) | 22.0 | 18 percent | 3.96 |
The output side of the ledger runs at a weighted output rate of 18 percent — the same rate as the aggregate input side. In a pure single-chapter output world with no Notification 09/2022 exposure, this equal-rate structure would produce zero inversion and no accumulated ITC. But the complex’s real-world position is that specific input categories (utilities, some process chemicals, some services) tie up ITC beyond what the output GST liability discharges — producing an accumulated ITC balance of, illustratively, the order of Rs 250 to 300 crore per quarter that would ordinarily be eligible for Section 54(3) refund under the standing inverted-duty basis.
Applying the amended Rule 89(5) formula with the Notification 09/2022 exclusion mechanic: Turnover of inverted-rated supply (numerator) equals the Chapter 29 output only — Rs 1,650 + Rs 1,050 + Rs 500 = Rs 3,200 crore. Adjusted Total Turnover (denominator) equals the full portfolio — Rs 4,050 crore. Net ITC equals Rs 412.2 crore (excluding input services and capital goods per the Notification 14/2022 amendment). The first limb of the formula gives (3,200 × 412.2 / 4,050) = Rs 325.7 crore. Compare with a hypothetical no-Chapter-27-block position — first limb would give (4,050 × 412.2 / 4,050) = Rs 412.2 crore. The Chapter 27 dilution is Rs 412.2 − Rs 325.7 = Rs 86.5 crore for the quarter — the amount of Net ITC that permanently drops out of the refund pool because of the Chapter 27 turnover share.
At the operating scale of the persona — 21 percent Chapter 27 output share of total portfolio — the illustrative permanent working-capital cost lands in the Rs 40 to 60 crore per year range on the Chapter 27 portfolio, depending on the Net ITC composition, the Chapter 27 output mix (heavy aromatic solvent versus other Chapter 27 by-products), and the year-on-year output-share shift. The Rule 89(5) inverted-duty refund for Indian specialty chemicals walkthrough covers the formula mechanics in fuller detail, and the Pharma cornerstone on Rule 89(5) for Chapter 30 formulations demonstrates the identical formula on a Chapter 30 output base.
Common reconciliation breakages
Five recurring breakages surface at chemicals manufacturers running the Chapter 27 dilution mechanic through their monthly Rule 89(5) refund cycle. Each maps to a specific control failure that a deficiency memo in Form GST RFD-03 will surface or that a subsequent scrutiny finding will unwind.
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Chapter 27 output line missed at HSN classification. The most common structural failure is that a plant’s by-product Chapter 27 stream — heavy aromatic solvent under HSN 2707.50, aromatic distillation residue, bituminous mixture — is classified at invoice level under a Chapter 29 heading (typically 2902 or a mixed-hydrocarbon Chapter 29 heading) either because the operator uses a downstream-product classification convention or because the process chemistry legacy references the input rather than the actual output tariff heading. The Rule 89(5) workbook then treats the Chapter 27 volume as Chapter 29 output, includes it in the Turnover of inverted-rated supply numerator, and claims refund on it. The scrutiny finding, when it comes, is a full reversal of the claimed refund on the misclassified line plus interest under Section 50 and penalty exposure under Section 74 for wilful mis-declaration. Reconciliation discipline: the output HSN classification at invoice level must be validated at the source SAP or ERP configuration, cross-checked against the plant’s material master, and audited against the customs tariff sub-heading rules for aromatic hydrocarbon mixtures.
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Chapter 27 dilution not disclosed in Statement 1A. Statement 1A under Rule 89(2) is the invoice-level annexure to the Form GST RFD-01 refund application. A refund claim that presents Adjusted Total Turnover as an aggregate without disclosing the Chapter 27 dilution line separately invites a proper officer challenge on the correctness of the Adjusted Total Turnover figure — the officer sees the aggregate turnover in the GSTR-1 but cannot verify the Chapter 27 exclusion in the numerator without the split. Reconciliation discipline: Statement 1A carries the Chapter 27 output turnover as a distinct line item flagged as barred under Notification 09/2022, so the numerator and denominator interaction is transparent on the face of the application.
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Input GST attribution attempted at line level. Some plants attempt an input-side attribution — routing input GST on inputs specifically consumed by the Chapter 27 by-product stream out of the Net ITC pool on the theory that the Chapter 27 dilution is best countered by removing the Chapter 27 attributable ITC from the base. The theory is wrong. Rule 89(5) computes the dilution through the turnover ratio in the numerator, not through input-side attribution — Net ITC continues to draw from the entire input GST pool regardless of which output line consumed which input. An input-side carve-out under-states Net ITC in the numerator and produces a lower refund than the formula permits.
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Adjusted Total Turnover base includes exempt or zero-rated turnover incorrectly. The Adjusted Total Turnover base under Rule 89(4)(E) excludes exempt supplies (other than zero-rated) and excludes turnover of supplies for which refund is claimed under sub-rules (4A) or (4B). Chemicals plants with a mixed portfolio that includes zero-rated exports under Letter of Undertaking or DTA supplies to Special Economic Zone units must exclude that turnover from the Adjusted Total Turnover base only if the SEZ refund is claimed separately under a different sub-rule. Folding all outward supply into Adjusted Total Turnover without the correct exclusions distorts the Chapter 27 dilution ratio.
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Straddle-invoice cutover across the 18 July 2022 effective date not tracked for legacy claims. For legacy pre-cutover refund claims still pending disposal, the Section 54(1) two-year filing window and the pre-amendment Rule 89(5) formula apply. Plants that file post-cutover applications treating pre-cutover turnover under the post-cutover mechanic misapply the formula. Reconciliation discipline: maintain a distinct legacy-claims register for any pending pre-July-2022 Chapter 27 or Chapter 15 refund applications and process them on the pre-amendment basis.
How a reconciliation platform handles this
A purpose-built chemicals reconciliation platform ingests the plant’s GSTR-1 outward supply register, the GSTR-2B auto-populated ITC statement and the plant’s own SAP or ERP output-invoice register — and produces a per-tax-period Rule 89(5) refund workbook that decomposes output turnover by HSN chapter, flags the Chapter 27 line as barred under Notification 09/2022, applies the amended formula with the correct exclusion mechanic, generates the Statement 1A invoice-level annexure with the Chapter 27 dilution disclosed as a distinct line, and drafts the Form GST RFD-01 filing base for portal submission. The Chapter 27 output HSN classification is validated at invoice level against the customs tariff sub-heading rules so a mis-classified by-product line does not silently corrupt the refund claim. Match rate improvement of 51 to 88 percent on the plant-level GSTR-2B to accounting ITC reconciliation, combined with an ISO 27001:2022 posture and DPDP Act 2023 aligned data handling on AWS Mumbai, makes the platform an infrastructure investment for an integrated Indian chemicals complex running a mixed Chapter 27 and Chapter 29 output portfolio rather than a spreadsheet substitute.
Cross-cluster bridges and where to read next
The Chapter 27 refund block documented in this article sits inside the Chemicals Wave 1 series alongside two direct siblings that unpack adjacent mechanics. The Rule 89(5) inverted-duty refund for Indian specialty chemicals walkthrough covers the formula itself in fuller depth against a broader specialty-chemicals output base. The Chapter 15 oleochemical IDS refund bar for fine chemicals walkthrough covers the parallel Chapter 15 leg of the same Notification 09/2022 as it reaches the oleochemical fine-chemical downstream — palm-oleyl derivatives, glyceride esters, wax esters. The petrochemical refinery downstream Chapter 27 reconciliation India walkthrough covers the larger-scale refinery and polymer-complex Chapter 27 exposure that dwarfs the specialty chemicals case but runs on the identical mechanic.
The Notification 09/2022 mechanic is common across clusters. On the Agro side, the edible oil Chapter 15 inverted-duty refund blocked under Notification 09/2022 walkthrough covers the sister Chapter 15 block on large-scale integrated edible oil refiners. On the Pharma side, the Notification 09/2022 Chapter 27 solvents blocked refund walkthrough for pharma covers the Chapter 27 leg as it touches API and formulation solvent inputs — a mechanic that differs from the chemicals case (pharma output is Chapter 30, so the Chapter 27 exposure is input-side, whereas chemicals output includes Chapter 27 directly), but reads on the same Notification. The Pharma cornerstone Rule 89(5) walkthrough for Chapter 30 formulations is the reference for the underlying formula on an inversion-heavy output base.
The methodology framework for building the per-tax-period refund workbook — mapping every output HSN chapter to a distinct reconciliation surface, holding both the base-case and the barred-line dilution computations, and building the deficiency-memo response cycle into the standing monthly close — sits in Terra Insight’s reconciliation failure mode analysis pillar and the reconciliation playbook for monthly close operations pillar. The commercial pillar for the chemicals sub-cluster is Chemical reconciliation software India; the broader authority for the platform is reconciliation software India with the specialised GST reconciliation software surface for the Section 54(3) refund workflow.
The five FAQs below address the operational questions Indian chemicals indirect-tax leads and complex controllers ask most often when running the Chapter 27 refund block through a monthly Rule 89(5) cycle.
Content authored by practitioners with experience at Amazon India, Intuit QuickBooks, and the Tata Group. Meet the team →
- ▸ Section 54(3), Central Goods and Services Tax Act 2017 — Refund of unutilised input tax credit. A registered person may claim refund of unutilised ITC at the end of any tax period where the credit has accumulated on account of the rate of tax on inputs being higher than the rate of tax on output supplies — the inverted duty structure. The first proviso empowers the government to notify supplies against which refund of unutilised ITC shall not be allowed; clause (ii) is the specific gateway used by Notification 09/2022-Central Tax (Rate). The Supreme Court in Union of India v. VKC Footsteps India Pvt Ltd (2021) 10 SCC 674 upheld the statutory scheme and confirmed that the refund is confined to unutilised credit on inputs — input services and capital goods stand excluded.
- ▸ Notification 09/2022-Central Tax (Rate) dated 13 July 2022, effective 18 July 2022 — In exercise of the powers under clause (ii) of the first proviso to sub-section (3) of Section 54, the government has notified goods falling under HSN Chapter 15 (animal or vegetable fats and oils; prepared edible fats; waxes) and HSN Chapter 27 (mineral fuels, mineral oils and products of their distillation; bituminous substances; mineral waxes) in respect of which no refund of unutilised input tax credit shall be allowed under Section 54(3). Chapter 27 covers HSN headings 2707 (aromatic and coal-tar oils), 2710 (petroleum oils and distillates), 2711 (petroleum gases and LPG), 2713 (petroleum coke and bitumen residues), 2714 (bitumen and asphalt) and 2715 (bituminous mixtures) — the chapter that carries the aromatic hydrocarbon mixture by-product streams of an integrated phenol-acetone complex and the heavy solvent by-product streams of a benzene-derivatives value chain.
- ▸ Rule 89(5), Central Goods and Services Tax Rules 2017, as amended by Notification 14/2022-Central Tax dated 5 July 2022 — Refund formula for inverted duty structure. Maximum Refund Amount = (Turnover of inverted-rated supply of goods and services × Net ITC / Adjusted Total Turnover) minus (Tax payable on such inverted-rated supply × Net ITC / ITC availed on inputs and input services). Turnover of inverted-rated supply in the numerator excludes any output turnover for which Section 54(3) refund is barred under a Notification issued under clause (ii) of the first proviso — the Chapter 27 output line for a chemicals manufacturer therefore drops out of the numerator. Adjusted Total Turnover in the denominator continues to include the barred-output line because it remains a taxable outward supply under Section 2(112) CGST — the barred output therefore dilutes the refund ratio. Net ITC excludes input services and capital goods.
- ▸ HSN Chapter 27 Customs Tariff and CGST rate notifications — Chapter 27 of the First Schedule to the Customs Tariff Act 1975 covers mineral fuels, mineral oils and products of their distillation; bituminous substances; mineral waxes. Heading 2707 covers oils and other products of the distillation of high-temperature coal tar and similar products in which the weight of the aromatic constituents exceeds that of the non-aromatic constituents — subheading 2707.50 specifically covers other aromatic hydrocarbon mixtures of which 65 percent or more by volume distils at 250 degrees Celsius by the ASTM D 86 method. Heading 2710 covers petroleum oils and oils obtained from bituminous minerals, other than crude, and preparations containing such oils. Heading 2713 covers petroleum coke, petroleum bitumen and other residues of petroleum oils. The standing CGST rate on Chapter 27 industrial-solvent and heavy-aromatic categories sits at 18 percent, while transportation and refining fuels sit under a mixed rate schedule with excise-plus-VAT overlay outside the GST cover.
- ▸ Section 2(112), Central Goods and Services Tax Act 2017 (turnover in State) — Turnover in State means the aggregate value of all taxable supplies (excluding the value of inward supplies on which tax is payable under reverse charge) and exempt supplies made within a State by a taxable person, exports of goods or services or both and inter-State supplies of goods or services or both made from the State by the said taxable person but excludes central tax, State tax, Union territory tax, integrated tax and cess. The Chapter 27 output turnover of a chemicals manufacturer remains a taxable supply within this definition and therefore feeds the Adjusted Total Turnover denominator of the Rule 89(5) formula — even though the same turnover is excluded from the Turnover of inverted-rated supply numerator by the operation of Notification 09/2022 read with the amended Rule 89(5).