CBEC has issued Circular No. 135/05/2020-GST dated 31/03/2020 clarifying certain confusions under refund of GST. The summary of same reproduced below:

1. Bunching of refund claims across Financial Years:

Vide circular No 125/44/2019-GST dated 18.11.2019, claiming refund by bunching across different Financial years was restricted. As per this circular, clubbing was possible only within the Financial year and not across Financial years. However, reiterating section 16(3) of IGST Act and 54(3) of CGST Act and also basis the Delhi High Court judgement in case of M/s Pitambra Books Pvt Ltd, CBEC has removed this restriction allowing bunching of refund claims across Financial Years.

2. Refund of accumulated Input Tax credit (ITC) on account of reduction in GST rate

Refund being allowed on inverted duty structure under section 54(3)(ii) of the CGST Act, where the credit has accumulated due to rate of tax on inputs being higher than rate of tax on output. There were certain situations in trading of goods where the rate of tax at the time of purchase of goods were higher say 18% but the same was reduced to 12% through tax rate reduction by the time of sale. Such cases also claimed under inverted duty structure since the rate of tax on input is higher than rate of tax on output. However, CBEC through this circular 135/05/2020 has disallowed such cases to be considered for inverted duty structure therefore refund will not be available for such cases.

Section 54(3)(ii) explains very clearly about input tax rate higher than tax rate on outputs. It does not talk about non applicability to rate reduction cases. But now such a circular may impact the traders whenever a tax rate modification happens in favour of tax payer by reducing the tax rate.

3. Change in manner of refund of tax paid on supplies other than zero rated supplies

Any refund of tax paid on supplies other than zero rated supplies will now be admissible proportionately in the respective original mode of payment i.e. in cases of refund, where the tax to be refunded has been paid by debiting both electronic cash and credit ledgers (other than the refund of tax paid on zero-rated supplies or deemed export), the refund to be paid in cash and credit shall be calculated in the same proportion in which the cash and credit ledger has been debited for discharging the total tax liability for the relevant period for which application for refund has been filed. Such amount, shall be accordingly paid by issuance of order in FORM GST RFD-06 for amount refundable in cash and FORM GST PMT-03 to re-credit the amount attributable to credit as ITC in the electronic credit

Till now the refund was  paid in cash. Now with insertion of Notification 16/2020 and clarification through this circular, refund will be paid in proportion to the respective original mode of payment (other than zero rated supplies and deemed exports) mainly applicable to below categories of refund:

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.

4. Guidelines for refunds of Input Tax Credit under Section 54(3)

Basis this circular, the refund on accumulated ITC shall be restricted to the invoices uploaded through GSTR1 and reflecting in 2A.

The questions to be answered here is,

1. There was no invoice reconciliation of ITC and refund claim donetill now but matched at overall level. Now should invoice wise 2A reconciliation for refund application also to be done?

2. Subrule (4) of rule 36 of CGST rules 2017, provides for ITC to be claimed not more than 10% in excess of ITC reflected in 2A which means additional 10% is allowed to be claimed as ITC in 3B though not reflected in 2A. Now is this circular restricting refund claim to only for those invoices of 2A and denying the additional 10% ITC

3. In case of turnover less than 1.5 crore, the due date of filing GSTR 1 is quarterly therefore if a person is purchasing goods from MSME who is filing GSTR 1 once a quarter, should such taxable person wait for refund application till the invoices are uploaded by such supplier?

5. New requirement to mention HSN/SAC in Annexure ‘B’

Application for refund should also include HSN/SAC code which is mentioned on the inward invoices. In cases where supplier is not mandated to quote HSN/SAC code in respect of such an invoice, the same may not be required to be given in refund application.

This makes it necessary for the recipient to track each invoice of supplier to find out whether he needs to quote HSN/SAC and whether he has actually quoted the HSN/SAC codes in his invoices.

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