Refunds under indirect tax laws may arise due to many reasons, be it excess tax deposited by mistake, export of goods or services, refund under any decree of court, some wrong calculations done by the dealer or otherwise. At present all the registered dealers under existing tax structure find it very hard while claiming refund from the various departments of indirect taxes in India, particularly service tax department. Though in an attempt to provide timely refunds to a registered person, provisions of provisional refunds have been made under GST, however we are not sure whether this idea of provisional refund will really work or will it be like an old wine in a new bottle?.  In this article we will discuss all about refunds under the proposed GST regime.

 Under the proposed GST regime, some of the reasons which may result in refund of tax are:

  1. A specialised agency of the United Nations Organisation or any Multilateral Financial Institution and Organisation notified under the United Nations (Privileges and Immunities) Act, 1947, Consulate or Embassy of foreign countries or any other person or class of persons, as notified by the government may claim the Refund of Input tax paid by them on inward supplies availed by them.
  2. A dealer making zero rated supplies may claim refund of input tax paid by him on his inward supplies.
  3. In case, a registered person making supplies chargeable at lower rate of tax while his inputs being charged at higher rate of tax, may also claim refund of such excess ITC paid by him.
  4. In case tax is deposited under protest, and thereafter decision or some decree of court comes in favour of the registered person, based on such order a registered person may also claim refund of tax.
  5. In case of mistake on part of a registered dealer, regarding taxability of a particular supply as inter-state supply or intra-state supply as a consequence of which tax been deposited under a wrong head, such registered person shall first deposit the tax due under right head & thereafter may make an application for refund of tax deposited under the wrong head.
  6. In case of mistake on part of a registered dealer, while determining nature of a particular supply as supply of goods or supply of services, as a consequence of which tax calculation goes wrong and some excess tax been deposited by him, such registered person may also file application for claim of refund of excess tax deposited.

Separate conditions and provisions have been prescribed under the GST regime, for availing refund of tax claimed under different circumstances. Before we discuss these provisions and procedures in detail, we must first understand the meaning and difference between few terms used in this article, particularly terms like taxable supply, zero rated supply/ nil rated supply & fully exempt supply.

CGST Act governs the central tax to be levied on intra-state transactions, while IGST Act governs the central tax to be levied on inter-state transactions. Both the Acts when read together provides clarity on the terms of taxable, exempt, nil rated supplies & zero rated supplies.

As per section 2(47) of CGST Act 2017,  “exempt supply” means supply of any goods or services or both which attracts nil rate of tax or which may be wholly exempt from tax under section 11 of CGST Act, or under section 6 of the IGST Act, and includes non-taxable supply. Section 6 & 11 respectively provides the power to the government to grant exemptions in case of some goods or services as notified by them.

As per section 2(78) of CGST Act 2017, “non-taxable supply” means a supply of goods or services or both which is not leviable to tax under this Act or under the Integrated Goods and Services Tax Act;

As per section 2(108) of CGST Act 2017, “taxable supply” means a supply of goods or services or both which is leviable to tax under this Act;

As per section 16 of IGST Act 2017,  “zero rated supply” means any of the following supplies of goods or services or both, namely:––

(a) export of goods or services or both; or

(b) supply of goods or services or both to a Special Economic Zone developer or a Special Economic Zone unit.

As we see that there is a difference between exempt supplies and zero rated supplies. It is important to note that Input tax credit is available only in case of taxable supplies and zero rated supplies i.e. Input tax credit is not available for making exempt supplies and hence no claim of refund can be made in cases of exempt supplies.

However, in case claim of ITC in respect of a particular supply is not restricted under section 17(5) of CGST Act’2017, then in case of zero rated supply under IGST, ITC shall still be available irrespective of the fact that such supply is declared as an exempt supply under CGST. So in case exempt supplies are exported of in case exempt supplies are made to SEZ developer or SEZ units, such a supplier may claim ITC on inward supplies related to such supply.

Before we proceed further we must also understand the concept of Doctrine of unjust enrichment which under the current tax laws is applicable on availing refund of additional customs duty, excise duty & service tax and which is now also being adopted into this proposed GST regime.

Unjust enrichment is a legal concept referring to situations in which one person is enriched at the expense of another in circumstances which the law treats as unjust. In case, a registered person has passed on the burden of the duty to his customers by charging them the tax on supplies made to them, it will not be justifiable to give him refund of such tax and thus provide him double benefit. Ideally in such cases refund of tax, if any, should be paid to customer who has borne the burden of tax. However since practically it is not feasible to identify such consumer and pay refund to him, so in such cases refunds under GST should be transferred to the Consumer Welfare Fund maintained by the government, unless a registered person proves to the satisfaction of the proper officer that he has not passed on burden of tax to another person.

Now that we have reasonably understood the basics of refund claims under GST, we will now one by one discuss in detail all the provisions and procedures related to refunds in respect to different situations and different categories of persons.

Process of obtaining refund under GST

Refunds under GST are primarily governed by section 54 of CGST Act’2017 & corresponding rules made there under.

Application for refund can be made before the expiry of two years from the relevant date in FORM GST RFD-01. However in case the reason for filing refund claim being the excess balance in the electronic cash ledger i.e. in case of excess tax deposited by a registered person, then claim for such refund may be filed at the time of filing return in FORM GSTR-3, FORM GSTR-4 or FORM GSTR-7, as the case may be under the GST Act, so no separate application in FORM GST RFD-01 for refund is required in such cases.

Where a registered person applies for refund at the time of filing return in FORM GSTR-3, FORM GSTR-4 or FORM GSTR-7, as the case may be under the GST Act, an acknowledgement shall be generated in FORM GST RFD-02, clearly indicating the date of filing of the claim for refund.

However where refund application is filed in FORM GST RFD-01,  proper officer shall, within fifteen days of filing of the said application, scrutinize the application for its completeness and where the application is found to be complete, shall issue an acknowledgement in FORM GST RFD-02, clearly indicating the date of filing of the claim for refund.

Where any deficiencies are noticed in the application for refund filed by a registered person, the proper officer shall communicate the deficiencies to the applicant in FORM GST RFD-03, requiring him to file a refund application after rectification of such deficiencies. Also in case the

application relates to refund of input tax credit, where the electronic credit ledger of the applicant was debited by him for an amount equal to the refund so claimed, the amount so debited shall be re-credited to the electronic credit ledger of the applicant..

When, the proper officer is satisfied that a refund is due and payable to the applicant, he shall make an order in FORM GST RFD-06, sanctioning the amount of refund to which the applicant is entitled.

However in cases where the amount of refund is completely adjusted against any outstanding demand under the Act or under any existing law, an order giving details of the adjustment may be issued in FORM GST RFD-07.

In case the proper officer is satisfied, for reasons to be recorded in writing, that the whole or any part of the amount claimed as refund is not admissible or is not payable to the applicant, he shall issue a show cause notice in FORM GST RFD-08 to the applicant, requiring him to furnish a reply in FORM GST RFD-09 within fifteen days of the receipt of such notice and after considering the reply, make an order in FORM GST RFD-06, sanctioning the amount of refund in whole or part, or rejecting the said refund claim.

However, no application for refund shall be rejected without giving the applicant a reasonable opportunity of being heard. Also in case any amount claimed as refund is rejected, either fully or partly, the amount debited, to the extent of rejection, shall be re-credited to the electronic credit ledger by an order made in FORM GST PMT-03.

After making refund order in FORM GST RFD-06, where the proper officer is satisfied that the amount refundable is payable to the applicant in his bank account and not to be sent to consumer welfare fund, he shall issue a payment advice in FORM GST RFD-05, for the amount of refund and the same shall be electronically credited to any of the bank accounts of the applicant mentioned in his registration particulars and as specified in the application for refund. However,  in case the proper officer is satisfied that the amount refundable is liable to be credited to Consumer Welfare Fund, he shall issue an advice in FORM GST RFD-05, for the amount of refund to be credited to the Consumer Welfare Fund.

Refunds in case of specialized agencies

A specialised agency of the United Nations Organisation or any Multilateral Financial Institution and Organisation notified under the United Nations (Privileges and Immunities) Act, 1947, Consulate or Embassy of foreign countries or any other person or class of persons, as notified by government shall be entitled to  refund of tax paid by it on inward supplies of goods or services or both.

So supplies made to such agencies shall be taxable and thereafter these agencies may file claim of refund with GST authorities. But since these agencies are required to charge GST on supplies made by them, so they shall not obtain GST registration number, rather they shall obtain UIN i.e. Unique identity number as explained in our another article “All about registration under GST in India”. Invoice regarding any supplies made to such agencies shall mention UIN in place of GSTIN.

Such agency shall make an application for such refund, in FORM GST RFD-10 once in every quarter, along with a statement of inward supplies of goods or services or both in FORM GSTR-11, prepared on the basis of return filed by the corresponding suppliers, before the expiry of six months from the last day of the quarter in which such supply was received.

An acknowledgement for receipt of the application for refund shall be issued in FORM GST RFD-02.

Refund of tax paid by the applicant shall be available only if-

  • the inward supplies were received from a registered person against a tax invoice; and
  • the price of the supply covered under a single tax invoice exceeds Rs. 5000/- excluding tax paid, if any; and
  • name and GSTIN or UIN of the applicant is mentioned on the tax invoice.

All the other provisions related to order of refund, deficiency memo, show cause notice of rejection of refund, reply to show cause notice and payment advice shall be the same as followed in case of other refunds. However, where there is an express provision in a treaty or other international agreement, to which the President or the Government of India is a party, which is inconsistent with the provisions of these rules, in that case such treaty or international agreement shall prevail.

Refunds arising due to zero rated supplies or due to difference in rate of output supplies & input supplies

If the claim of refund is made on the ground of zero rated supplies made without payment of tax or 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), a registered person may claim refund of any unutilised input tax credit at the end of any tax period.

However some restrictions and conditions have been imposed by the government for claiming refund on above mentioned supplies.

Under the proposed GST regime, refund of un-utilised input tax credit shall not be allowed:

  • in cases where the goods exported out of India are subjected to export duty; or
  • if the supplier avails of drawback in respect of central tax paid on such supplies; or
  • if the supplier claims refund of the integrated tax paid on such supplies.

As per Section 16(3) of IGST Act, a registered person making zero rated supply shall be eligible to claim refund under either of the following options, namely:––

(a) he may supply goods or services or both under bond or Letter of Undertaking, subject to such conditions, safeguards and procedure as may be prescribed, without payment of integrated tax and claim refund of un-utilised input tax credit; or

(b) he may supply goods or services or both, subject to such conditions, safeguards and procedure as may be prescribed, on payment of integrated tax and claim refund of such tax paid on goods or services or both supplied, in accordance with the provisions of section 54 of the Central Goods and Services Tax Act or the rules made there under.

Also, in case where a registered person has defaulted in furnishing any return or is required to pay any tax, interest or penalty, which has not been stayed by any court, Tribunal or Appellate Authority by the last date for filing such an appeal under this Act, 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; or

(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.

In case of zero-rated supply without payment of tax under bond or letter of undertaking, refund of input tax credit shall be granted as per the following formula:

Admissible Refund Amount = (Turnover of zero-rated supply of goods + Turnover of zero-rated supply of services) x Net ITC / Adjusted Total Turnover

  • “Net ITC” means input tax credit availed on inputs and input services during the relevant period; i.e. does not include ITC on capital goods.
  • “Turnover of zero-rated supply of goods” means the value of zero-rated supply of goods made during the relevant period without payment of tax under bond or letter of undertaking;
  • “Turnover of zero-rated supply of services” means the value of zero-rated supply of services made without payment of tax under bond or letter of undertaking, calculated in the following manner, namely:-
    • Zero-rated supply of services is the aggregate of the payments received during the relevant period for zero-rated supply of services and
    • Add: zero-rated supply of services where supply has been completed for which payment had been received in advance in any period prior to the relevant period
    • Less: advances received for zero-rated supply of services for which the supply of services has not been completed during the relevant period;
  • “Adjusted Total turnover” means the turnover in a State or a Union territory, excluding the value of exempt supplies other than zero-rated supplies, during the relevant period;
  • “Relevant period” means the period for which the claim has been filed.

Refunds in case of casual person or non-resident taxable person.

The amount of advance tax deposited by a casual taxable person or a non-resident taxable person as a prerequisite to registration shall 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 the Act.

Also refund of such amount, after adjusting the tax payable by the applicant out of the advance tax deposited by him at the time of registration, shall be claimed either in the last return required to be furnished by him or only after furnishing of the said last return.

Provisional refunds

In case of claim for refund on account of zero-rated supply made by registered persons, the proper officer may issue refund order in FORM GST RFD-04 on a provisional basis within seven days of receipt of application of refund. Refund amount in such order shall be ninety percent of the total amount so claimed, excluding the amount of input tax credit provisionally accepted and thereafter such proper officer shall make an order for final settlement of the refund claim after due verification of documents furnished by the applicant.

For the provisional refund, the proper officer shall issue a payment advice in FORM GST RFD-05 for the amount so sanctioned and the same shall be electronically credited to any of the bank accounts of the applicant mentioned in his registration particulars and as specified in the application for refund.

Also the provisional refund shall be granted only if all of the following conditions are satisfied:

(a) the person claiming refund has, during any period of five years immediately preceding the tax period to which the claim for refund relates, not been prosecuted for any offence under the Act or under an existing law where the amount of tax evaded exceeds Rs. 2,50,000/-.

(b) the GST compliance rating, where available, of the applicant is not less than five on a scale of ten;

(c) no proceedings of any appeal, review or revision is pending on any of the issues which form the basis of the refund and if pending, the same has not been stayed by the appropriate authority or court.

Though at the first instance it seems that the facility of this provisional refund is an advantage to a registered person under GST, however if we compare the scenario with the existing provisions of law, where purchases related to such zero rated supplies may be made without payment of taxes under statutory forms, we will come to know that now actually under GST purchases against these zero rated supplies has to be first made after payment of taxes & then the dealer shall apply for refund of such taxes paid. Thereafter if he satisfies all the conditions mentioned above, then only he will get 90 percent of such refund on provisional basis and balance when he completes all the documents and prove to the satisfaction of proper officer that he has not passed on the incidence of such tax and interest to any other person.

Power to withhold refund

Where an order giving rise to a refund is the subject matter of an appeal or further proceedings or where any other proceedings under this Act is pending and the Commissioner is of the opinion that grant of such refund is likely to adversely affect the revenue in the said appeal or other proceedings on account of malfeasance or fraud committed, he may, after giving the taxable person an opportunity of being heard, withhold the refund till such time as he may determine.

In such case, the taxable person shall, be entitled to interest at such rate not exceeding six percent, if as a result of the appeal or further proceedings he becomes entitled to refund.

Person authorized to file refund applications and due date to file refund applications.

In case of export of goods, application for refund shall be filed only after the export manifest or an export report, as the case may be, is delivered under section 41 of the Customs Act, 1962 in respect of such goods.

In respect of supply of goods to a Special Economic Zone unit or a Special Economic Zone developer, the application for refund shall be filed by the supplier after such goods have been admitted in full in the Special Economic Zone for authorized operations, as endorsed by the specified officer of the Zone.

In respect of supply of services to a Special Economic Zone unit or a Special Economic Zone developer, the application for refund shall be filed by the supplier along with such evidence regarding receipt of services for authorized operations as endorsed by the specified officer of the Zone.

In respect of supplies regarded as deemed exports, the application shall be filed by the recipient of deemed export supplies.

In respect of Casual person or non-resident taxable person, refund shall be claimed either in the last return required to be furnished by him or only after furnishing of the said last return.

Mode of refund & time limit for issue of refund

The amount of refund as determined by the proper officer shall be paid directly to the account of the applicant , if such refund claimed by a registered person relates to:

(a) tax paid on zero-rated supplies or on inputs or input services used in making such zero-rated supplies;

(b) un-utilised input tax credit related to zero rated supplies made without payment of tax or where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies;

(c) tax paid on a supply which is not provided, either wholly or partially, and for which invoice has not been issued, or where a refund voucher has been issued;

(d) Tax wrongfully collected and paid to Central Government or State

 (e) the tax and interest, if any, or any other amount paid by the applicant, if he had not passed on the incidence of such tax and interest to any other person; or

(f) the tax or interest borne by such other class of applicants as the Government may, on the recommendations of the Council, by notification, specify.

In other cases the proper officer shall credit the refund so determined to the Consumer Welfare Fund which shall be utilised by the Government for the welfare of the consumers in such manner as may be prescribed.

As mentioned above, that amount of refund determined by the proper officer shall be paid directly into the bank account of the registered person only if such person proves to the satisfaction of the proper officer that the incidence of such tax has not been passed on to another person. Now the question arise that how a registered person shall prove that the incidence of such tax has not been passed on to another person, reply of this has been provided in Rule 1 of Refund Rules which states that, where the amount claimed as refund is less than Rs. 2,00,000/-, it shall not be necessary for the applicant to furnish any documentary and other evidences but he may file a simple 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.

However, In case the amount claimed as refund is Rs. 2,00,000/- or more, the application of refund shall be accompanied a certificate in Annex 2 of FORM GST RFD-01 issued by a chartered accountant or a cost accountant to the effect that the incidence of tax, interest or any other amount claimed as refund has not been passed on to any other person.

Also such declaration & CA certificate in Annex 2 of  FORM GST RFD-01 is not required to be furnished in respect of:

(a) refund of tax paid on zero-rated supplies of goods or services or both or on inputs or input services used in making such zero-rated supplies;

(b) refund of unutilised input tax credit where such 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).

 (c) refund of tax paid on a supply which is not provided, either wholly or partially, and for which invoice has not been issued, or where a refund voucher has been issued;

(d) refund of tax in pursuance of Tax wrongfully collected and paid to Central Government or State Government under section 77.

In such cases all the refunds shall directly be deposited into the bank accounts maintained by the registered person.

The proper officer shall issue the refund to the account of the registered person within sixty days from the date of receipt of application complete in all respects. However, If such amount is not refunded within sixty days from the date of receipt of application, interest at such rate not exceeding six percent shall be payable from the date immediately after the expiry of sixty days from the date of receipt of application till the date of refund of such tax.

Also, where any claim of refund arises from an order passed by an adjudicating authority or Appellate Authority or Appellate Tribunal or court which has attained finality and the same is not refunded within sixty days from the date of receipt of application filed consequent to such order, interest at such rate not exceeding nine percent 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 till the date of refund.

Documents required to be filed along with refund application.

The application of refund shall be accompanied by any of the following documents, as applicable, to establish that a refund is due to the applicant:

  • The reference number of the order and a copy of the order passed by the proper officer or an appellate authority or Appellate Tribunal or court resulting in such refund or reference number of the payment of the amount specified in sub-section (6) of section 107 and sub-section (8) of section 112 claimed as refund.
  • The reference number of the final assessment order and a copy of the said order in a case where the refund arises on account of finalisation of provisional assessment.
  • A statement containing the number and date of shipping bills or bills of export and the number and date of relevant export invoices, in a case where the refund is on account of export of goods.
  • A statement containing the number and date of invoices and the relevant Bank Realization Certificates or Foreign Inward Remittance Certificates, as the case may be, in a case where the refund is on account of export of services.
  • A statement containing the number and date of invoices along with the evidence regarding endorsement by special officer of the zone, in case of supply of goods made to a Special Economic Zone unit or a Special Economic Zone developer.
  • A statement containing the number and date of invoices, the evidence regarding endorsement by special officer of the zone and the details of payment, along with proof thereof, made by the recipient to the supplier for authorized operations as defined under the Special Economic Zone Act, 2005, in a case where the refund is on account of supply of services made to a Special Economic Zone unit or a Special Economic Zone developer.
  • A statement containing the number and date of invoices along with such other evidence as may be notified in this behalf, in a case where the refund is on account of deemed exports.
  • A statement in Annex 1 of FORM GST RFD-01 containing the number and date of invoices received and issued during a tax period in a case where the claim pertains to refund of any unutilized input tax credit 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.

Other Misc. Points

Refund of amount less than Rs. 1000/- shall not be paid to an applicant unless such refund is directed by some court or refund is payable to a person who ceases to be a registered person from a particular date or event e.g. in case of casual person or non-resident taxable person even refund of less than Rs. 1,000/- shall be paid.

At many places in this article, we used the word relevant date, so what do we actually mean by the term relevant date? Actually the term relevant dates derive its meaning from the situation/circumstances with which it is used. So for the sake of clarity, we are presenting below various circumstances and the corresponding meaning of relevant date in a tabular format:

S.No. Event / Circumstances meaning of relevant date
1. In the case of goods exported out of India (i) if the goods are exported by sea or air, the date on which the ship or the aircraft in which such goods are loaded, leaves India.

(ii) if the goods are exported by land, the date on which such goods pass the frontier.

(iii) if the goods are exported by post, the date of despatch of goods by the Post Office concerned to a place outside India

2. In the case of supply of goods regarded as deemed exports where a refund of tax paid is available in respect of the goods the date on which the return relating to such deemed exports is furnished
3. In the case of services exported out of India (i) receipt of payment in convertible foreign exchange, where the supply of services had been completed prior to the receipt of such payment; or

(ii) issue of invoice, where payment for the services had been received in advance prior to the date of issue of the invoice

4. 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
5. In the case of refund of unutilised input tax credit on zero rated supplies end of the financial year in which such claim for refund arises
6. In the case where tax is paid provisionally under this Act or the rules made there under the date of adjustment of tax after the final assessment thereof
7. In the case of a person, other than the supplier the date of receipt of goods or services or both by such person
8. In any other case the date of payment of tax

As discussed at various places in this article, in case of refund under GST, each and every communication be it application of refund, acknowledgment of refund, deficiency memo or order of refund, all the documentation has to be done in a prescribed format only.  Below is the list of various forms prescribed for refunds under GST.

S.No. Form No. Purpose
1. GST RFD-01 Application for filing refund in all cases other than those filed by special agencies as discussed.
2. GST RFD-02 Acknowledgement of filing refund application
3. GST RFD-03 Deficiency memo
4. GST RFD-04 Order sanctioning provisional refund
5. GST RFD-05 Payment advice
6. GST RFD-06 Order sanctioning final refund
7. GST RFD-07 Order showing adjustment of outstanding demands against refund issued.
8. GST RFD-08 Show cause notice for rejection of refund
9. GST RFD-09 Reply to show cause notice
10. GST RFD-10 Application of refund by special agencies being embassies, agencies of UNO etc.
11. GST RFD-11 Statement of Inward supplies by special agencies being embassies, agencies of UNO etc.

Though, the scheme of provisional refund under GST gives a hope to a registered person that refunds under the proposed GST regime would be hassle free & time bound, however one must keep its fingers crossed and just wait & watch, how the things go around and let’s hope that the GST department would not follow the steps of service tax department regarding issue of refunds under the existing laws.

Article by CA. Mithun Khatry

Author Bio

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