1. VAT is a multi-stage tax levy system which envisages collection of tax at each stage of the value addition chain, with a provision to allow input tax credit (ITC) on tax paid at an earlier stage (ie.for inputs), which can be appropriated against the VAT liability on subsequent sale. Under VAT system, the dealer has to pay Net tax on his taxable transactions.
Net Tax = Output tax – Input tax credit.
Simply, If anything is paid in excess of this amount, this has to be refunded to the dealer. Timely and proper refunding mechanism is a must in tax administration, since it promotes the following:
PART-II- Refund provisions in various states
The gist of refund provisions existing in various States VAT Act is narrated below:
|Nature of credit||Relevant Section/Rule||Treatment|
When an assessing authority finds, on completion of annual assessment, that a dealer has paid tax in excess of what is due from him, it shall refund the excess to the dealer.
When an assessing authority receives an order from any appellate or revisional authority or any officer authorised, to make a refund of tax or penalty or cash security paid by a dealer or any other person, it shall effect the refund to such dealer or such other person.
The assessing authority shall have the power to adjust the amount due to be refunded towards the recovery of any amount due, on the date of adjustment, from the dealer.
In case refund is not made within ninety days of the completion of assessment or of the date of receipt of the order in appeal or revision or the date of expiry of the time for preferring appeal or revision, the dealer shall be entitled to claim interest at the rate of ten percent per annum on the amount due to him from the date of expiry of the said period upto the date of payment or adjustment.
|Power to withhold refund in certain cases||Sec.90||
Where an order giving rise to refund is the subject matter of appeal or any other proceedings under the Act and the assessing authority is of the opinion that the grant of refund is likely to prejudice the public revenue, it may, for good and sufficient reasons to be recorded in writing withhold the refund until such time as it deems proper.
Where a refund is withheld and the matter is finally settled in favour of a dealer, a simple interest of six percent per annum shall be paid for the period commencing from the first day of the order determined, in favour of the dealer and ending the date on which the refund is made, where the assessing authority fails to make the refund within ninety days from the date of receipt of such order by it.
|Refund in case of Excess Input Tax credit||Sec.11(6)/rule 47A||
If the input tax of a dealer for a return period is more than the Output tax of that return period, the excess ITC shall be first adjusted against any interest, tax or any other amount due from the dealer under the Act for any previous return periods and then against tax payable under the CST Act. Still if there is any excess credit, it shall be carried forward to the succeeding return period for availing the credit.
In cases, where the excess ITC carried forward cannot be fully adjusted during the last return period of that year, it shall be refunded to the dealer.Dealer claiming
refund of ITC remaining unadjusted at the end of the year has to submit an application in Form No.21CC within 3 months after the expiry of the year to which the input tax relates along with the Closing stock inventory in respect of VAT suffered goods locally purchased during the respective year and held as closing stock as on 31st March, in Form No.54.
|Refund of Input tax in the case of export or inter state sale||Sec.13(iv)(a)/ Rule.47||
As per Sec.13(2) (iv)(a) input tax paid on goods(other than falling under Fourth Schedule (ie. KGST) which are used or consumed in the manufacture of taxable or non-taxable goods or used as containers or as packing materials of such goods, is entitled to refund if the manufactured goods are exported.
|Sec.13(iv)(b)||Refund of input tax when taxable goods are manufactured and sold interstate.|
Where input tax paid goods are sent to outside State by way of stock transfer, the refund shall be limited to the amount of input tax paid in excess of 5% on the purchase turnover of such goods.
38. (1) (a) A VAT dealer effecting sales falling under sub-section (1) or (3) of Section 5 (and sub-section (6) of Section 8) of the Central Sales Tax Act, 1956 in any tax period shall be eligible for refund of tax, if the input tax credit exceeds the amount of tax payable subject to the condition that the exports have been made outside the territory of India. The excess of tax shall be refunded within a period of ninety days on a claim made on a VAT return prescribed to the authority prescribed subject to the provisions of the Act and the rules made thereunder;
(b) In all other cases, the VAT dealer may make a claim for refund of any excess credit available at the end of second year after the commencement of the Act and thereafter in the return to be filed for the month of March every year if registered as a VAT dealer for a minimum period of twelve months or in the event of cancellation of registration. The excess of input tax credit claimed as refund shall be refunded within ninety days of the date of receipt of the claim;
(c) The claim for refund under this Section shall be made on the VAT return in the form prescribed;
(d) A VAT dealer, who has paid tax in excess of the amount due for a tax period, may claim a credit in the next tax return.
(2) Where a VAT dealer claiming a refund is required by authority prescribed to provide accounts or records to substantiate the claim but fails to do so in a manner satisfactory to the authority prescribed within seven days of issue of notice, the time period specified in sub-section (1) for making the refund shall not apply.
(3) Where a claim of a VAT dealer is not accepted either in full or in part, the authority prescribed, shall send a notice in writing, to the VAT dealer.
(4) A VAT dealer aggrieved by the decision under sub-section (3) may file an appeal as prescribed in the Act.
(5) The tax paid under the Act on the purchases made by specialized agencies of the UNITED NATIONS ORGANISATION and Consulates or Embassies of any country located in the State, or International Crop Research Institute for Semi Arid Tropics, Hyderabad shall be refunded in such manner as may be prescribed.
Provided that, Government may by notification denotify or exclude any of the Organizations, Consulates or Embassies or any other International Institutions from the purview of this sub-section making them not eligible for refund of tax under the Act on the purchases made by them.
(6) Where the authority prescribed fails to make a refund within the time specified under sub-section (1) the amount of refund shall carry simple interest at the rate of one percent per month on the amount of the refund for the period of delay.
(7) A TOT dealer shall be eligible to adjust any excess tax paid by him in the subsequent returns or may claim refund at the time of cancellation of registration in the manner prescribed.
(8)The Government may, by notification provide for grant of refund earlier than the period stipulated in this section, of any excess credit available, after adjusting the tax payable under the Act or any tax payable under the provisions of Central Sales Tax Act, 1956 in respect of any Value Added Tax dealer or any category of Value Added Tax dealers.
(9) The tax paid under the Act, by the person who is not liable to be registered as Value Added Tax or Turnover Tax dealer and not liable to pay tax under the Act, may be refunded in the manner as may be prescribed.
39. (1) Where the authority prescribed is required to refund an amount of tax to a VAT dealer or TOT dealer or any other dealer as a result of:‑
(a) a decision under Section 31; or
(b) a decision of the Appellate Tribunal under Section 33; or
(c) a decision of the High Court under Section 35; such refund shall be made within a period of ninety days from the date of the receipt of the order.
(2) Where refund is not made within the stipulated time, as mentioned in subsection (1) the amount of refund shall carry interest at the rate of one percent per month for the period of delay. The interest in respect of part of a month shall be computed proportionately and for this purpose, a month shall mean a period of 30 days.
40. (1) The Commissioner or the authority prescribed shall have the power to adjust any amount due to be refunded against any tax, penalty and interest outstanding against a VAT dealer or a TOT dealer or any other dealer.
(2) Where an order giving rise to a refund is the subject matter of an appeal or further proceeding, or where any other proceeding is pending, and the authority prescribed is of the opinion that the grant of the refund is likely to adversely affect the revenue, the authority prescribed may, with the previous approval of the Deputy Commissioner, withhold the refund till such time as the Deputy Commissioner may determine.
(3) Where any demand of tax or penalty or both is disputed by a VAT dealer or TOT dealer before any appellate authority or Sales Tax Appellate Tribunal or High Court and the demand becomes finally due either partly or fully an interest at the rate of one percent per month shall be charged from the date such tax or penalty was originally due.
Sec.18(2) – The dealer, who makes zero rate sale, shall be entitled to refund of input tax paid or payable by him on purchase of those goods, which are exported as such or consumed or used in the manufacture of other goods that are exported as specified in sub-section (1), subject to such restrictions and conditions as may be prescribed.
3) Where the dealer has not adjusted the input tax credit or has not made a claim for refund within a period of one hundred and eighty days from the date of 1 [making zero rate sales] accrual of such input tax credit, such credit shall lapse to Government.
PART-III- Various issues in refund
> Reluctance on the part of the officials to grant speedy refund on apprehension of AG’s objection
> Over emphasis on creating revenue for the Government exchequer at the cost of granting benefit to the dealers legitimately due to them under the Statute.
> Illegal gratification on the part of the Officials.
> Accrual of interest for delayed refund.
Ways to overcome these limitations.
PART-IV-REFUND PROVISIONS IN MODEL GST LAW
Chapter X Sections 38 to 41 of Model GST Law deals with refund Provisions. For the purposes of this section “refund” includes refund of tax on goods and/or services exported out of India or on inputs or input services used in the goods and/or services which are exported out of India, or refund of tax on the supply of goods regarded as deemed exports, or refund of unutilized input tax credit as provided under sub-section (2) of Section 38.
(a) withhold payment of refund due until the said person has submitted the return or paid the tax, interest or penalty, as the case may be;
(b) deduct from the refund due, any tax, interest or penalty which the taxable person is liable to pay but which remains unpaid. (GST.Sec.38(8))
Where in pursuance of an assessment or adjudication proceedings instituted, whether before or after the appointed day, under the earlier law, any amount of tax, interest, fine or penalty becomes refundable to the taxable person, the same shall be refunded to him in cash under the earlier law, notwithstanding anything to the contrary contained in the said law other than the provisions of sub-section (2) of section 11B of the Central Excise Act, 1944.(Chapter XXV.Transitional Provisions GST Sec.157) Similarly, Where in pursuance of an assessment proceedings instituted, whether before or after the appointed day, under the earlier law, any amount of tax, interest, fine or penalty becomes refundable to the taxable person, the same shall be refunded to him in accordance with the provisions of earlier law.(Chapter XXV.Transitional Provisions GST Sec.157)
Where any return, furnished under the earlier law, is revised and if, pursuant to such revision, any amount is found to be refundable to any taxable person, the same shall be refunded to him in cash under the earlier law, notwithstanding anything to the contrary contained in the said law other than the provisions of sub-section (2) of section 11B of the Central Excise Act, 1944 (Chapter XXV.Transitional Provisions GST Sec.158). Similarly, Where any return, furnished under the earlier law, is revised and if, pursuant to such revision, any amount is found to be refundable to any taxable person, the amount shall be refunded to the said person in accordance with the provisions of the earlier law(Chapter XXV.Transitional Provisions GST Sec.158).
PART V- REFUND AT A GLANCE
1) Refund scenarios in GST
A) Refund of unutilized Input tax credit allowed only in cases Sec.38(2)
(i) Exports of goods and services. It can be tax paid on the inputs used in the use of goods and services which are exported at zero rate or if tax is paid on such exports ; such tax
(No refund of Unutilized ITC, if goods exported outside India are subjected to export duty) (proviso to 38(2)
(ii) On account of accumulation of account of rate of tax on inputs higher than the rate of taxes on Outputs.(Credit accumulation due to output being tax exempt or nil-rated and Credit accumulation due to inverted duty structure i.e. due to tax rate differential between output and inputs). There will be no refund of ITC of goods lying in stock at the end of the Financial year. It is proposed to be carried forward.
B) On Finalization of provisional assessment under Sec.44A(5)
A dealer can apply for Provisional assessment u/s.44A after which the officer is bound to do final assessment. If on final assessment refund is due to the dealer, it shall be paid.
C) Refund of Pre – deposit for filing appeal including refund arising in pursuance of an appellate authority’s order (when the appeal is decided in favor of the appellant .
D) Excess payment of tax due to mistake or inadvertence:- Such excess payment may be on account of wrong mentioning of nature of tax/GSTIN/ of tax amount. In case of wrong mentioning of tax/GSTIN, the tax administration has to verify the correctness of tax payers claim while verifying the refund application filed by the him, which should be decided within the prescribed period. In case of wrong mentioning of tax, the refund of excess amount of tax, at the option of the taxpayer, would either be automatically carried forward or adjustment against future tax liabilities or be refunded.
E) Tax wrongfully collected and deposited with the Central or State Government.
A taxable person who has paid IGST/CGST/SGST mistakenly as an Interstate/intrastate supply, but the nature of which was subsequently clarified, then, upon payment of CGST and SGST in the appropriate State or IGST, he shall be allowed to take refund of the tax paid under the mistaken head, subject to Rules which will be made and provisions of Sec.38. (IGST Sec.3 0 and Sec.53 GST).
F) Refund of tax payment on purchases made by Embassies or UN
The United Nations Organization and Consulates or Embassies are required to take a Unique Identity Number and purchases made by them will be reflected against their number in GSTIN and refunds can be granted. A separate process will be notified in the Rules. GST Sec.19(6).
a) General procedures on submission of application
b) Documents to be accompanied with the Application form –
General documents which will be prescribed in the Rules .But the following documents for various scenarios are mentioned in the Business Process document.
For exports refund application to be submitted by the applicant. There will be a provision to upload scanned copies wherever possible
1.Shipping Bill (Export Promotion copy);
2.Mate’s Receipt / Transporter’s Challan (in case of export by road);
5.Bill of Lading/ Airway Bill;
6.Bank Realization Certificate (BRC).
7.In case of services, invoice and BRC.
The verification will be mostly online.
The Import Export code (IEC) details captured at the time of issuance of GSTN can be verified with DGFT online. As proposed, if the linkage with the customs network ICEGATE is worked out, shipping bill which includes relevant details from the export invoice and packing list can be verified online.
BRC-Since the exporter has a time period of one year from the date of export for remitting of export proceeds, BRC may not be available at the time of refund application. But if export proceeds are received in advance BRC may be available. Thus, in case of BRC refund should be subject to submission of BRC details within a period of maximum one year or as extended by RBI. e-BRC module of DGFT will be integrated with GST module.
If export is done on payment of duty, the uploaded export invoice can be verified online for verification of payment of duty.
If refund is claimed on GST paid on inputs used for exported goods, utilization for exports is required to be verified. For this, The GST paid character of purchases can be matched with supplier and exporter’s return. No separate documents is necessary. As regard to utilization of inputs for export,
3) Unjust enrichment and consumer Welfare Fund
Except in cases of exports, refund of unutilized ITC and the amount of tax and interest or other amounts paid by the applicant, if he had not passed on the incidence of such tax and interest to any other person and tax or interest borne by such notified persons, the refundable amount shall be credited to consumer welfare fund constituted under sec.40.
4) Interest on delayed refunds (Sec.39)
5) Withholding of refunds Sec.38
Refund can be withheld in the following circumstances:
6) Deminimus threshold for refund sec.38(11)
No refund shall be granted if the amount is less that Rs.1000/-.
7) Refunds under earlier law to be paid in cash (see transitional provisions
PART-VI-Advantages of refund system in GST vis-vis to current refund systems
|S. No.||Title of the Post|
|24.||All about Frontend Business Process on GST Portal|