Consumers/Unregistered persons can now file GST refund claim for cancelled contracts

Introduction:

Ram had booked a flat in an under construction apartment in Kolkata for Rs. 1 crore and had paid 5% as GST i.e. Rs. 5,00,000/-. However his employer suddenly transferred him to Delhi and he was required to join his new station immediately. Ram went to the Promoter seeking cancellation of the booking and sought refund of the booking amount. Ram had by then paid the full price and was about to get possession in another 2-3 months. The Promoter readily cancelled the booking and also decided not to deduct any amount as cancellation charges as by this time prices of the apartment had appreciated. Since, Ram wanted to get back his money fast so that he could leave Kolkata and join the Delhi office soon, he was also happy that his entire money was being refunded to him in one go. But wait, there was a catch. The Promoter said that he will not be able to refund the GST amount of Rs. 5,00,000/- as it had already been deposited with the Government and the time for making any changes in the invoices/ returns had also expired. The Promoter said to Ram that since he will not be able to get the refund/ adjust the GST amount with his future liability, Ram will have to bear the loss of Rs. 5,00,000/- on his account. Ram was uphappy that there was no mechanism for people like him (consumers/ unregistered persons) to seek refund of the GST amount from the Government. Similar situation may also arise in other cases e.g. long-term insurance policies where premium for the entire period of term of policy is paid upfront along with applicable GST and the policy is subsequently required to be terminated prematurely due to some reasons.

Insertion in Rules w.r.t. refund:

The Government has now made changes in the applicable Rules related to refund to consumers/ unregistered persons for cancelled contracts and where the time limit for making any changes by the supplier of service has expired. It should be noted that where the time limit for making changes has not expired, the supplier can issue credit notes and adjust the GST paid with his future liability and refund the GST to the consumer and the consumer need not file the refund application.

The provisions for seeking refund even by unregistered persons already existed in section 54(1) wherein any person could claim refund of any tax and interest, if any, paid on such tax or any other amount paid by him, by making an application before the expiry of two years from the relevant date in such form and manner as may be prescribed. Further in case the unregistered person has borne the incidence of tax and not passed on the same to any other person, the said refund would be paid to him instead of being credited to Consumer Welfare Fund. However what presently lacked was a detailed procedure for filing refund application in such cases, which has now been addressed.

In order to facilitate filing of such refund applications by unregistered persons, a new functionality has been made available on the common portal (www.gst.gov.in) which allows unregistered persons to take a temporary registration and apply for refund under the category ‘Refund for Unregistered person’. Further, sub-rule (2) of rule 89 of CGST Rules, 2017  has been amended and statement 8 has been inserted in FORM GST RFD-01 vide Notification No. 26/2022-Central Tax dated 26.12.2022 to provide for the documents required to be furnished alongwith the application of refund by the unregistered persons and the statement to be uploaded alongwith the said refund application. Circular No. 188/20/2022-GST dt. 27^th December, 2022 has also been issued detailing the procedures.

Procedure for filing of refund application by unregistered persons:

1. The unregistered person who wants to file an application for refund shall obtain a temporary registration on the common portal (gst.gov.in  ) using his Permanent Account Number (PAN). It should be noted that where the suppliers, in respect of whose invoices refund is to be claimed, are registered in different States/UTs, the applicant shall obtain temporary registration in the each of the concerned States/UTs where the said supplier are registered.

2. The unregistered person shall select the same state/UT where his/her supplier, in respect of whose invoice refund is to be claimed, is registered. In the example mentioned above, Ram shall select ‘West Bengal’ as the State since he had booked the flat in Kolkata which is in West Bengal.

3. The unregistered person would be required to undergo Aadhaar authentication in terms of provisions of Rule 10B of the CGST Rules.

4. The unregistered person would be required to enter his bank account details in which he seeks to obtain the refund of the amount claimed. It should be noted that the applicant shall provide the details of the bank account which is in his name and has been obtained on his PAN.

5. The application for refund shall be filed in FORM GST RFD-01 on the common portal under the category ‘Refund for unregistered person’.

6. The applicant shall upload Statement-8 (in pdf format) (inserted as Annexure 1 of Form GST RFD-01 after Statement-7) and all the requisite documents as per the provisions of a new clause (ka) of sub-rule (2) of rule 89 of the CGST Rules, 2017. As per the newly clause, the refund application shall be accompanied by a statement containing the details of invoices viz. number, date, value, tax paid and details of payment, in respect of which refund is being claimed along with copy of such invoices, proof of making such payment to the supplier, the copy of agreement or registered agreement or contract, as applicable, entered with the supplier for supply of service, the letter issued by the supplier for cancellation or termination of agreement or contract for supply of service, details of payment received from the supplier against cancellation or termination of such agreement along with proof thereof.

7. The refund amount claimed shall not exceed the total amount of tax declared on the invoices in respect of which refund is being claimed.

8. The applicant shall also upload the certificate issued by the supplier in terms of clause (kb) of sub-rule (2) of rule 89 of the CGST Rules along with the refund application. The rule prescribes that refund application shall be accompanied by a certificate issued by the supplier to the effect that he has paid tax in respect of the invoices on which refund is being claimed by the applicant; that he has not adjusted the tax amount involved in these invoices against his tax liability by issuing credit note; and also, that he has not claimed and will not claim refund of the amount of tax involved in respect of these invoices, in a case where the refund is claimed by an unregistered person where the agreement or contract for supply of service has been cancelled or terminated. It may be noted that a proviso has been inserted in clause (m) of sub-rule (2) of rule 89 of the CGST Rules to clarify that a certificate from Chartered Accountant or Cost Accountant shall not be required in cases where refund is being claimed by an unregistered person who has borne incidence of tax.

9. The applicant shall also upload any other document(s) to support his claim that he has paid and borne the incidence of tax and that the said amount is refundable to him.

10. It should be noted that separate applications for refund have to be filed in respect of invoices issued by different suppliers.

Relevant date for filing of refund application:

Refund application has to be filed within 2 years of the ‘relevant date’. The ‘relevant date’ for filing refund application in such cases shall be the date of receipt of goods or services or both by such person in terms of provisions of clause (g) in Explanation (2) under section 54 of the CGST Act, 2017.

However, in respect of cases where the supplier and the unregistered person (recipient) have entered into a long-term contract/ agreement for the supply, with the provision of making payment in advance or in instalments, for example- construction of flats or long-term insurance policies, if the contract is cancelled/ terminated before completion of service for any reason, there may be no date of receipt of service, to the extent supply has not been made/ rendered. Therefore, in such type of cases, as per the Circular, it has been mentioned that for the purpose of determining relevant date, date of issuance of letter of cancellation of the contract/ agreement for supply by the supplier will be considered as the date of receipt of the services by the applicant.

Minimum refund amount:

No refund shall be claimed if the amount is less than one thousand rupees as per sub-section (14) of section 54 of the CGST Act, 2017.

Maximum refund amount:

In cases where the amount paid back by the supplier to the unregistered person on cancellation/ termination of agreement/ contract for supply of services is less than amount paid by such unregistered person to the supplier, only the proportionate amount of tax involved in such amount paid back shall be refunded to the unregistered person.

Processing of refund by the proper officer:

The proper officer shall scrutinize the application with respect to completeness and eligibility of the refund claim to his satisfaction and issue the refund sanction order in FORM GST RFD-06 accordingly. The proper officer shall also upload a detailed speaking order along with the refund sanction order in FORM GST RFD-06.

Conclusion:

Thus, with the insertion of new rules, forms and the issue of a detailed Circular, an important gap in claiming refund by unregistered persons has been plugged. Unregistered persons can now take a sign of relief as the GST paid by them and not refunded by the service provider can now be claimed from the Government itself.