The Inverted Duty Refund Changes Are Now in Force. What 1 November Changed for a Fabric Buyer

From recommendation to rule

When the 57th GST Council met on 8 October 2026 it recommended widening the inverted duty refund, and we wrote that up at the time with a clear caveat: nothing changed on a mill's books until the law and the rules were amended. Two notifications dated 26 October 2026 did that for the November leg, as reported by tax advisory publications including TaxGuru and EY.

Notification No. 03/2026 Central Tax brings section 155 of the Finance Act, 2026 into force from 1 November 2026. That section amends section 54 of the CGST Act so that the 90 percent provisional refund, previously available for zero-rated (export) claims, also covers refunds of credit accumulated under an inverted duty structure. Notification No. 05/2026 Central Tax, the CGST (Amendment) Rules, 2026, rewrites the refund formula in rule 89 so that credit on eligible input services availed on or after 1 November 2026 counts in the refund, and removes the rule that capped refundable export turnover at 1.5 times the value of like goods sold at home.

We have not read the notifications in the original, because the CBIC tax portal does not load to our tools, so the numbers and dates above are as reported by the tax press. They match the dates the government itself set out after the Council meeting, in its press release on the process reforms.

What is in force now, and what is not

• In force from 1 November 2026: credit on eligible input services counts toward an inverted duty refund, for credit availed on or after that date. Credit built up before 1 November does not become refundable.
• In force from 1 November 2026: 90 percent of an inverted duty refund claim can be sanctioned provisionally. The government has said the automated, risk-based sanction is to roll out in phases after that date and will cover new claims, not claims already pending.
• In force from 1 November 2026: the 1.5 times cap on refundable export turnover is removed.
• Not yet: refund of credit on capital goods, such as looms and processing machinery, applies to credit availed on or after 1 April 2027 and is spread over 60 months.
• Unchanged: the GST rate on woven fabric, which stays at 5 percent, as do man-made fiber and yarn.

Why a mill's cash cycle is the right place to look

The 2025 rate reform put fiber, yarn and fabric on one 5 percent rate, which ended most of the inversion on goods. What it left behind was credit on services a mill buys at 18 percent, from insurance and freight forwarding to job work charges and professional services. A business selling cloth at 5 percent can struggle to use that credit, and until 1 November there was no refund route for it. Now new credit of that kind can come back as cash, and most of it can come back faster.

That matters most where the inversion is largest, which is one step upstream of us. The polyester feedstocks, PTA and MEG, still carry 18 percent while fiber is at 5, and capital-heavy fiber and yarn plants buy a lot of services. Money those plants no longer have tied up in their credit ledger is money they do not have to finance, and financing cost is part of every price in the chain.

What a fabric buyer should and should not read into it

• Your invoice does not change. The GST line on fabric is 5 percent before and after 1 November.
• This is not a price cut and should not be negotiated as one. It eases working capital slowly, across the chain, and only on credit availed from now on. Fiber prices will keep following crude, pulp and currency far more than they follow refund rules; with Brent futures still above 100 dollars a barrel, as we set out in our post on crude back above 110, the input side is not pointing down.
• Where it helps is reliability. A mill with less cash locked in refunds is better placed to buy yarn on time for a large order, which is worth more to a uniform programme than a fraction off the rate.
• For export buyers, faster provisional refunds and the end of the 1.5 times cap shorten an Indian exporter's cash cycle. It is one of the domestic frictions that explain why a weaker rupee did not make Indian cloth cheaper, and it is moving in the right direction.

What we are still watching

Two things. First, how quickly the automated provisional sanction actually reaches inverted duty claims, since the government has described it as phased. Second, the capital goods leg on 1 April 2027, which is the part that changes the economics of buying new looms and processing machinery. We will update this post when either moves.

As always, there are no fabric prices here. Our cloth is quoted per order against construction, shade, quantity and finish, and our guide to HSN codes and GST on uniform fabric covers the classification side of a purchase order.