GST Refund – Detailed Discussion

Article explains Refund in GST, Type of Refund in the GST, Time limit for GST refund claim, Details of the circular issued by Department in relation to the GST refund, Scope of GST refund, Process for the GST refund as per CGST Act,2017, Provisional GST Refund, Interest in the GST refund and Other issue and their clarification of refund.

1. Introduction of GST refund :-

There is no ambiguity that for every taxpayer provision related to refunds are always most favorites under any Act and GST Act is no different. In fact, every organization designs their business process in such a manner so as to make optimum utilization of the refund provisions. CGST Act having Section 54 which deal in the refund, CGST Rules 2017 having provison relating to the refund in the Chpater X Rule 89 to 97A, 22 circular issued by department in regarding to refund with 8 circular rescind  with master circular 125/19 in the refund, so in this detail article, we will discuss the refund provision in the GST as far as possible, further refund was discussed in the GST 6^th council meeting in the details and we can refer the discussion of the council for the better clarity.

2. Type of refund in the GST :-

there are three type of refund in the GST regime, first is refund of tax paid, second is Input tax credit and third are others.

Refund of Tax paid – it include zero rated supply with payment of tax either goods or services and sez supply for the goods and services both, deemed export and wrong payment of tax and excess payment of tax

Refund of acculamated Input tax credit (hereafter referred as ITC) – zero rated supply without payment of tax for the export of goods or services, for SEz supply for goods or services, inverted duty structure, deemed export.

Others :- excess payment in cash ledger, on account of appeal or assessment and any other revision.

For the all type of refund, only export of goods with payment of tax, the shiping bill itself is considered as a refund application, for the rest, registered person has to apply to the department.

These applications for the following types of refunds shall be filed in FORM GST RFD 01 on the common portal and the same shall be processed electronically:

1. Refund of unutilized input tax credit (ITC) on account of exports without payment of tax;

2. Refund of tax paid on export of services with payment of tax;

3. Refund of unutilized ITC on account of supplies made to SEZ Unit/SEZ Developer without payment of tax;

4. Refund of tax paid on supplies made to SEZ Unit/SEZ Developer with payment of tax;

5. Refund of unutilized ITC on account of accumulation due to inverted tax structure;

6. Refund to supplier of tax paid on deemed export supplies;

7. Refund to recipient of tax paid on deemed export supplies;

8. Refund of excess balance in the electronic cash ledger;

9. Refund of excess payment of tax;

10. Refund of tax paid on intra-State supply which is subsequently held to be inter-State supply and vice versa;

11. Refund on account of assessment/provisional assessment/appeal/any other order;

12. Refund on account of “any other” ground or reason.

3. Time limit for GST refund application:

GST refund application shall be filled within 2 Year of relevant date. it was 2 year in the initial draft GST law, the reason for the giving 2 year time limit that Registered Person (hereinafter referred as RP) shall file his annual return after 18 month i.e. Sept in the next year as per law (ignoring the extension given by the department) and RP need 6 month at least time for the forget to claim refund, if same was pointed out by CA in the annual return in any case, so same was given 2 year from the relevant date.

4. Details of the GST circular issued by department in relation to refund :

S. No.	GST Circular No	Particulars	Status as on date
1	17/2017	Process for the filling of refund claim by manual way in the case of Zero rated supply	Rescinded vide Circular No. 125/44/2019 – GST
2	18/2017	Refund of unutilized input tax credit of GST paid on inputs in respect of exporters of fabrics.	Valid as on date
3	24/2017	Manual filing and processing of refund claims on account of inverted duty structure, deemed exports and excess balance in electronic cash ledger.	Rescinded vide Circular No. 125/44/2019
4	36/2018	Processing of refund application for UIN entities	Valid as on date
5	37/2018	clarifications on exports related refund issues	Rescinded vide Circular No. 125/44/2019
6	43/2018	Clarifying the issues arising in refund to UIN.	Valid as on date
7	45/2018	Clarification on refund related issues.	Rescinded vide Circular No. 125/44/2019 – GST dated 18.11.2019.
8	48/2018	refund of unutilized ITC for job workers	Valid as on date
9	56/2018	Clarification on removal of restriction on refund of accumulated Input Tax Credit on fabrics	Valid as on date
10	59/2018	Clarification on refund related issues	Rescinded vide Circular No. 125/44/2019
11	60/2018	Processing of refund applications filed by Canteen Stores Department (CSD	Valid as on date
12	63/2018	Clarification regarding processing of refund claims filed by UIN entitles	Valid as on date
13	70/2018	Clarification on certain issues related to refund.	Rescinded vide Circular No. 125/44/2019 –
14	79/2018	Clarification on refund related issues	Rescinded vide Circular No. 125/44/2019
15	94/2019	Seeks to clarify certain refund related issues under GST	Rescinded vide Circular No. 125/44/2019
16	104/2019	Processing of refund applications in FORM GST RFD-01A submitted by taxpayers wrongly mapped on the common portal	Valid as on date
17	106/2019	Refund of taxes paid on inward supply of indigenous goods by retail outlets established at departure area of the international airport beyond immigration counters when supplied to outgoing international tourist against foreign exchange	Valid as on date
18	110/2019	Seeks to clarify the eligibility to file a refund application in FORM GST RFD-01 for a period and category.	Valid as on date
19	111/2019	Seeks to clarify procedure to claim refund in FORM GST RFD-01 subsequent to favourable order in appeal or any other forum	Valid as on date
20	125/2019	Master circular for the refund – Seeks to clarify the fully electronic refund process through FORM GST RFD-01 and single disbursement.	Valid as on date
21	135/2020	Circular on Clarification on refund related issue arise from the Circular No 125/2019	Valid as on date
22	139/2020	Clarification on Refund Related Issues.	Valid as on date

5. Scope of GST Refund :-

S. No.	Group	Nature of refund	Scope of refund/how much refund will be done
1	Tax Paid	Export of goods or service with payment of tax	Actual Amount paid as tax
2		SEZ supply with payment of tax
3		Tax paid on deemed export to supplier
4		Wrong payment of tax
5		Excess payment of tax
6	Input Tax Credit	Export of goods or services without payment of duty	ITC on account of input and input services only
7		SEZ supply without payment of tax
8		Inverted duty structure	ITC on account of input only
9		Tax paid on deemed export to recipient	Actual amount paid as tax
10	Others	Excess amount in cash ledger	Actual amount
11		On account of appeal/assessment etc
12		Others

Note – there is a gap in the law, if exporter does export  with payment of IGST by using ITC ledger for payment of tax, then he came in the S. No. 1 and he can take refund of capital goods also as in this case, refund is allowed as actual amount paid as tax and tax on capital goods can be considered as actual amount as paid as tax. 

However  ITC on capital goods can be utilised when exporter is claiming for GST Refund as per Section 16(3)(b) of IGST Act 2017 i.e. after payment of IGST taxes read with section 54 of CGST act,2017

6. Process of Refund in simple way as per the Act/Rules/Master Notification 125 :-

A. Application for the refund to be done in the RFD-01 :-

• Entire process of refund is online in all the cases, no manual application entertained as of now for refund.
• A comprehensive list of such documents is provided at Annexure-A and no other document needs to be provided by the applicant at the stage of filing of the refund application, the list is mentioned in the last in the Circular No 125.
• Neither the refund application in FORM GST RFD-01 nor any of the supporting documents shall be required to be physically submitted to the office of the jurisdictional proper officer.
• Application Reference Number (ARN) will be generated only after the applicant has completed the process of filing the refund application in FORM GST RFD-01, and has completed uploading of all the supporting documents/ undertaking statements/invoices and, where required, the amount has been debited from the electronic credit/cash ledger
• As soon as the ARN is generated, the refund application along with all the supporting documents shall be transferred electronically to the jurisdictional proper officer who shall be able to view it on the system.
• The date of generation of ARN for FORM GST RFD-01 is to be considered as the date of filing of the refund application.
• RP can apply the refund application only when he debit his electronic cash ledger, then when department issue the DM, then cash ledger will be credited automatically by the department.

B. Acknowledgement (RFD-02) or Deficiency Memo (RFD-03) :-

• acknowledgement for the complete application or deficiency memo , as the case may be, would be issued electronically by the jurisdictional tax officer based on the documents so received from the common portal within 15 days of receiving the application.
• If a refund application is electronically transmitted to the wrong jurisdictional officer, he/she shall reassign it to the correct jurisdictional officer electronically as soon as possible, but not later than three working days, from the date of generation of the ARN

C. Deficiency Memos RFD – 03

• Deficiency memos shall not be issued in such cases merely on the ground that the applications were received electronically in the wrong jurisdiction.
• After a deficiency memo has been issued, the refund application would not be further processed and a fresh application would have to be filed
• The applicant is required to rectify the deficiencies highlighted in deficiency memo and file fresh refund application electronically in FORM GST RFD-01 again for the same period and this application would have a new and distinct ARN.
• It is further clarified that once an application has been submitted afresh, pursuant to a deficiency memo, the proper officer will not serve another deficiency memo with respect to the application for the same period, unless the deficiencies pointed out in the original deficiency memo remain un-rectified, either wholly or partly, or any other substantive deficiency is noticed subsequently.
• There is no time limit for the reapplication, but same will be done within time limit of 2 year from the relevant

D. Further process by the PO and RP :-

• If application is in order, then refund order will be issued in the RFD-06 by the department.
• If PO is not satisfied with the details other than discrepancy, then he will issue Show Cause Notice (hereinafter referred as SCN) in the RFD-08 to the RP.
• Reply of the SCN to be filled in the RFD-09 to the PO.
• After the reply, there are two possibility, one issue of refund by the department or rejection the refund in or partial refund and partial rejection order, these all will be in the RFD-06 by the department.

E. Payment of refund by the department :-

• PO will issue refund order in the RFD-05
• If the demand is pending of the RP with department, then PO will also prepare adjustment advice in RFD-07, that demand should be other than appeal demand.

F. If department is not satisfied with refund application then :-

• PO will issue SCN in RFD-08
• RP has to file the reply of SCN within 15 days in RFD-09
• SCN notice online mode is considered as service of notice in the GST Act.
• Now either department issue sanction order or reject the refund claim in RFD-06.
• As per the circular 125, department is bound to complete process upto RFD-06 within 45 days

G. Working done by Department at time of analysis/assessment of refund application :-

• They can issue notice for the eligible credit taken by the RP such as blocked credit etc and process for recovery of the same with penalty u/s 73 or 74 in the SCN in RFD-08
• If SCN issued against the RP, if RP is agreed for the return of this credit, then he shall give undertaking to the department that he will not file appeal for the englibale credit as decided by PO, after the undertaking, RP will pay the ineligible credit with interest and taxes in the DRC-03 or PO shall issue DRC-07 for the adjustment of this amount or same will be credited by department in the RP electronic credit ledger via PMT-03
• If RP wants to do appeal for the rejection of the refund by the PO considered as ineligible credit, PO shall issue the refund order as decided eligible by himself and issue refund order of that amount.
• If appeal authority decide in the favor of the RP, then RP need to file fresh refund application on the heading of on account of appeal.
• Same process is also followed by department in the case of granted refund more than eligible refund in the provisional refund process.

7. Provisional GST refund RFD-04:-

• After the issue of acknowledgment but before the issue of refund order, department can process the provisional refund
• Provisional refund is allowed only in the case of zero rated supply of goods or services or both made by RP.
• The PO shall refund on a provisional basis 90% of the refundable amount of the claim (amount of refund claim less the inadmissible portion of refund so found) in accordance with the provisions of rule 91 of the CGST Rule in RFD-04, followed by RFD-05 (payment advice) within 7 days. Same is mandatory by the circular, so PO cannot deny the provisional refund on in Zero rate supply cases.
• If department gives provisional refund after 7 days, there is no interest or other things mentioned in the law.
• Person claiming the refund in the provisional basis should not be during the period of five year in the immediately preceding the tax period, has not prosecuted more than 2.5 Lacs and given a undertaking to the department for the same.
• Proper officer can also sanction the entire amount within 7 days in FORM GST RFD-06 on account of zero-rated supplies,

8. Interest in the case of GST refund – Para 34, Circular 125/44/2019

• Time limit for the refund is 60 days from the date of receipts of application, so time for the refund to be calculated from 61^st day form the date of filling application for the refund.
• Interest is 6% on the delayed refund or 9% if same due to appeal order
• Date of refund to be considered on the date of credit of bank account

9. GST Refund in Inverted Tax Structure :-

• Inverted duty structure is not defined in the Act or Rules or circular.
• Para 3 Circular 135/2020 – if inverted duty structure arise due to change in the rate of tax on goods after the purchase, then refund is not allowed in that case.
• Para 54( a) Circulr 125– Where there are multiple inputs attracting different rates of tax, the term“Net ITC‟ covers the ITC availed on all inputs in the relevant period, irrespective of their rate of tax. It means a person having rate of 5% and 12% with output rate 12%,
• Maximum refund formula applies in the inverted duty structure, section 54(3) of the CGST Act read with rule 89(5) of the CGST Rules

Maximum refund = Turnover of inverted duty structure * Net ITC/Adjusted total turnover – tax payable on such inverted rate of supply

Section 54(3)(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 on the recommendations of the Council

Section 2 (59)-  inputs as any goods other than capital goods used or intended to be used by a supplier in the course or furtherance of business

Thus, inputs do not include services or capital goods

Para 53 – Therefore,  the intent of the law is not to allow refund of tax paid on input services or capital goods as part of refund of unutilized input tax credit. It is clarified that both the law and the related rules clearly prevent the refund of tax paid on input services and capital goods as part of refund of input tax credit accumulated on account of inverted tax structure.

Cases whereas the output is service and RP has taken input of Goods or services or both, then RP is entitled for the refund in that case.

There is nowhere mentioned to provide the calculation of the stock details in the case of refund.

List of documents required to be submitted as per Annexure A – Circular No 125/2019

Type of refund	Declaration/Statement/Undertaking/ Certificates to be filled online	Supporting documents to be additionally uploaded
Refund of ITC unutilized on account of accumulation due to inverted tax structure	Declaration under second and third proviso to section 54(3)	Copy of GSTR-2A of the relevant period
	Declaration under section 54(3)(ii)	Statement of invoices (Annexure-B)
	Undertaking in relation to sections 16(2)(c) and section 42(2)	Self-certified copies of invoices entered in Annexure-B whose details are not found in GSTR-2A of the relevant period
	Statement 1 under rule 89(5)
	Statement 1A under rule 89(2)(h)
	Self-declaration under rule 89(2)(l) if amount claimed does not exceed two lakh rupees, certification under rule 89(2)(m)otherwise

10. Refund of TDS/TCS deposited in excess 

• where taxes so deducted or collected is deposited under the wrong head (e.g. an amount deducted as Central tax is deposited as Integrated tax/State tax), such excess balance may be claimed by the tax deduction or the collector as the excess balance in electronic cash ledger. In this case, the common portal would debit the amount so claimed as refund. However, in case where tax deducted or collected in excess is also paid while discharging the liability in FORM GSTR 7 or FORM GSTR 8, as the case may be, and the said amount has been credited to the electronic cash ledger of the deductee, the deductee can adjust the same while discharging his output liability or he can claim refund of the same under the category “refund of excess balance in the electronic cash ledger”.

11. Disbursal of refund/all the heading refund to be done by one PO- Para 27, Circular 125 :-

• Refund of IGST/CGST/SGST made easy by this circular on consolidated basis by the respective assign PO either central officer or state officer meaning if a central officer assigned for the refund of a customer which includes IGST,CGST,SGST, then if the application is proper, then he shall issue both sanction order RFD- 04/06 and payment order RFD-05 under all the tax heads i.e. IGST/CGST/SGST. They cannot ask RP to make separate refund advice from the SGST from the state officer.

12. Payment in the wrong head/excess paid and thereafter claimed as GST refund

• Earlier RP used to excess debit from the electronic credit ledger with intentilly and claim the amount as refund, so they was able to get refund electronic credit ledger into cash refund due to process issue, this was came to notice of department, then department inserted  new rule 86(4A) and 92 (1A)  via notification no 16/2020 dated 23-03-2020 with restriction on the same, with refund in the same account only on which same was paid either cash ledger or credit ledger as the case may be.
  

Rule 86(4A) Where a registered person has claimed refund of any amount paid as tax wrongly paid or paid in excess for which debit has been made from the electronic credit ledger, the said amount, if found admissible, shall be re-credited to the electronic credit ledger by the proper officer by an order made in FORM GST PMT-03.

92(1A)- Where, upon examination of the application of refund of any amount paid as tax other than the refund of tax paid on zero-rated supplies or deemed export, the proper officer is satisfied that a refund under sub-section (5) of section 54 of the Act is due and payable to the applicant, he shall make an order in FORM RFD-06 sanctioning the amount of refund to be paid, in cash, proportionate to the amount debited in cash against the total amount paid for discharging tax liability for the relevant period, mentioning therein the amount adjusted against any outstanding demand under the Act or under any existing law and the balance amount refundable and for the remaining amount which has been debited from the electronic credit ledger for making payment of such tax, the proper officer shall issue FORM GST PMT-03 re-crediting the said amount as Input Tax Credit in electronic credit ledger.]

Refund can be claimed only upto the closing balance of the relevant tax period not more than, the reason for the same is RP need to debit the credit ledger at the time of application for the refund and a person cannot debit the amount more than available balance in general terms also.

13. Cases where circular beyond the law :-

Any refund claim for a tax period may be filed only after furnishing all the returns in FORM GSTR-1 and FORM GSTR-3B which were due to be furnished on or before the date on which the refund application is being filed. (Para 6)

Whereas Section 54(10) states that refund to be withhold if return is not filled and adjust the tax or interest or penalty due to the person, withhold means department has to process the refund claim, approve the same but not disbursed due to non filling of return, hence in this case also, circular is against the law.

In the case of goods export out of india with IGST Paid, Rule 96(1)(b) states that application in the shiping bill for the refund deemed to have been filled when RP has furnished return in GSTR3 or GSTR 3B as the case may be, whereas Para 6 ask that GSTR 1 is also mandatory, it is agisnt  the law. 

14. Whether refund restriction for the capital goods is as per the law :-

Section 54(3) a registered person may claim refund of any unutilised input tax credit at the end of any tax period:

(59) “input” means any goods other than capital goods used or intended to be used by a supplier in the course or furtherance of business;

Section 2 (62) “input tax” in relation to a registered person, means the central tax, State tax, integrated tax or Union territory tax charged on any supply of goods or services or both made to him and includes—

(a) the integrated goods and services tax charged on import of goods;

(b) the tax payable under the provisions of sub-sections (3) and (4) of section 9;

but does not include the tax paid under the composition levy

Section 2(63) “input tax credit” means the credit of input tax;

Section 2(52) “goods” means every kind of movable property other than money and securities but includes actionable claim, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply; 

In my opinion :-

• CGST Act permit ITC on the goods or services, goods include capital goods.
• Restricing ITC on capital goods or services on the basis of a definition inserted in a formula stated in Rule 89(5) is beyond the act.
• The provisions of Section 54(3) of the CGST Act entitles the Petitioner to claim refund of unutilized ITC which is defined under Section 2(63) and the input tax is defined under Section 2(62) of the CGST Act to mean the tax charged on any supply of goods or services or both made to him.
• Rule 89(5) of the CGST Rules gives the formula for computation of refund of ITC and explanation (a) therein excludes ITC on input services from the definition of Net ITC, though it is shown under the turnover of inverted rated supply of goods and services therein.

• Ideally, capital goods and input services must also be included so that the cost burden can be reduced for the consumers & the industry can benefit

As per my knowledge or opinion, “input” word used in the Section 54(2)(ii) meaning whereas input rate is higher in the case of output supply, there is not restriction placed by the act with intention to block the refund of Capital goods but now used or interpreated by the department.

Bombay well Print P Ltd Vs CBIC 2019 – in progress Bombay HC

Zuari Agrochemical P Ltd Vs UOI 2020 – in progress Bombay HC

Shree Rama Newsprint Ltd Vs UOI 2018 – in Process Gujarat HC

Quarry Owners Association vs. Union of India [TS-588-HC-2019 Gujarat HC

AFCONS-SIBMOST Joint Venture vs. Union of India and Other- In process in Patna High Court

M/s Raymond UCO Denim Private Limited  – In Progress in Bombay High Court.

15. Clarifications on issues related to making zero-rated supplies :-

Export of goods or services can be made without payment of Integrated tax under the provisions of rule 96A of the CGST Rules. Under the said provisions, an exporter is required to furnish a bond or Letter of Undertaking (LUT) to the jurisdictional Commissioner before effecting zero rated supplies.

procedure for filing of LUT has been specified vide Circular No. 8/8/2017 –GST dated 4.10.2017.

Para 44 – if exporter do export before the making LUT, LUT filled after export and claim refund for the GST paid, then if exporter able to established that exports in terms of the relevant provisions have been made. The delay in furnishing of LUT in such cases may be condoned and the facility for export under LUT may be allowed on ex post facto basis taking into account the facts and circumstances of each case.

Rule 96A (1) of the CGST Rules provides that any registered person may export goods or services without payment of Integrated tax after furnishing a LUT / bond and that he would be liable to pay the tax due along with the interest as applicable within a period of fifteen days after the expiry of three months and The time period in case of services is fifteen days after the expiry of one year or or such further period as may be allowed by the Commissioner from the date of issue of the invoice for export, if the goods or services are not exported out of India, if exporter cannt able to export the goods within above timeline, then department is not allowed to insisit taxpayers for the payment of IGST  – Refer Para 45

requirement of self declaration for the prosecuted is already satisfied in case of exports under LUT as if a person gives this declaration, then only he can export with LUT otherwise required to export under bond, so asking for self–declaration with every refund claim where the exports have been made under LUT is not required – Refer 46

Refund is allowed with head to head only  in the case of other  than Zero Rated supply Rule 86(4A) – Para 4 Notification NO 135/2020

1. Refund of excess payment of tax;

2. Refund of tax paid on intra-State supply which is subsequently held to be interState supply and vice versa;

3. Refund on account of assessment/provisional assessment/appeal/any other order;

4. Refund on account of “any other” ground or reason.

In the above 4 cases, earlier refund was paid in the cash mode even paid by the RP with ITC mode, but government restrict the same, now same is allowed with payment vide only i.e. if a persn made payment of excess tax from the accumulated ITC, then refund will be made to him by credit in the ITC not in cash, for the control of encashment of credit balances, 

HSN Code is mandatory required in the case of refund :- Para 6 – 135/2020 – New Requirement to mention HSN/SAC in Annexure ‘B’ in the statement of invoices for the differentiates the capital goods/input/input services

Why work contractor not comes in the preview of refund in inverdreted duty structure :- in the council 6^th council meeting, there was objection for the taking work contract by the CBEC with specific objected in the work contractor case, the hon’ble finance minister of uttar Pradesh, Karnataka and west bangal was also agreed on that prospaol and later on council has accepted this propsaol for the excluding them for the inverdted duty.

Refund in the case of invoices / documents relating to imports, ISD invoices and the inward supplies liable to Reverse Charge (RCM supplies) :- these are not relflacitng in the GSTR 2A of the assessee, in the circular No 135, same was restrict and allowed only to the extent of GSTR 2A (Para 5.2), after the issuing of this circular, department started rejected of the refund in the above cases which was not reflacted in the GSTR2A due to process of the GST Law, so department has clarified for the allowance of the refund in the above cases, extract are below.

The aforesaid circular does not in any way impact the refund of ITC availed on the invoices / documents relating to imports, ISD invoices and the inward supplies liable to Reverse Charge (RCM supplies) etc.. It is hereby clarified that the treatment of refund of such ITC relating to imports, ISD invoices and the inward supplies liable to Reverse Charge (RCM supplies) will continue to be same as it was before the issuance of Circular No. 135/05/2020- GST dated 31st March, 2020.