A two-judge bench of the Gujarat High Court has categorically held that the Explanation (a) to Rule 89(5) of the CGST Rules which denies the refund of “unutilized input tax” paid on “input services” as part of “input tax credit” accumulated on account of inverted duty structure is ultra vires the provision of Section 54(3) of the CGST Act, 2017.The bench further noted that the net Input Tax Credit (ITC) formula used for GST refund under the inverted tax structure can cover input services as well.The Petitioner, VKC Footwear India Pvt. Ltd. is engaged in the business of manufacture and supply of footwear which attracts GSTat the rate of 5%. The Petitioner procures input services such as job work service, goods transport agency service, etc. and inputs such as synthetic leather, PU Polyol, etc., on payment of applicable GST for use in the course of business and avails input tax credit of the GST paid thereon. The majority of the inputs and input services attract GST at the rate of 12% or 18%. The GST rate paid by the Petitioner on procurement of input is higher than the rate of tax payable on their outward supply of footwear. Therefore, in spite of the utilization of credit for payment of GST on outward supply, there is an accumulation of unutilized credit in the electronic credit ledger of the Petitioners.