All about Tax Refund Provisions under GST Law

PART-I-INTRODUCTION

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:

• Hassle free conduct between tax administrators and dealers.
• Expansion and Modernization of existing business and starting of new business since funds are not get blocked.
• Due to increase and efficiency in production, Cost of production is reduced.
• Since cost of production is reduced, the price will come down, demand will increase, production goes up, which ultimately increases the tax revenue to the Government exchequer.

PART-II- Refund provisions in various states

The gist of refund provisions existing in various States VAT Act is narrated below:

Kerala

Reverse Charge under GST

ANDHRA PRADESH

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.

TAMIL NADU

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.

• Strict compliance to the procedures enumerated in VAT Rules and Circulars issued by CCT’s from time to time.
• Strict supervision by Higher authorities should be made mandatory for prompt and speedy refund.
• The same importance given to collecting demand should also be given to refund. As per Kerala RTS Act, a refund application should be disposed off within two months.

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.

• Any person claiming refund of any tax and interest may make an application to the proper Officer of IGST/CGST/SGST before the expiry of two years from the relevant date in such form and in such manner as may be prescribed. Provided that the limitation period of two years shall not apply in cases where the amount referred above has been paid under protest.
• A taxable person may claim refund of any unutilized input tax credit at the end of any tax period.
• No refund of unutilized ITC shall be allowed in cases other than exports or in cases where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on outputs.GST (Sec.38(2))
• No refund of unutilized ITC in cases where the goods are exported out of India are subjected to export duty.
• The Refund application shall be accompanied by :
  • documentary evidence as may be prescribed to establish that a refund is due.
  • Such documentary or other evidence as the applicant may furnish to establish that the amount of tax and interest, if any, paid on such tax or any other amount paid in relation to which such refund is claimed was collected from, or paid by, him and the incidence of such tax and interest had not been passed on by him to any other person.
  • If the amount claimed is less than five lakh rupees, he may file a declaration, based on the documentary and other evidences with him, certifying that the incidence of such tax and interest had not been passed on by him to any other person.
• If the proper officer is satisfied that the whole or part of the amount claimed as refund is refundable, he may make an order accordingly and the amount so determined shall be credited to the Consumer Welfare Fund. The proper Officer shall issue the order within ninety days from the date of receipt of application ( ie. complete application containing all information as may be prescribed). CGST Sec.38(4)& 38(5).
• In case of any claim for refund on account of export of goods and /services made by such category of registered taxable persons as may be notified in this behalf, refund eighty percent of the total amount so claimed, excluding the amount of input tax credit provisionally accepted, on a provisional basis, subject to such conditions, limitations and safeguards and the remaining twenty percent may be refunded after due verification of documents furnished by the applicant. GST Sec.38(4A)
• Notwithstanding anything contained in sub section (4) or (4A), the refundable amount shall, instead of being credited to the Fund, be paid to the applicant if such amount is relatable to (a) refund of tax on goods and /or services exported out of India or on inputs used in the goods and/or services which are exported out of India (b) refund of unutilized ITC under sub section (2) ,(c) the tax and interest, if any, or any other amount paid by the applicant, if he had not passed on the incidence of such tax and interest to any other person and (d) the tax or interest borne by such other class of applicants as the Central/State Government may on the recommendation of the Council, by notification, specify. CGST Sec.38(6).
• Notwithstanding anything to the contrary contained in any judgment, decree, order or direction of the Appellate Tribunal or any Court or in any other provision of this Act or the rules made there under or in any other law for the time being in force, no refund shall be made except as provided in sub-section (6) (GST 38(7).
• Notwithstanding anything contained in sub-section (2), where any refund is due under the said sub-section to a registered taxable person who has defaulted in furnishing any return or who is required to pay any tax, interest or penalty, which has not been stayed by any Court, Tribunal or Appellate Authority by the specified date, the proper officer may –

(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))

• Notwithstanding anything contained in sub-section (4) or sub-section (4A), where an order giving rise to a refund is the subject matter of an appeal or further proceeding or where any other proceeding under this Act is pending and the Commissioner / Board is of the opinion that grant of such refund is likely to adversely affect the revenue, he may, after giving the taxpayer an opportunity of being heard, withhold the refund till such time as he may determine. If such withheld is made, the taxable person shall be entitled to interest as provided under section 39, if as a result of the appeal or further proceeding he becomes entitled to refund.(GST Sec.38(9) and (10)).
• Notwithstanding anything contained in this section, no refund under sub-section (4) or sub-section (4A) shall be paid to an applicant if the amount is less than rupees one thousand.(Sec.38(11).
• The United Nations Organization or any Multilateral Financial Institution and Organization notified under the United Nations (Privileges and Immunities) Act, 1947 (46 of 1947),Consulate or Embassy of foreign countries and any other person or class of persons as may be notified by the Board / Commissioner, shall obtain a Unique Identity Number, in the manner prescribed, for the purpose(s)notified, including refund of taxes on the supplies of goods and/or services received by them. GST Sec.19 (6).
• Tax wrongfully collected and deposited with the Central or State Government. A taxable person who has paid IGST considering to be an Interstate supply, but which subsequently held to be an intra state supply, upon payment of CGST and SGST in the appropriate State, be allowed to take the amount of IGST so paid as refund subject to provisions of sec.38 of the CGST Act and other prescribed conditions. IGST Sec.30and Sec.53 GST.
• Pending refund claims to be disposed of under earlier law. Every claim for refund of any duty/tax and interest, if any, paid on such duty/tax or any other amount, filed by any person before the appointed day, shall be disposed of in accordance with the provisions of earlier law and any amount eventually accruing to him shall be paid in cash, notwithstanding anything to the contrary contained under the provisions of earlier law other than the provisions of sub­section (2) of section 11B of the Central Excise Act, 1944 (1 of 1944): Provided that where any claim for refund is fully or partially rejected, the amount so rejected shall lapse. (Chapter XXV.Transitional Provisions CGST Sec.154 (Central Law)) Similarly,every claim for refund of any tax and interest, if any, paid on such tax or any other amount, filed by any person before the appointed day, shall be disposed of in accordance with the provisions of earlier law and any amount eventually accruing to him shall be refunded to him in accordance with the provisions of the said law: Provided that where any claim for refund is fully or partially rejected, the amount so rejected shall lapse.(Chapter XXV.Transitional Provisions GST Sec.154 (State Law))
• Every proceeding of appeal, revision, review or reference relating to any output duty liability initiated before the appointed day, shall be disposed of in accordance with the provisions of the earlier law, and any amount found to be admissible tothe claimant shall be refunded to him in cash, notwithstanding anything to the contrary contained under the provisions of earlier law other than the provisions of sub-section (2) of section 11B of the Central Excise Act, 1944and shall not be admissible as input tax credit under this Act. (Chapter XXV.Transitional Provisions GST Sec.155). Similarly, every proceeding of appeal, revision, review or reference relating to any output tax liability initiated before the appointed day, shall be disposed of in accordance with the provisions of the earlier law, and any amount found to be admissible to the claimant shall be refunded to him in accordance with the provisions of the earlier law and shall not be admissible as input tax credit under this Act.(Chapter XXV.Transitional Provisions GST Sec.155).
• Every proceeding of appeal, revision, review or reference relating to any output duty liability initiated before the appointed day, shall be disposed of in accordance with the provisions of the earlier law, and any amount found to be admissible to the claimant shall be refunded to him in cash, notwithstanding anything to the contrary contained under the provisions of earlier law other than the provisions of sub-section (2) of section 11B of the Central Excise Act, 1944and shall not be admissible as input tax credit under this Act.(Chapter XXV.Transitional Provisions GST Sec.156). Similarly, Every proceeding of appeal, revision, review or reference relating to anyoutput tax liability initiated before the appointed day, shall be disposed of in accordance with the provisions of the earlier law, and any amount found to be admissible to the claimant shall be refunded to him in accordance with the provisions of the earlier law and shall not be admissible as input tax credit under this Act.

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).

• The amount of refund , under the provisions of the Act shall be rounded off to the nearest rupee and, for this purpose, where such amount contains a part of a rupee consisting of paise then, if such part is fifty paise or more, it shall be increased to one rupee and if such part is less than fifty paise it shall be ignored.(Sec.137 CGST Act)
• Where an amount deposited by the appellant with regard to filing of appeals before the First appellate authority or before the Appellate Tribunal is required to be refunded consequent to any order of the First Appellate Authority or of the Appellate Tribunal, as the case may be, interest at the rate specified under section 39 shall be payable in respect of such refund from the date of payment of the amount till the date of refund of such amount.(Sec.85 of CGST Act).

• Interest on delayed refunds :If any tax refundable under section 38 to any applicant is not refunded within three months from the date of receipt of application under sub-section (1) of that section, interest at such rate as may be specified in the notification issued by the Central or a State Government on the recommendation of the Council shall be payable in respect of such refund from the date immediately after the expiry of the due date for sanction of refund under section 38 till the date of refund of such tax.

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).

2) Procedure

a) General procedures on submission of application

• Refunds under GST is application based and subject to verification. Application to be submitted through GSTN Portal with provision for uploading supporting documents.
• Any person claiming refund of any tax or interest shall make application to the proper officer.(S.38 (1))
• The application form shall be correct and complete and will be prescribed in the Rules.S.38 (5) Expin.
• The application shall be made before expiry of two years from the relevant date.
• Relevant dates for different scenarios 38(B)

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);

3.Export invoice;

4.Packing list;

5.Bill of Lading/ Airway Bill;

6.Bank Realization Certificate (BRC).

7.In case of services, invoice and BRC.

c) Verification

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,

• A simple formula will be prescribed in the rules may be based on proportionate credit based on export turnover/total turnover.
• A declaration can be obtained from the exporter regarding Utilization of inputs in exported goods.
• Refund shall be granted within 90 days from the date of application.Sec.38(5)
• For export refunds to notified category of dealers, 80% refund can be granted before verification subject to such conditions and restrictions.

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)

• Interest accrues from after 3months from the date of receipt of application.
• Interest rate yet to be notified. Business process Committee recommends 6%.
• In case of refund pursuant to appellate
  authority/Tribunal/Court from the date of order.

5) Withholding of refunds Sec.38

Refund can be withheld in the following circumstances:

• If the registered dealer has not submitted return, till he files the return.
• The proper officer can also deduct unpaid taxes if any of the dealer.
• Commissioner/Board can withhold refund, if, the Order of Refund is under appeal and he is of the opinion that grant of such refund will adversely affect revenue.

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

• Refund scenarios limited.
• Total online process.
• Online verification to the extent possible.
• Communication and status check of refund application by the dealer online.
• Fixed time limit for refunds in the Act.
• Minimal or no blockage of Capital to dealers.

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