India's footwear industry and GST on footwear in India has been growing steadily driven due to urbanisation, e-commerce expansion, and changing lifestyle preferences. Both domestic and international market is expanding significantly with strong CAGR expectations as demand rises across categories.
Despite growth, many manufacturers especially MSMEs— ace persistent working-capital issues due to many reasons. One of the major reasons for this is GST blockage due to inverted duty structure on GST on footwear manufacturing and exports without payment of tax.
If you are a footwear manufacturer in India, this will help you understand:
- Importance of GST refund
- When GST refund is applicable
- How to claim a refund
- Common mistakes to avoid
- How to speed up approval
Why is GST Refund important for Footwear manufacturers?
GST refund is not just a compliance matter for footwear manufacturers, it helps them to regulate their working capital, increase liquidity and expansion capabilities.
Under GST, footwear industry commonly faces mismatched tax rate on their input and output. The current footwear GST rate on finished goods is 5% whereas inputs attract 18% this mismatch causes continuous accumulation of unutilised ITC. It leads to working capital blockage, which further blocks cash flows and limits funds available for purchasing raw materials or meeting operating expenses.
So, proper planning and compliance is necessary for faster GST Refunds.
Types of GST Refund Available
Under Section 54 of the CGST Act, a registered taxpayer can claim a GST refund in specific situations.
- Refund of accumulated ITC (Inverted Duty Structure)
- Refund on zero-rated supplies (Exports)
- Refund of excess balance in electronic cash ledger
- Refund of tax paid on deemed exports
- Refund of wrong tax payment (CGST/SGST instead of IGST)
GST on Footwear in India – Current Rates (2025)
| Footwear Type |
GST Rate |
| Footwear below ₹2,500 MRP |
5% |
| Footwear above ₹2,500 MRP |
18% |
| Inputs soles, adhesives, chemicals (new GST rates on footwear inputs) |
18% |
This difference in new GST rates on footwear inputs vs output is exactly what creates the refund opportunity for manufacturers.
When GST Refund is applicable?
For footwear manufacturers, following cases are applicable in general:
1. Inverted Duty Structure
When the raw material is purchased at a tax rate higher than that of finished good, it is known as Inverted Duty Structure under GST. For example, footwear GST rate on finished goods is 5% while inputs are taxed at 18% this difference results in accumulation of unutilised ITC.
Refund can be claimed on account of inverted duty structure under section 54 of CGST Act.
2. Export of Footwear
Exports are treated as zero rated supply under GST and it can be of two ways:
- Export with payment of tax (refund of IGST paid), or
- Export under LUT without payment of tax (refund of accumulated ITC)
Documentation Required
The following should be ensured before filing of GST Refund:
- GSTR-1 & GSTR-3B reconciliation
- ITC reconciliation with GSTR-2A, 2B
- Export invoices (in case of exports)
- Shipping bills (in case of exports)
- LUT copy (if exporting without tax)
- CA certification (if refund exceeds threshold)
- Bank account validation
Any mismatch between GSTR-1, GSTR-3B, and shipping bill data may result in deficiency memo.
Time Limit for Filing Refund
Refund must be filed within 2 years from the relevant date:
- Due date of payment of tax, or
- Date of export in shipping bill
…depending upon the type of refund.
Common Reasons for Refund Delays/Rejection
In most of the cases, refund delays/rejections happen due to data mismatch, calculation errors and poor reconciliation, not ineligibility.
- Lapse of Time Limit: Filing refund claim after the prescribed time limit leads to rejection.
- ITC mismatch in GSTR: ITC claimed in GSTR-3B should be equal to ITC reflecting in GSTR-2B, if it is higher, then it can lead to delay in processing.
- Non-reconciliation of GSTRs: A small mismatch between GSTR-1 and 3B can hold the refund claim.
- Incorrect turnover calculation: If inverted or adjusted total turnover is wrongly calculated, it can trigger scrutiny.
- Ineligible ITC included: Inclusion of ineligible ITC like personal expenses, blocked credit under section 17(5), motor vehicles can lead to rejection.
- Errors in shipping bill data: Mismatch in shipping bills, invoice values, or LUT Compliance can trigger deficiency memos.
- Inverted duty structure miscalculation: Miscalculation of refund by prescribed formula leads to refund hold.
For footwear manufacturers, these points are critical to avoid any delay or rejection.
GetMyCA: Your complete GST refund partner
Why Footwear Manufacturers Should Avoid DIY Refund Filing
Footwear manufacturing industry is a high scrutiny sector under GST due to the inverted duty structure. Filing refund without proper planning and understanding can lead to Departmental queries and scrutiny, ultimately delaying the refund process.
Some reasons why DIY Refund Filing is risky:
- High Scrutiny Industry: Footwear units frequently claim inverted duty refunds, which are closely examined by GST officers. Even minor calculation errors under Rule 89(5) can trigger notices.
- Large ITC Accumulation: Manufacturers purchase soles, chemicals & adhesive, packaging material which is mostly taxed at 18% leading to heavy ITC buildup.
- Risk of Deficiency Memo (RFD-03): Wrong HSN, mismatch in returns, ineligible ITC can end up in issue of RFD-03.
- Impact on Cash Flow: Businesses struggle to maintain healthy cash flow when their ITC gets blocked. This affects vendor payments, employee salaries.
Why GetMyCA for GST Refund?
GetMyCA specializes in:
- Refund Identification: We thoroughly check your GST returns, ledgers, and data to find every eligible refund you might have overlooked.
- Precise Calculation: Accurate computation of refund amounts is done using advanced reconciliation tools and expert verification to maximize your claim.
- End-to-End Filing: Complete handling of RFD-01 forms, online submissions, and follow-up until refund is credited to your account.
- Documentation Excellence: Detailed preparation of all required documents, annexures, and supporting evidence to ensure smooth approval.
- Handling Departmental Queries: Proper response to Departmental queries and clarifications must be handled correctly.
Refund of Stuck Balance in Electronic Credit Ledger
In footwear manufacturing industries, heavy investments are done in capital goods like EVA Moulding machines, Injection moulding machines, conveyor systems, etc. and various services are also taken for running the business. The ITC on these goods and services is not generally allowed under inverted duty structure and results in high accumulation in Electronic Credit Ledger but we help in strategic structuring which can improve ITC utilization.
We analyse capital goods ITC position and provide strategies, do proper ITC planning and set-off structuring which helps in converting it into tax efficiency. From verifying credit ledger balances to preparing refund applications with proper classification of capital goods and services, we ensure full compliance and faster processing.
How to Claim GST Refund for Footwear Manufacturers – Detailed Procedure
Step 1: Initial Review
GST refund filing depends on the correct filing of GST returns, for example, identifying ineligible GST input, reconciliation with GST input reflected in GSTR-2B, etc. We review and suggest corrections in GST return filings and identify all available GST refund opportunities.
Step 2: Claim Preparation
After filing of GSTR-3B, the GST refund procedure starts. It mainly involves:
- Preparation of purchase and sales registers in the prescribed format
- Proper classification of all inward supplies into Input Goods, Input Services, and Capital Goods
- Proper classification of HSN codes for all inward and outward supplies
- Reconciliation of GST input and GST output as per books with the figures reported in GST returns and appropriate treatment in case of mismatches
- Reconciliation of purchase register with GSTR-2B
- Calculation of GST refund amount based on the above details and reconciliations
- Verification of the calculated GST refund amount through our automated macro files to avoid any loss due to clerical errors
- Preparation of statements, declarations, and certificates in prescribed formats
Step 3: Filing & Follow-up
- Uploading all prepared files and necessary supporting documents on the GST portal to file the GST refund claim with the department
- Filing of the refund claim on the GST portal and coordination to respond to any queries raised by the department
- Regular follow-up to ensure that the refund amount does not get delayed
Step 4: Credit Confirmation
Refund status tracking is done until it gets credited in the bank account.
FAQs
Q: Can footwear manufacturers claim GST refund under inverted duty structure?
Under Section 54 of the CGST Act, footwear manufacturers can claim refund of accumulated ITC when GST rate on inputs (usually 18%) is higher than the GST rate on output (generally 18% or 5%). This refund is allowed subject to conditions prescribed under Rule 89.
Q: How long does GST refund take for processing for footwear manufacturers?
According to section 54(7) of CGST Act, refund should be processed within 60 days from the date of filing the complete application. For exporters, 90% provisional refund may be granted earlier, subject to document verification and compliance. In practice, GetMyCA clients receive refunds within 3-4 weeks for straightforward claims.
Q: What documents are required for filing of GST refund for footwear exporters?
- GSTR-1 and GSTR-3B Recon.
- GSTR-2B and GSTR-3B Recon.
- ITC statement
- Shipping Bills and Export Invoices
- Self-Declaration
- CA Certificate (if threshold exceeds)
Q: What is the formula for calculating inverted duty GST refund?
As per Rule 89(5), the maximum refund amount is calculated as:
(Turnover of inverted rated supply × Net ITC ÷ Adjusted Total Turnover) – Tax payable on such inverted supply
Proper calculation is essential because even minor errors can lead to refund rejection.
Q: Can footwear manufacturers having turnover below ₹1.5 crore claim GST refund?
Yes. Eligible registered manufacturers can claim GST refund irrespective of turnover, provided they are not under the Composition Scheme, meet conditions under Section 54, and have accumulated eligible ITC. Turnover threshold does not restrict refund eligibility.
Q: Can footwear exporters claim GST refund if exporting under LUT?
Under Section 54 of the CGST Act, footwear manufacturers can claim refund of accumulated ITC when GST rate on inputs (usually 18%) is higher than the GST rate on output (generally 5%). This refund is allowed subject to conditions prescribed under Rule 89
Q: What are the common reasons to avoid for GST refund rejection in footwear industry?
Refund applications are often rejected due to:
- HSN Mismatch
- Mismatch between GSTR-1 and GSTR-3B
- Claiming ineligible ITC under Section 17(5)
- ICEGATE and Shipping Bill error
- ITC mismatch between GSTR-2B & GSTR-3B
Q: Do I need a CA certificate for all GST refund claims?
CA certificate is mandatory for refund claims above Rs. 2 Lakhs. For claims below this amount, a self declaration by the taxpayer is sufficient.
Q: What happens if my GST refund claim is rejected?
A refund rejection does not mean the amount is lost permanently. Most of the rejections occur due to missing or incorrect documents, which can be corrected and resubmitted.
Q: What is the current footwear GST rate in India?
As per new GST rates on footwear, shoes and footwear below ₹2,500 MRP are taxed at 5% and above ₹2,500 MRP at 18%. Key inputs like soles, adhesives and chemicals attract 18% GST this is what creates the inverted duty refund opportunity for manufacturers.
Q: What is GST on shoes above ₹2,500 in India?
GST on shoes above ₹2,500 MRP is 18%. Since inputs are also taxed at 18%, no rate gap exists and IDS refund is not applicable for this category. IDS refund is only available for footwear below ₹2,500 MRP, where output is 5% against 18% input tax.
About the Author
Paras Nagpal
Indirect Tax Specialist, GetMyCA
Email: [email protected] | Phone: +91 87500 70012
Disclaimer: This article is for informational purposes only and does not constitute legal or financial advice. GST laws and rules are subject to amendments.
About GetMyCA
GetMyCA Consultants Private Limited is a trusted business consultant based in New Delhi, serving clients across India since 2015. GetMyCA is helping entrepreneurs with hassle-free GST refund claims since 2018. Our team of qualified Chartered Accountants has successfully recovered stuck credits for businesses across pharma, footwear, corrugated box manufacturing, and e-commerce sectors.
Our Services: GST Registration & Compliance, Company Registration, Tax Consulting, Accounting Services, Business Compliance, FSSAI Licensing, MSME Registration, and specialized GST Refund Solutions.
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