The board has issued circular no.135/05/2020 dated 31st March 2020 (herein referred as “impugned circular”) to resolve the issues faced by the taxpayers applying for refund and has tried to redress them

Let`s analyse the 5 issues, the clarification and its validity in this article: –

1. Clarification on clubbing of months of different financial years:

Restriction on clubbing of claims in two different financial year relaxed i.e. successive months in different Financial years i.e. March & April of the year 2020 can be clubbed in a single refund application. The restriction was made by previous circulars despite the fact that the law does not provide any such kind of condition. In line with the ruling by the Hon’ble Delhi High Court in the case of M/s Pitambra Books Pvt Ltd Vs. Union of India & Ors. (Del) which ruled “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”, the Board has modified the earlier circular to the extent to allow such clubbing. This modification would sigh a great relief to merchant exporters who received goods in the month of March whereas the actual export happened in subsequent Financial Year (i.e. April/May). Further it would also soothe those exporters who had made amendments in subsequent financial year. Though it is a welcome move by government, the actual benefit can be realised by the tax payers only when the same is enabled in GST portal.

2. Clarification with regard to inverted duty structure:

The impugned circular provides the inverted duty structure refund would not be eligible in the scenario where the inversion is due to change in the GST rate on the same goods.  Section 54(3)(ii) of CGST Act, 2017 provides that where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies (other than nil rated or fully exempt supplies) may claim refund of unutilised input tax credit. The clarification providing in circular is travelling beyond the provisions of the Act where it does not provide such restriction. Wherever reduction in rate, it automatically falls under the head of inverted duty structure for which the provisions of GST act envisage and enables GST refund being it is case of GST input supplies rate is higher than the output. Now imposing restriction to claim refund for above situation is ultra-virus and unjustifiable.

Surprisingly the impugned circular which quotes that, circulars cannot traverse beyond law, has actually crossed the provisions of the law hence stands invalid and void ab-initio to that extent.

3. Clarification regarding change in manner of refund:

Following the notification no. 16/2020 Central Tax dated 23rd March 2020 inserting new rule 86(4A) and 92(1A), refund of tax paid other than Zero rated supplies and deemed exports, where the payment has been made by debiting both cash and credit ledger, the refund would be paid in the same proportion in which the cash and credit ledger has been debited for discharging the total tax liability. The cash portion would be refunded by issuance of order GST RFD-06 and the credit portion would be re-credited to the electronic credit ledger through GST PMT-03.

The clarified amendment was made to curb the encashment of credit balances other than zero rated and deemed exports supplies. Further, such amended method would apply for the refunds issued from 23rd March 2020.

4. Clarification to restrict the refund of credit to the extent it is reflecting in GSTR 2A:

Prior to introduction of Rule 36(4), the refund of input tax credit was allowed on credit reflecting in GSTR-2A and if not reflecting, then upon the submission /uploading hard copy of invoices. The availment of credit itself restricted w.e.f. 09th October 2019 to the extent of invoices reflecting in GSTR-2A with an additional scope of 10%/20%, the impugned circular set forth that the refund also has to be restricted to the extent of invoices reflecting in GSTR-2A it does not provide for the additional 10%/20% as provided in the law. Hence the clarification is ultra-vires the provisions of the law and it is invalid. Assuming but not admitting, if the circular is valid such restriction can apply only for refund applications pertaining to the period from October 2019 and not to the prior periods.

The other view prevailing in the industry is that the rule 36(4) is itself ultra-vires the Act as the section 43A of CGST Act is yet to be notified. However, before taking such arguments one should also look into the section 16(1) of CGST Act which provides the authority in the Act to prescribe the conditions and restrictions to avail the input tax credit. Hence the ground that rule 36(4) ultra-vires may get diluted and such view is subject to litigation.

5. Clarification regarding disclosure of HSN/SAC and category of input tax credit

The impugned circular modifies the Annexure B of RFD-01, requiring the taxpayer to provide the HSN/SAC and also the category of input tax credit (Inputs/Input Services/Capital Goods) which helps the officers to identify the eligible credit for refund. Further, relaxation has been given to mention HSN/SAC if the supplier does not require to disclose the HSN/SAC in his invoice. It creates additional effort from the part of the taxpayers to apply for refund.

Though the modification seems reasonable, the question arises whether a circular can modify or amend the forms / annexure to the forms which are notified by the Government. In terms of section 168 of CGST Act, the instructions / orders issued are binding on the officers employed to implementation of the Act. Hence, the circular modifying the forms to be filled by the taxpayer would not be within the ambit of authority of the circular.


The circular goes beyond the authority in the cases as discussed above and may stand void to the extent of the same. Such hasty would create unnecessary litigation. Last but not least, one should always be clear that the circulars issued by the board are binding the officers implementing the law and not to the tax payers.

I thank CA Madhukar N Hiregange for reviewing this article and my colleague Adv.Venkatanarayana GM helping in publishing this article.

For any queries, author can be reached at [email protected]

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February 2021