REFUND UNDER CGST/SGST- A VIEW THEREOF
By Rajesh K. Arora,
Former Superintendent GST, C.Ex. & Customs
Refund provisions under GST Act are enacted vide Section 54 of the Central Goods & Service Tax Act, 2017. Further provisions have made that no refund shall be paid to an applicant, if the amount is less than one thousand rupees.
2. Refund of any Tax, interest, penalty, fees or any other amount
2.1 Section 54(1) of the Act, prescribes that any person claiming refund of any tax and interest, if any, paid on such tax or any other amount paid by him, may make an application before the expiry of two years from the relevant date in such form and manner as may be prescribed.
Thus, this section prescribes that any person can claim refund of tax and interest, by making an application within two years from the relevant date. The form and manner of such application has been prescribed under Rule 89 of the CGST Rules, 2017.
2.2 Rule 89 (1) provides that Any person, except the persons covered under notification issued under section 55, claiming refund of any tax, interest, penalty, fees or any other amount paid by him, other than refund of integrated tax paid on goods exported out of India, may file an application electronically in FORM GST RFD-01 through the common portal, either directly or through a Facilitation Centre notified by the Commissioner.
Thus, any person can claim refund of tax, interest, penalty, fees or any other amount paid by that person, other than the refund of integrated tax, by electronically filing an application in Form GST RFD 01 through the common portal.
2.3 Relevant date under Section 54 has been defined as-
(a) to (c) pertains to export of goods/services;
(d) in case where the tax becomes refundable as a consequence of judgment, decree, order or direction of the Appellate Authority, Appellate Tribunal or any court, the date of communication of such judgment, decree, order or direction;
(e) in the case of refund of unutilised input tax credit under clause (ii) of the first proviso to sub-section (3), the due date for furnishing of return under section 39 for the period in which such claim for refund arises;
(f) in the case where tax is paid provisionally under this Act or the rules made thereunder, the date of adjustment of tax after the final assessment thereof;
(g) in the case of a person, other than the supplier, the date of receipt of goods or services or both by such person; and
(h) in any other case, the date of payment of tax.
2.4 Circular No.135/5/2020-GST dated 31st March, 2020 clarified any refund of tax paid on supplies other than zero rated supplies will now be admissible proportionately in the respective original mode of payment, that has been paid by debiting both electronic cash and credit ledgers.
3. Refund of unutilized Input Tax Credit
3.1 Every registered person under the provisions of Section 16 of the CGST Act, is entitled to take/avail the input tax charged on any inward supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person.
There are certain conditions which registered person is required to comply with before making claim of any input tax credit, which are as under:
(a) That, registered person is in possession of tax invoice or debit note issued by a supplier registered under this act or such other taxpaying documents as may be prescribed;
(b) That, registered person has received the goods or services or both;
(c) That, tax charged in respect of such supply has been actually paid to the government, either in cash or through utilization of input tax credit admissible in respect of said supply; and
(d) That, person has furnished return under section 39 of the Act, ibid.
Further, in addition to the aforementioned conditions, the registered person has also to ensure that input tax charged on any goods or services or both is not prescribed under the blocked/negative list of input tax credit as detailed under Section 17(5) of the Act.
3.2 Any registered person availing Input Tax Credit by observing the conditions of Section 16 and 17, and utilizing the same for payment of GST on outward supply of goods and services, as the case may be. Then after utilization of ITC, if there is any unutilized Input Tax Credit in the credit ledger, then registered person can take refund of such unutilized Input Tax Credit.
3.3 Provisions for refund of unutilized Input Tax Credit have been explained and prescribed under sub-section 3 of the Section 54 of the CGST Act, which prescribes that subject to the provisions of sub-section (10), a registered person may claim refund of any unutilised input tax credit at the end of any tax period. Further, this sub-section provides that a registered person can claim refund of unutilised input tax credit only in following two situations:
(i). Zero Rated Supplies (i.e. Export of Goods or Services) made without payment of tax;
(ii). where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies (other than nil rated or fully exempt supplies), except supplies of goods or services or both as may be notified by the Government.
Further as per 1st proviso to this section, no refund of unutilised input tax credit shall be allowed in cases where the goods exported out of India are subjected to export duty.
As per 2nd proviso to this section, no refund of input tax credit shall be allowed, if the supplier of goods or services or both avails of drawback in respect of central tax or claims refund of the integrated tax paid on such supplies.
3.4 As per sub-section 10, where any refund is due under sub-section 3 to a registered person who has defaulted in furnishing any return or who is required to pay any tax, interest or penalty, which has not been stayed by any court, Tribunal or Appellate Authority by the specified date, the proper officer may-
(a) withhold payment of refund due until the said person has furnished the return or paid the tax, interest or penalty, as the case may be;
(b) deduct from the refund due, any tax, interest, penalty, fee or any other amount which the taxable person is liable to pay but which remains unpaid under this Act or under the existing law.
Explanation.––For the purposes of this sub-section, the expression “specified date” shall mean the last date for filing an appeal under this Act.
3.5 Whenever, the input and output supplies are same i.e the persons engaged in only trading of same goods, then the refund of unutilized ITC on account of inverted duty structure, would not be admissible. Circular No.135/5/2020-GST dated 31st March, 2020 clarified that refund of accumulated ITC under clause (ii) of sub-section (3) of section 54 of the CGST Act would not be applicable in cases where the input and the output supplies are the same.
3.6 Circular No.135/5/2020-GST dated 31st March, 2020 further clarified that the refund of accumulated ITC shall be restricted to the ITC as per those invoices, the details of which are uploaded by the supplier in FORM GSTR-1 and are reflected in the FORM GSTR-2A of the applicant.
3.7 Sub- Rule 5 of Rule 89 provides the formula for refund of input tax credit on account of inverted duty structure. The formula is as under:-
Maximum Refund Amount = {(Turnover of inverted rated supply of goods and services) x Net ITC ÷ Adjusted Total Turnover} - tax payable on such inverted rated supply of goods and services.
Net ITC shall mean input tax credit availed on only inputs during the relevant period and not input tax credit availed on capital goods and input services.
3.8 Circular No. 135/5/2020-GST dated 31st March, 2020 amended the Annexure B by incorporating the column for mentioning HSN/SAC code of the inward invoices, for making a distinction relating to refund where refund of credit on Capital goods and/or services is not permissible in certain cases.
3.9 The Hon’ble High Court of Gujarat in the landmark decision in respect of M/s VKC Footsteps India Pvt. Ltd. V/s UOI [2020] 26 TAXLOK.COM 060 (Gujarat), while allowing the petitions, has held that Explanation (a) to Rule 89(5) which denied the refund of “unutilised 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 Act. The Net ITC should mean “input tax credit” availed on “inputs” and “input services” as defined under the Act.
3.10 The Hon’ble Madras High Court in the another landmark judgment in respect of the M/s TVL Transtonnelstroy Afcons Joint Venture v/s UOI [2020] 28 TAXLOK.COM 054 (Madras), while dismissing all the petitions challenging the constitutional validity of Section 54(3)(ii), constitutional validity of Rule 89(5), has held that the word “inputs” encompasses all input goods, other than capital goods, and excludes input services. Refund is a statutory right and the extension of the benefit of refund only to the unutilised credit that accumulates on account of the rate of tax on input goods being higher than the rate of tax on output supplies by excluding unutilised input tax credit that accumulated on account of input services is a valid classification and a valid exercise of legislative power.
Thus, refund of unutilized Input Tax credit accumulated on account of credit of input services is still to attain the legal finality, as different forums of Hon’ble High Court have held divergent decisions. But in the present scenario, refund of unutilized ITC accumulated on account of credit of inputs is only admissible to all the assesses except those who have been in the litigation.
4. Refund of advance Tax deposited by a casual tax payer or a non-resident taxable person
4.1 Refund of the amount of advance tax, if any, deposited by a casual taxable person or a non-resident taxable person under sub-section (2) of section 27, shall only not be refunded unless such person has, in respect of the entire period for which the certificate of registration granted to him had remained in force, furnished all the returns required under section 39 as per sub section 13 of the section 54.
5. Application for refund
5.1 The Section 54(4) of the Act prescribes documents to be submitted alongwith application for refund i.e. RFD 01. It states that the application shall be accompanied by:
(a) such documentary evidence as may be prescribed to establish that a refund is due to the applicant; and
(b) such documentary or other evidence as the applicant may furnish to establish that the amount of tax and interest, if any, paid on such tax or any other amount paid in relation to which such refund is claimed was collected from, or paid by, him and the incidence of such tax and interest had not been passed on to any other person:
Provided that where the amount claimed as refund is less than two lakh rupees, it shall not be necessary for the applicant to furnish any documentary and other evidences but he may file a declaration, based on the documentary or other evidences available with him, certifying that the incidence of such tax and interest had not been passed on to any other person.
In terms of section 54(5), if on receipt of any such application, the proper officer is satisfied that the whole or part of the amount claimed as refund is refundable, he may make an order accordingly. As per sub section (7), the proper officer shall issue the order under sub-section (5) within sixty days from the date of receipt of application complete in all respects.
5.2 Refund claims for various periods can be bunched together. In this regard, Circular No.135/5/2020-GST dated 31st March, 2020 clarified that there is no bar in claiming refund claims by clubbing different months across successive Financial Years. This circular has modified and removed the restriction on clubbing of tax periods across Financial Years, which was present in circular No.125/44/2019-GST dated 18.11.2019.
6. Interest on payment of refund which are withhold
6.1 Where any refund order is the subject matter of an appeal or further proceedings or where any other proceedings under this Act is pending and the Commissioner GST is of the opinion that grant of such refund is likely to adversely affect the revenue in the said appeal or other proceedings, he may, after giving an opportunity of being heard, withheld the refund till such time as he may determine, under sub section 11 of section 54 of the Act.
And where a refund is withheld under sub-section (11), the taxable person shall, be entitled to interest at such rate not exceeding six per cent. as may be notified, if as a result of the appeal or further proceedings he becomes entitled to refund.
7. Interest on delayed refunds
7.1 Whenever any tax ordered to be refunded under sub-section (5) of section 54 to any applicant is not refunded within sixty days from the date of receipt of application under sub-section (1) of that section, Section 56 of the Act prescribes interest at such rate not exceeding six per cent. shall be payable in respect of such refund from the date immediately after the expiry of sixty days from the date of receipt of application under the said sub-section till the date of refund of such tax.
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