Introduction
The framework for claiming GST refunds of unutilized ITC against zero‑rated supplies or an inverted duty structure is laid out in Section 54 of the CGST Act, 2017 and further detailed in Rule 89 of the CGST Rules, 2017. While the Act prescribes a two‑year window from a clearly defined “relevant date” for filing refund applications, the departmental practice has often misinterpreted this “relevant date” with the “relevant period”.
For instance, a taxpayer has accumulated ITC during tax period 2017-18, 2018-19 and 2019-20 against export under LUT, whereas the exported goods leave India on 30-09-2019. The relevant date in the give scenario is 30-09-2019 and the taxpayer can file a refund up to 30-09 -2021. The question that arises here is whether the taxpayer can avail refund of ITC availed before the relevant date?
Discrepancy between enacted law and execution
Section 54(1) of the Act states that any person who has paid tax, interest, or any other amount under the GST is eligible to apply for a refund of such amounts provided the application for refund has been submitted within two years from the relevant date. Parallelly, section 54(3) of the Act allows a registered person to claim a refund of unutilized ITC in the following two specific scenarios:
a. Where zero-rated supplies are made without payment of tax under a bond or Letter of Undertaking and
b. Where there is an accumulation of ITC due to the inverted duty structure i.e. the tax rate on inward is higher than the tax rate on outward.
The relevant date is defined under Explanation 2 to Section 54 of the CGST Act, 2017 as following:
| Event triggering Relevant Date | Relevant Date |
| Export of Goods by Sea / Air | Ship is Loaded / Aircraft Leaves India |
| Export of Goods by Land | Goods pass the Frontier |
| Export by Post | Despatch of goods by post Office |
| Export of Services | Later of Invoice Date or Payment Date |
| Inverted Duty Structure (up to 31.1.19) | End of FY in which the claim arises |
| Inverted Duty Structure (from 01.2.19) | Due date of furnishing GSTR-3B for the period for which refund arises |
| Refund arising from an order | Date of communication of such Order |
| Refund by a person other than a supplier | Date of receipt of goods or services |
| Any other Case | Date of Payment of Tax |
Now switching to section 16(3) of the IGST Act, 2017, which outlines the procedure for claiming refunds on zero-rated supplies, which include exports and supplies made to Special Economic Zones. In accordance with section 54 of the Act, the first option allows the supplier to make zero-rated supplies without payment of IGST by furnishing a bond or Letter of Undertaking (LUT), and in return, claim a refund of the unutilized input tax credit (ITC). The second option permits the supplier to pay IGST on such supplies and subsequently claim a refund of the tax paid.
In light of the provisions laid down under Section 16(3) of IGST and Section 54(3) of CGST, a taxpayer is entitled to claim a refund of unutilized ITC in cases involving zero-rated supplies or supplies made to a SEZ unit and in cases of Inverted duty structure.
Rule 89(4) and 89(5) of the CGST Rules 2017 prescribe the formulae for calculating the refund of unutilized ITC for zero-rated supplies and Inverted Duty Structure as following:
Rule 89(4) – Refund of ITC against Zero-rated Supply
Refund Amount = (Turnover of zero-rated supply of goods + Turnover of zero-rated supply of services) × Net ITC ÷ Adjusted Total Turnover
Rule 89(5) – Refund of ITC in Inverted Duty Structure
Maximum Refund Amount = {(Turnover of inverted rated supply of goods and services) × Net ITC ÷ Adjusted Total Turnover} – [{tax payable on such inverted rated supply of goods and services × (Net ITC ÷ ITC availed on inputs and input services)}].
Where, —
“Refund amount” means the maximum refund that is admissible;
“Net ITC” means input tax credit availed on inputs and input services during the relevant period.
“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 LUT
“Relevant period” means the period for which the claim has been filed.
A careful analysis of the above formulae reveals that Net ITC is ITC availed on Inputs and Input services during relevant period, and relevant period is the period for which the claim has been filed. Let us now understand Relevant Date and Relevant Period.
Relevant Date – As per section 54 of the Act, relevant date is the start date for calculating the time limit of 2 years for filing of refund application. The relevant date is determined based on the occurrence of a specific prescribed event as tabulated above.
Relevant Period – Whereas relevant period on the other hand is the period for which the refund application is filed. Thus, Net ITC availed for relevant period is to be considered for the purpose of calculation of refund amount. The rule does not lay any restriction on the period for which Net ITC is to be considered for the purpose of calculation of refund.
Essentially in cases of refund of unutilised ITC against zero rated supply or due to inverted duty structure, section 54 puts a time restriction for filing refund application of 2 years from the relevant date which has been linked to occurrence of an event. For example, a refund application for zero-rated supplies can be filed up to the date on which the goods depart from India, as the relevant date is directly linked to the actual movement of goods and not the tax period. Thereby a refund application can be filed for any relevant period and in any frequency without breaching the time limit of two years from the relevant date. The clear intention of the law is to accommodate situations where ITC availed, and exports do not occur in the same period. However, the department has been persistently incorrect in taking relevant date as relevant period and thereby denying refunds on the ground of being time barred.
Additional support to the above argument can be found in Circular No.135/05/2020 – GST dated 31-03-2020 vide which the restriction on clubbing refund periods across financial years was removed which was initially observed in observed in Circular No.37/11/2018-GST, dated 15-3-2018 and Circular No. 125/44/2019-GST dated 18-11-2019. The restriction was lifted as a consequence of the order dated 21.01.2020 in the case of M/s Pitambra Books Pvt Ltd.,V/s Union of India [2020] 114 taxmann.com 122 (Delhi) where Hon’ble Delhi High Court, vide para 13 of the said order had stayed the rigour of paragraph 8 of Circular No. 125/44/2019-GST dated 18-11-2019 and has also directed the Government to either open the online portal so as to enable the petitioner to file the tax refund electronically, or to accept the same manually within 4 weeks from the Order.
Para 12: Circulars can supplant but not supplement the law. Circulars might mitigate rigours of law by granting administrative relief beyond relevant provisions of the statute, however, Central Government is not empowered to withdraw benefits or impose stricter conditions than postulated by the law.
It is also worth mentioning the case of CCE & ST, Bengaluru v. Span Infotech (India) Pvt. Ltd., reported in 2018 (12) GSTL 200 (Tri.-LB) before The CESTAT, South Zonal Bench, Bangalore, where the issue pertained to the determination of the “relevant date” for the purpose of computing the time limit for filing refund of unutilized CENVAT credit under Rule 5 of the CENVAT Credit Rules, 2004 against export of services and it was held that Relevant date to be taken as the end of the quarter in which FIRC is received for exports since refund claim is filed for the quarter.
12. The related question for consideration is whether the time limit is to be restricted to the date of FIRC or can be considered from the end of the quarter. The Tribunal in the case of Sitel India Ltd. (supra), has observed that the relevant date can be taken as the end of the quarter in which FIRC is received since the refund claim is filed for the quarter.
Under Service Tax Regime, export of services completed only with receipt of consideration in foreign exchange as per Service Tax Rules, 1994 as well as successor provisions, i.e., Export of Services Rules, 2005. The exporters of services were given the option to file claims for such refunds once in a quarter, however relevant date was not defined in the law.
In the case of Span Infotech (India) Pvt. Ltd., when Relevant date was not defined in the law for service exporters, yet the relevant date was determined based on occurrence of an event i.e. export of services on receipt of consideration in foreign exchange, instead of period in which the credit was availed i.e. the Relevant Period. On the contrary, in GST regime (when there is express definition of Relevant date for such refunds) the revenue authorities have been fusing Relevant date with the period of availment of ITC which neither comes out from express provision of the law, nor from application of any principle of interpretation. In-fact the GST portal also does not lay any such restriction on the taxpayer.
Conclusion
Upon examination of Section 16(3) of the IGST Act or Section 54(3) of the CGST Act and Rule 89 of the CGST Rules, it is found that no such restriction exists on filing refund application for tax period prior to relevant date. Thus, refund may be filed for unutilised ITC availed in different relevant period, whereas the goods have been exported in a different tax period. Likewise, refund of unutilised ITC (due to inverted duty structure) may be claimed in a different tax period, whereas the availment of ITC may have been made in a different tax period.
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