INTRODUCTION

Section 54 of CGST act provides for grant of refund  to any person  of any tax and interest if any or any other amount paid by him subject to provision of the act and  rules  to any person. However, during the course of sanctioning refund, sometimes, refund is adjusted to the outstanding demand under the act  or refund is withheld. In this article we will discuss the provisions related to above issues. In order to understand the topic, we will see in brief the procedure of grant of refund.

PERSONS ELIGIBLE TO CLAIM REFUND

Any person whether registered or not is eligible to claim refund subject to conditions  and may file an application for following types of refund

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

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

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

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

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

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

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

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

i. Refund of excess payment of tax;

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

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

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

GRANT OF PROVISIONAL GST REFUND

After  receipt of an applications in GST-RFD-01, Proper Officer will scrutinize the application and issue acknowledgment in for GST-RFD-02  if is in order and no discrepancy noticed. If he satisfied that whole or part of amount claimed as refund is refundable and if it is pertaining to zero rated supply, then as per section 54(6) of the act, 90 % of refundable amount will be sanctioned as provisional refund by passing order in FROM GST- RFD-04. Within seven days from date of  acknowledgment .

FINAL GST REFUND/REFUND SANCTION ORDER

In other cases, excluding zero rated suppliers, Proper Officer will make scrutiny of application, relevant statements, annexures and documents attached to application and verify correctness of refund claim with reference to the provisions of the act and rules and determine the amount refundable. Thereafter, he shall pass, refund sanction order in FORM – GST-RFD-06, as per section 54 (6) and rule 92 ,after considering amount of  provisional refund already granted, amount inadmissible and refund to be adjusted to the outstanding demand under this act and existing law.

ADJUSTMENT OF GST REFUND

Proper Officer before passing of refund sanction order  has to confirm outstanding demand payable from applicant ,under this act or existing laws. It is provided in section 54(10) of the act, that if there is outstanding tax, interest and penalty under this act or existing laws, payable from dealer to the Government, and no stay order has been issued by respective authority, then in such cases, Proper Officer has power to adjust refund to such outstanding dues since available for recovery. Therefore, Proper Officer  must confirm, whether such dues are unpaid, and not stayed by the appellate authority or Tribunal or Court. He must give opportunity to the taxpayer to prove that  dues are stayed or paid before sanction of refund, by producing relevant documents and  challans. Thus, if it seen that stay has been granted to the outstanding dues then  refund  should not be adjusted to the dues , otherwise it would result in to double payment of dues .

FORM OF ADJUSTMENT OF GST REFUND

As per rule 92(1), refund sanction order has to be passed in form GST-RFD-06. Provision has been made in this form for adjustment of refund. While passing this order, an amount of provisional refund  and amount of inadmissible refund required to be deducted from refundable amount. Thereafter,after adjusting the refund to the outstanding demands under this act or existing laws  which are available for recovery, Proper Officer has to determine net amount refundable and pass such refund sanction order in form GST-RFD-06 .

COMPLETE ADJUSTMENT OF REFUND (GST- RFD-07)

If even after adjustment of refund, an amount of refund is due to person, then order is passed in form GST-RFD-06. However, if refundable amount is less than outstanding demand, then in such cases for complete adjustment of refund order has to be passed in form GST-RFD-07 PART A. Thus, after full adjustment of refund balance refundable amount would be nil.

WITHHELD OF GST REFUND

As per provisions of section 54(10)(a) of the act, where applicant has defaulted in furnishing of returns under this act for any tax period, Proper Officer has power to withhold refund until furnishing of such returns. After filing of returns and payment of dues as per returns, refund would be granted.

WITHHELD OF GST REFUND UNDER SECTION 54(11)

Section 54 (11) of CGST  act provides for withhold of refund which read as under

“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.“

Plain reading of section indicates  that Commissioner has power to withhold refund due as per any order , if the following ingredients are  satisfied

a) such order is subject matter of an appeal or

b) further proceeding in respect of such order is pending or

c) any other proceeding under this act is pending and

Commissioner is of opinion that such refund is likely to adversely affect the revenue in the said appeal, or other proceeding  on account of malfeasance or fraud committed.

In view of above it is seen that on satisfaction of above ingredients if Commissioner is of opinion  that grant of refund is likely to adversely affect the revenue then  he may withheld the refund by passing order u/s 54(11) in form GST-RFD -07 after giving opportunity of being heard

Similar issue was involved in the case of Ratti Woollen Mills vs State Of Punjab And Ors. on 1 February, 2007 (9 VST 105). Under section 12(6) of Punjab General sales tax act, there was similar provision to withheld refund. Sales Tax Officer has withheld refund and dealer challenged it by filing writ petition to the HON Punjab and Haryana High Court. Hon High Court has allowed writ petition. Relevant  observation reproduced hereunder which  may be applicable GST act .

After hearing learned Counsel for the parties, we find that the respondents have no right to retain the aforementioned amount in the absence of any finding that the refund would adversely affect the recovery as per the provisions of Section 12(6) of the 1948 Act. The reliance of the respondents on the order dated December 6, 2006 (R1), passed under Section 12(6) of the 1948 Act is wholly misplaced because the aforementioned order lacks complete application of mind and the primary requirements of Section 12(6) of the 1948 Act remains unsatisfied. The aforementioned provision is reproduced hereunder for ready reference:

Where an order allowing refund is the subject-matter of an appeal or further proceedings or where any other proceedings under this Act are pending, and the Assessing Authority is of the opinion that the refund is likely to adversely affect the recovery, the Assessing Authority may withhold the refund and refer the case to the Commissioner whose orders shall be final.”

A perusal of the aforementioned provisions shows that power to withhold refund could be exercised in cases where appeal or further proceedings under the 1948 Act are pending and the Assessing Authority is of the opinion that the refund is likely to adversely affect the recovery then refund may be withheld and the case be referred to the Commissioner whose order is to be considered final. The order withholding refund is blissfully silent as to how the refund would adversely affect the recovery. The order is absolutely laconic. There is not even a whisper of the material on the basis of which satisfaction has been recorded by the Commissioner. Accordingly the same cannot be sustained in the eyes of law nor can the same be relied upon for the purpose of defeating the claim of the petitioner.

In the case of M/s Sarvaraya Textile Mill ltd Vs CTO Kakinada AP High Court Dated 29-01-1990 (82 STC 367), CTO has withheld refund under section 33 C of A.P. General sales Tax Act 1957, which was challenged by dealer and filed writ petition before AP High Court . Hon High court has dismissed writ petition and upheld order. In para 15 of said judgment  High court has observed

It is, therefore, clear that the assessing authority formed an opinion that the grant of refund is likely to adversely affect the revenue and then sought the approval of the second respondent herein for passing an order withholding the refund. Having obtained the approval of the second respondent, the assessing authority, i.e, Commercial Tax Officer. Jagannaikpur, Kakinada, passed an order withholding the refund by his order dated November 6, 1989. Therefore, the ingredients of section 33-C of the Act are satisfied. The scheme of the section 33-C of the Act is that there should be an order giving rise to a refund and the same should be the subject-matter of an appeal or further proceedings and the assessing or licensing authority should form an opinion that the refund of the tax is likely to adversely affect the revenue and then obtain the approval of the Deputy Commissioner and pass an order withholding the refund of the tax ill such time the Deputy Commissioner may determine In this case, as seen from the record placed before us, the assessing authority formed an opinion that refund of the tax will adversely affect the revenue and then sought the permission of the Deputy Commissioner for withholding the refund of the tax and after obtaining approval of the second respondent herein. passed an order dated November 6, 1989 withholding the refund. Entire proceedings culminating in the passing of the older by the assessing authority dated November 6 1989. is in accordance with the provisions of section 33-C of the Act and it is not possible for this court to issue any direction for refund and order of withheld of refund can not be questioned as it was passed in term of section 33C of the act.

WITHHELD OF REFUND OF ADVANCE TAX

Under the provisions of the act , casual persons and non-resident taxable persons are required to pay advance tax at the time obtaining registration. However, after adjusted such payment toward tax payable as per returns , such persons are entitled for refund of remaining amount. However, in view of section 54 (13) of the act, such refund of excess payment is withheld till filing all returns for period registration was in force.

INTEREST ON AMOUNT OF WITHHELD REFUND

In view of section 54(12), if refund is withheld  for any tax period and as result of appeal or any other proceeding applicant  found entitled for refund , then he is also entitled for interest on such refund .

RELEVANT PROVISIONS AND FORMS

a) Subsection 10 to 13 of section 54 of the act.

b) Rule 92 of the rules

c) GST-RFD-06 Adjustment of refund

d) GST-RFD-07 PART A complete adjustment of refund

e) GST-RFD-07 PART B Withhold of refund

CONCLUSION

Adjustment of refund to the outstanding available demand result into reduction of net amount refundable. Therefore, in the interest of natural justice  reasonable opportunity is required to be given to  the applicant  to prove that demand is paid or stayed by compentant authority. In case of withheld of refund, Commissioner  after on his satisfaction that ingredients prescribed under section, must be of opinion that grant of such refund is likely to adversely affect revenue  in the said appeal or other proceeding on account of malfeasance or fraud committed. Thereafter, after giving opportunity of being heard   refund may be withheld till such time as he may determine.

Author M M Kanadje  is Retired Joint Commissioner Of State Tax

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