1. Introduction
1.1 On import or export of goods, at times duty may not be required to be paid or be paid in excess of what was actually leviable. Such non-leviable/excess payment may be due to lack of information on the part of importer/ exporter or non-submission of documents required for claim of lower value or rate of duty. Sometimes, such non-leviable/excess payment of duty may be due to re-import, return back of goods to the exporter, relinquishment of title by the importer, shortage/short landing, pilferage of goods or even incorrect assessment of duty by Customs. In such cases, refund of excess amount of duty paid can be claimed by the importer or exporter. If any excess interest has been paid by the importer/exporter on the amount of duty paid in excess, its refund can also be claimed.
2. Legal provisions:
2.1 Section 26 of the Customs Act, 1962 deals with the Refund of export duty in certain cases where on the exportation of any goods any duty has been paid, such duty shall be refunded to the person by whom or on whose behalf it was paid, if
(a) the goods are returned to such person otherwise than by way of re-sale;
(b) the goods are re-imported within one year from the date of exportation; and
(c) an application for refund of such duty is made before the expiry of six months from the date on which the proper officer makes an order for the clearance of the goods.
Where on the importation of any goods capable of being easily identified as such imported goods, any duty has been paid on clearance of such goods for home consumption, such duty shall be refunded to the person by whom or on whose behalf it was paid, if-
(a) the goods are found to be defective or otherwise not in conformity with the specifications agreed upon between the importer and the supplier of goods: Provided that the goods have not been worked, repaired or used after importation except where such use was indispensable to discover the defects or non-conformity with the specification;
(b) the goods are identified to the satisfaction of the Assistant Commissioner of Customs or Deputy Commissioner of Customs as the goods which were imported;
(c) the importer does not claim drawback under any other provisions of this Act; and
(d) (i) the goods are exported; or
(ii) the importer relinquishes his title to the goods and abandons them to customs; or
(iii) such goods are destroyed or rendered commercially valueless in the presence of the proper officer, in such manner as may be prescribed and within a period not exceeding thirty days from the date on which the proper officer makes an order for the clearance of imported goods for home consumption under section 47:
Provided that the period of thirty days may, on sufficient cause being shown, be extended by the Principal Commissioner of Customs or Commissioner of Customs for a period not exceeding three months:
Provided further that nothing contained in this section shall apply to the goods regarding which an offence appears to have been committed under this Act or any other law for the time being in force.
Section 27 of the Customs Act, 1962 deals with the claim for refund of duty and interest. As provided therein, refund of duty and interest can be claimed either by a person who has paid the duty in pursuance to an order of assessment or a person who has borne the duty.
2.2 Any person claiming refund of any duty or interest has to make an application in duplicate in the form as prescribed in the Customs Refund Application (Form) Regulations, 1995, to the jurisdictional Deputy/Assistant Commissioner of Customs.
3. Relevant dates for submission of a refund application:
3.1 In terms of Section 27 of the Customs Act, 1962 an application for refund is required to be filed
within one year from the date of payment of duty and interest. Normally, the time limit of one year is computed from the date of payment of duty, however, in following situations, such time limit is computed differently:
(a) In case of goods which are exempt from payment of duty by an ad-hoc exemption order issued under Section 25(2) of the Customs Act, 1962 the limitation of one year is to be computed from the date of issue of such order;
(b) Where duty becomes refundable as a consequence of judgment, decree, order or direction of the appellate authority, Appellate Tribunal or any court, the limitation of one year is to be computed from the date of such judgment, decree, order or direction.
(c) Where any duty is paid provisionally under Section 18 of the Customs Act, 1962 the limitation of one year is to be computed from the date of adjustment of duty after the final assessment thereof or in case of re-assessment, from the date of such re-assessment; and
(d) The date of payment of any duty and interest in relation to a person, other than the importer shall be the date of purchase of goods by such person
3.2 The limitation of one year for claiming refund does not apply where any duty and interest has been paid under protest.
4. Processing of refund claim:
4.1 The application for refund is required to be filed with documentary or other evidence including documents relating to assessment, sales invoice and other like documents to support the claim that the duty and interest was paid in excess, incidence of duty or interest has not been passed on by him to any other person, and the refund has not been obtained already.
4.2 Where on scrutiny, the application is found to be complete in all respects the Customs issues an acknowledgement in the prescribed Form. However, in case the application is found to be incomplete, the Customs will return the same to the applicant, pointing out the deficiency. The applicant has to then re-submit the application after making good the deficiency.
4.3 The application of refund found to be complete in all respects by Customs, is processed to see if the whole or any part of the duty and interest paid by the applicant is refundable. In case, the whole or any part of the duty and interest is found to be refundable, an order for refund is passed. However, in view of the provisions of unjust enrichment enshrined in the Customs Act, the amount found refundable has to be transferred to the Consumer Welfare Fund except in the following situations when it is to be paid to the applicant:
(a) If the importer has not passed on the incidence of such duty and interest to any other person;
(b) If such duty and interest was paid in respect of imports made by an individual for his personal use;
(c) If the buyer who has borne the duty and interest, has not passed on the incidence of such duty and interest to any other person;
(d) If amount found refundable relates to export duty paid on goods which were returned to exporter as specified in Section 26 of the Customs Act, 1962;
(e) If amount relates to Drawback of duty payable under Sections 74 and 75 of the Customs Act, 1962; and
(f) If the duty or interest was borne by a class of applicants which has been notified for such purpose in the Official Gazette by the Central Government.
(g) If the duty was paid in excess by the importer before an order permitting clearance of goods for home consumption is made where such excess payment of duty is evident from the bill of entry in the case of self-assessed bill of entry or the duty actually payable is reflected in the reassessed bill of entry in the case of reassessment.
5. Unjust enrichment:
5.1 In terms of Section 27(2) of the Customs Act, 1962 the concerned Assistant/Deputy Commissioner of Customs has to examine the facts of the case and the material placed before him in order to determine whether the amount claimed by an applicant is refundable to him or not. Further, the Assistant/Deputy Commissioner of Customs should go through the details of audited balance sheet and other related financial records, certificate of the Chartered Accountant etc., submitted by the applicant in order to decide whether the applicant had not passed on the incidence of the duty and interest thereon, if any, to any other person. The Order-in-Original passed by the Assistant/Deputy Commissioner of Customs on the refund application should be a speaking order providing specific details including the relevant financial records that are relied upon to arrive at a conclusion whether the burden of duty or interest, as the case may be, has been passed on or not. Refund orders issued in a routine and casual manner thereby sanctioning the amount but crediting the same to the Consumer Welfare Fund without going through the factual details of the case and the due process as provided in the first proviso cannot be considered as a complete and speaking order.
6. Interest on delayed refund:
6.1 The Customs has to finalize refund claims immediately after receipt of the refund application in proper form along with all the documents. In case, any duty ordered to be refunded to an applicant is not refunded within 3 months from the date of receipt of application for refund, interest that is currently fixed @ 6% is to be paid to the applicant. The interest is to be paid for the period from the date immediately after the expiry of 3 months from the date of receipt of such application till be date of refund of such duty. For the purpose of payment of interest, the application is deemed to have been received on the date on which a complete application, as acknowledged by the proper officer of Customs, has been made.
6.2 Where any order of refund is made by the Commissioner (Appeals), Appellate Tribunal or any Court against an order of the Assistant Commissioner/Deputy Commissioner of Customs, the order passed by the Commissioner (Appeals), Appellate Tribunal or by the Court, as the case may be is deemed to be an order for the purpose of payment of interest on delayed refund.
6.3 The interest on delayed refund is payable only in respect of delayed refunds of Customs duty and no interest is payable in respect of deposits such as deposits for project imports, security for provisional release of goods etc.
7. Expeditious disposal of refund applications:
7.1 The procedure to ensure expeditious disposal of Customs duty refund applications and to enhance transparency in refund disbursement is as follows:
(a) Receipt and acknowledgement of all refund applications: All refund applications made under Section 27 of the Customs Act, 1962 whether by post or courier or personal delivery, shall be received by the department and a simple receipt of having received the “refund application” shall be issued immediately. The receipt should make it clear that the application has not been scrutinized for its completeness. These applications are required to be scrutinized for their completeness within 10 working days of their receipt, for giving acknowledgement by the Proper Officer as per the Customs Refund Application (Form) Regulations, 1995. Hence, if any deficiency is found in the application or any document is required by the department, the same shall be informed at this stage of initial scrutiny itself within 10 working days of the initial receipt. This will avoid any chance for raising repeated queries to the applicant, in a piece-meal manner and bring certainty in dealing with refund applications.
(b) Processing of refund applications and their disposal: Application found complete in all respects after scrutiny, shall be processed on first-come-first served basis. If refund is due, an order for refund is required to be passed in terms of Section 27(2) of the Customs Act, 1962 or where the claim for refund is found liable to be rejected, as the case may be, a speaking order shall be passed giving complete reasons for the order. Further, the order should indicate that the aspect of unjust enrichment has been examined based on the applicable guidelines. The order should also contain the findings of adjudicating authority on the documents produced in support of the claim and the basis for determining the amount as either refundable to the claimant or payable to the Consumer Welfare Fund or the claim not being admissible.
(c) Issue of cheque: Where the refund application is admitted, whether in part or in full, and claimant is eligible for refund, the Assistant/Deputy Commissioner of Customs may ensure that payment is made to the party within 3 days of the order passed after due audit, if any. In all such cases refund amount shall be paid to the applicant by a cheque drawn on the authorised bank with which the sanctioning authority maintains account. After the cheque is signed, it shall either be delivered to the claimant or his authorised representative personally or sent to him by Registered Post, Acknowledgement Due at Government cost, on the basis of pre-receipt already obtained from the claimant.
(d) Audit: Pre-audit of refund claims (other than those to be post-audited) will be conducted by the Assistant/Deputy Commissioner (Audit), in the Commissionerate Headquarters Office. Thereafter, the Assistant/Deputy Commissioner of Group/ Division will pass an order-in-original in respect of the claim. Thereafter, the orders- in-original passed in this regard shall be subjected to review by the Commissioner concerned. The applications of refund of amount below Rs.50,000/- may be post- audited on the basis of the random selection by Assistant/Deputy Commissioner (Audit). The selection can be made in such a way that 25% of the refund applications are post-audited. The applications of refund for amount between Rs.50,000/- and Rs. 5 lakhs should be compulsorily post-audited. This audit system is aimed at checking improper sanction and payment of refunds. However, this does not dispense with the verification of the refund vouchers and the re- conciliation of refunds, which shall be done by the Chief Account Officers. It may be ensured that where pre-audit is involved, the same is completed at the earliest so that the disposal of refund applications is not unduly delayed.
(e) CVC’s instructions: Under authority of Section 8(1)(h) of the CVC Act, 2003 Central Vigilance Commission (CVC) has issued instructions to bring about greater transparency and accountability in the discharge of regulatory, enforcement and other public dealings of the Government organizations. These instructions require that status of individual applications/matters should be made available on the organization’s website and updated from time to time so that the applicants are duly informed about the status of their applications. It is further stated that the manual records maintained for various purposes may continue. In pursuance of CVC’s instructions, Commissioners of Customs shall establish a mechanism for maintenance of a comprehensive database in their respective website, indicating the receipt, acknowledgement, action taken for disposal (either payment or rejection) of refund applications and those pending at the end of the month. The details of refund application such as name of the claimant, file number, date of application, amount of refund claimed, date of its acknowledgement shall be indicated in chronological order by the date of its receipt. The applications may be serially numbered for each year and shall be shown in a single list indicating their respective status distinctly. The illustrative status that could be mentioned for easy understanding of any applicant may include the following: (i) refund application received but pending for scrutiny and acknowledgement (ii) refund application acknowledged for its completeness (iii) refund application found incomplete and returned for rectification of deficiency (iv) refund application rejected by passing a speaking order (iv) refund application sanctioned, pending verification by audit (v) cheques issued for refunds sanctioned and paid to applicant/ credited to consumer welfare fund. This is not exhaustive and any other stage of processing of refund application may also be indicated. An abstract at the end of the month about the total number of refund applications received, acknowledged, disposed and pending may also be indicated. This online data base would be accessible to the trade and public as well as by all Customs officers to enhance transparency. Further, the status of individual applications for refund of Customs duty shall be updated from time to time, at least daily, so that the applicants remain duly informed about the status of their applications. The data may be allowed for display on the website for three months period from the date of its final disposal and thereafter it can be moved to the history database.
(f) Monitoring Mechanism: Chief Commissioners/ Directorate General of Performance Management (DGPM) are to review the position of refunds in their respective zones/ select zones, to check on the timely sanction of refund applications. If any refund application is pending for long period, the reasons for the same may be identified by the concerned Chief Commissioner and action initiated for disposal by reference to the concerned Commissionerate. DGPM may also access the database of refund applications and maintain the data in respect of those refund applications pending for long period and action taken thereon, for reporting to the Board.
[Refer Notifications No.32/95-Cus(NT), dated 26-5-1995 and No.75/2003-Cus(NT), dated 12-9-2003 and Circulars No.59/95-Cus, dated 5-6-1995, No.24/2007-Cus, dated 2-7-2007, No.7/2008-Cus, dated 28-5-2008, No.22/2008-Cus, dated 19-12- 2008 and CVC Circular No.40/11/06, dated 22-112006 (http://www.cvc.nic.in)]
8 IGST Refund
8.1 Introduction
8.1.1 Under GST, exports and supplies to SEZ are zero rated as per Section 16 of the IGST Act, 2017. By zero rating, it is meant that the entire supply chain of a particular supply is tax free, i.e., there is no burden of tax either on the input side or output side.
8.1.2 As per Section 16(3) of the IGST Act, 2017, a registered person making a zero-rated supply is eligible to claim refund in accordance with the provisions of Section 54 of the CGST Act, 2017, under either of the following options, namely: (i) 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 unutilised input tax credit of CGST, SGST / UTGST and IGST; or (ii) 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.
8.1.3 As per Rule 96 of the CGST Rules 2017, dealing with refund of IGST paid on goods exported out of India, the shipping bill filed by an exporter shall be deemed to be an application for refund of integrated tax paid on the goods exported out of India, once both the export general manifest (EGM) and valid return in Form GSTR-3 or Form GSTR3B, as the case may be, has been fed.
Thus, once the shipping bill and the EGM is filed and a valid return is filed, the application for refund shall be considered to have been filed and refund shall be processed.
8.1.4 IGST Refund module for exports is operational in ICES since 10.10.2017. As per Rule 96 of the CGST Rules 2017, dealing with refund of IGST paid on goods exported out of India, the shipping bill filed by an exporter shall be deemed to be an application for refund of integrated tax paid on the goods exported out of India, once both the export general manifest (EGM) and valid return in Form GSTR-3 or Form GSTR- 3B, as the case may be, has been filed. Rule 96 further stated that the information on GSTR 1 shall then be transmitted electronically to Customs and the System designated by Customs shall process the refund claim.
8.1.5 The IGST refund module has been designed in line with the above rule and has an inbuilt mechanism to automatically grant refund after validating the Shipping Bill data available in ICES against the GST Returns data transmitted by GSTN. The matching between the two data sources is done at Invoice level and if the necessary matching is successful, ICES shall process the claim for refund and the relevant amount of IGST paid with respect to each Shipping Bill or Bill of export shall electronically credited to the exporter’s bank account as mentioned with the Customs authorities.
8.2 Pre-requisites and precautions required to be taken by exporters for successful processing of refund claims:
i. file GSTR 3B with taxable value for export and IGST paid against exports indicated in appropriate fields.
ii. file GSTR 1 or Table 6A for the exports made with correct details such as Invoice number, Taxable value, IGST paid, Shipping Bill number, Shipping Date and Port Code.
iii. ensuring aggregate IGST paid amount claimed in GSTR 1 or Table 6A is not greater than the IGST paid amount indicated in Table 3.1(b) of GSTR 3B of the corresponding month
iv. use Table 9 of GSTR 1 of the following month to amend the records of previous month so as to take care of issues mentioned in paras (ii) and (iii) above.
8.3 Ensuring hassle free processing of refund claims:
a) Jurisdictional officers at gateway port may initiate swift penal action against shipping lines/ agents who fail to file either regular or supplementary EGMs electronically for cargo originating from ICDs.
b) Jurisdictional officers in ICDs should ensure filing of local EGM i.e., train or truck summary, as the case maybe, immediately after cargo leaves the port, liaising with the jurisdictional officers at the port for incorporation of Shipping Bills pertaining to the cargo originating in ICDs, in the EGMs filed at gateway port by the Shipping lines/agents and rectification of errors in local and gateway EGM, wherever necessary.
c) Jurisdictional officers at gateway port should strictly monitor the EGM pendency and error reports available in ICES and get the EGM errors resolved in an expeditious manner by asking the Shipping lines/ agents to file requisite amendments and approving those amendments on ICES. Errors in shipping bill or in local EGM (i.e., truck or train summary), the remedial action has to be taken by jurisdictional officer in ICD.
8.4 Sanction of pending IGST refund claims where the records have not been transmitted from the GSTN to DG Systems
8.4.1 As an interim measure for those cases where the records have not been transmitted by GSTN to Customs EDI system, to overcome the problem of refund blockage, subject to undertakings/ submission of CA certificates by the exporters and post refund audit scrutiny, the following procedure shall be followed:
A. Cases where there is no short payment:
(i) The Customs policy wing would prepare a list of exporters whose cumulative IGST amount paid against exports and interstate domestic outward supplies, for the period July 2017 to March 2018 mentioned in GSTR-3B is greater than or equal to the cumulative IGST amount indicated in GSTR-1 for the same period. Customs policy wing shall send this list to GSTN.
(ii) GSTN shall send a confirmatory e-mail to these exporters regarding the transmission of records to Customs EDI system.
(iii) The exporters whose refunds are processed/ sanctioned would be required to submit a certificate from Chartered Accountant before 31st October 2018 to the Customs office at the port of export to the effect that there is no discrepancy between the IGST amount refunded on exports and the actual IGST amount paid on exports of goods for the period July 2017 to March 2018.
In case there are exports from multiple ports, the exporter is at liberty to choose any of the ports of export for submission of the said certificate.
(iv) A copy of the certificate shall also be submitted to the jurisdictional GST office (Central/ State). The concerned Customs zone shall provide the list of GSTINs who have not submitted the CA certificate to the Board by the 15th November 2018.
(v) Non submission of CA certificate shall affect the future IGST refunds of the exporter.
(vi) The list of exporters whose refunds have been processed as above shall be sent to DG (Audit)/ DG (GST) by the Board.
B. Cases where there is short payment:
(i) In cases where there is a short payment of IGST i.e. cumulative IGST amount paid against exports and interstate domestic outward supplies together, for the period of July 2017 to March 2018 mentioned in GSTR-3B is less than the cumulative IGST amount indicated in GSTR-1 for the same period, the Customs policy wing would send the list of such exporters to the GSTN and all the Chief Commissioner of Customs.
(ii) e-mails shall be sent by GSTN to each exporter referred in para (i) above so as to inform the exporter that their records are held up due to short payment of IGST. The e–mail shall also advise the exporters to observe the procedure under this circular.
(iii) The exporters would have to make the payment of IGST equal to the short payment in GSTR 3B of subsequent months so as to ensure that the total IGST refund being claimed in the Shipping Bill/GSTR-1(Table 6A) is paid. The proof of payment shall be submitted to Assistant/Deputy Commissioner of Customs in charge of port from where the exports were made. In case there are exports from multiple ports, the exporter is at liberty to choose any of the ports of export.
(iv) Where the aggregate IGST refund amount for the said period is upto Rs. 10 lacs, the exporter shall submit proof of payment (self-certified copy of challans) of IGST payment to the concerned Customs office at the port of export. However, where the aggregate IGST refund amount for the said period is more than Rs. 10 lacs, the exporter shall submit proof of payment (self-certified copy of challans) of IGST to the concerned Customs office at the port of export along with a certificate from chartered Accountant that the shortfall amount has been liquidated.
(v) The exporter would give an undertaking they would return the refund amount in case it is found to be not due to them at a later date.
(vi) The Customs zones shall compile the list of exporters (GSTIN only), who have come forward to claim refund after making requisite payment of IGST towards short paid amount and complied with other prescribed requirements.
(vii) The compiled list may be forwarded to Customs policy wing, DG (Audit) and DG (GST). Customs policy wing shall forward the said list of GSTINs to GSTN. On receipt of the list of exporters from Customs policy wing, GSTN shall transmit the records of those exporters to Customs EDI system.
(viii) The exporters whose refunds are processed/ sanctioned as above would be required to submit another certificate from Chartered Accountant/ Cost Accountant before 31st October, 2018 to the same Customs office at the port of export to the effect that there is no discrepancy between the IGST amount refunded on exports and the actual IGST amount paid on exports of good for the period July 2017 to March 2018. A copy of the certificate shall also be submitted to the jurisdictional GST office (Central/ State). The concerned Customs zone shall provide the list of GSTINs who have not submitted the CA certificate to the Board by the 15th November 2018.
(ix) Non submission of CA certificate shall affect the future IGST refunds of the exporter. Post refund audit 4.
C. The exporters would be subjected to a post refund audit under the GST law. DG (Audit) shall include the above referred GSTINs for conducting Audit under the GST law. The inclusion of IGST refund aspects in Audit Plan of those units may be ensured by DG (Audit). In case, departmental Audit detects excess refunds to the exporters under this procedure, the details of such detections may be communicated to the concerned GST formations for appropriate action.
D. DG (GST) shall send the list of exporters to jurisdictional GST officers (both Centre / State) informing that these exporters have taken benefit of the procedure prescribed in this circular. The jurisdictional GST formations shall also verify the payment particulars at their end
8.5 GST refunds-mechanism to verify the IGST payments for goods exported out of India in certain cases
8.5.1 Instances of availment of IGST refund using fraudulent ITC claims by some exporters have been observed by various authorities. Exporters have availed ITC on the basis of ineligible documents or fraudulently and utilized that credit for payment of IGST on goods exported out of India. It has also been observed in several cases that there is huge variation between the FOB value declared in the Shipping Bill and the Taxable value declared in GST Return apparently to effect higher IGST pay out leading to encashment of credit. It is decided to verify the IGST payments through the respective GST field formations. The procedure specified in the instruction 15/2017-Cus dated 09.10.2017 stand modified to the extent as under:
A. Identification of Suspicious cases: DG (Systems) shall work out the suitable criteria to identify risky exporters at the national level and forward the list of said risky exporters to Risk Management Centre for Customs (RMCC) and respective Chief Commissioners of Central Tax. DG (Systems) shall inform the respective Chief Commissioner of Central Tax about the past IGST refunds granted to such risky exporters (along with details of bank accounts in which such refund has been disbursed).
B. Inserting Alert in the System: RMCC shall insert alerts for all such risky exporters and make 100% examination mandatory of export consignments relating to those risky exporters. Also, alert shall be placed to suspend IGST refunds in such cases.
C. Examination of the export goods: Customs officers shall examine the consignment as per the RMCC alert. In case the outcome of examination tallies with the declaration in the Shipping Bill subject to no other violation of any of provision of the Customs Act, 1962 or other laws being observed, the consignment may be cleared as per the regular practice.
D. Suspension of IGST refunds: Notwithstanding the clearance of the export consignments as per para C above, such Shipping Bills shall be suspended for IGST refund by the Deputy or Assistant Commissioner of Customs dealing with refund at the port of export.
E. Verification by GST formations: (i)Chief Commissioner of Central Tax shall get the verification of the IGST refund claims and other related aspects done in accordance with the Standard Operating procedure to be issued by the GST policy wing. (ii)The GST formation shall furnish a report to the respective Chief Commissioner of Central Tax within 30 days specifying clearly whether the amount of IGST paid and claimed/ sanctioned as refund was in accordance with the law or not. (iii) Chief Commissioner of Central Tax shall compile and forward report of all cases to RMCC and concerned customs port of export within 5 working days thereafter.
[Refer Rule 96 of the CGST Rules 2017, Circular 42/2017- Customs dated 7th November, 2017, Circular 5/2018- Customs dated 23rd February, 2018, Circular 6/2018- Customs dated 16th March, 2018, Circular 12/2018-Customs dated 29th May, 2018, Circular 33/2018- Customs dated 19.09.2018, Circular 37/2018Customs dated 09.10.2018, Circular 40/2018-Customs dated 24.10.2018]
Source – Custom Duty Manual 2023
