Finance Minister Nirmala Sitharaman has stated that GST rate rationalisation has effectively corrected the long-standing inverted duty structure faced by several industries, while also assuring that any remaining concerns flagged by industry stakeholders will be addressed in a systematic manner. Speaking in the Rajya Sabha, the Finance Minister highlighted that the recent restructuring of GST rates has brought greater balance to the tax framework and reduced structural inefficiencies that were impacting business cash flows and compliance.
FM’s Statement in Rajya Sabha on GST Reforms
Responding during the discussion on the Manipur Goods and Services Tax (Second Amendment) Bill, 2025, the Finance Minister explained that the GST overhaul has ensured either a zero rate or the lowest 5 percent GST rate on all essential goods. She emphasized that sectors eligible for input tax credit continue to receive ITC benefits, which helps maintain tax neutrality and supports industrial growth. According to her statement, GST rate rationalisation was undertaken after detailed analysis to correct anomalies that had earlier resulted in higher tax incidence on inputs than on finished goods.
GST Council Decisions and Legislative Background
The Manipur GST (Second Amendment) Bill, 2025, was introduced to give effect to the decisions taken during the 56th GST Council meeting. Since Manipur was under President’s Rule at the time, an Ordinance was issued on October 7 to implement the proposed amendments. After the Finance Minister’s reply to the debate, the Rajya Sabha passed the Bill and returned it to the Lok Sabha through a voice vote, completing a key step in aligning state GST laws with the latest Council decisions.
During the discussion, the Finance Minister also criticised the Opposition for staging a walkout instead of participating in the debate, stating that legislative discussions are essential for addressing economic and administrative issues related to GST implementation.
Understanding the Inverted Duty Structure Under GST
An inverted duty structure under GST arises when the tax rate on inputs such as raw materials or input services is higher than the tax rate on the finished product. In such cases, businesses accumulate excess input tax credit, which cannot always be fully utilised against output tax liability. This situation increases the effective tax burden on businesses and can ultimately lead to higher prices for consumers.
Impact of Inverted Duty Structure on Businesses
Excess input tax credit due to an inverted duty structure can significantly affect a company’s cash flow and working capital cycle. When funds remain blocked in the form of unutilised ITC, businesses may face liquidity constraints, especially in manufacturing and processing sectors with thin margins. To address these challenges, refund mechanisms were available even before the introduction of GST, and similar refund provisions continue under the current GST framework to mitigate the financial strain caused by inverted tax structures.
Way Forward After GST Rate Rationalisation
With GST rate rationalisation correcting most inverted duty issues, the government aims to create a more stable and predictable tax environment. The Finance Minister’s assurance that remaining cases will be examined indicates continued engagement between policymakers and industry representatives. As GST evolves, such targeted corrections are expected to strengthen compliance, improve ease of doing business, and ensure that tax policy supports both revenue objectives and economic growth.