In the wake of COVID-19, recently CBIC has come with various notifications and circulars. However, one important aspect in respect of GST refund has remained un-noticed. Here, I have tried to explain the difficulties arise due to amendments and probable solution as well as precautions to be taken:

1. Restriction of “NET ITC” for the purpose of refund application to the extent of invoices reflecting in GSTR 2A

a. As we are aware that the original idea of return filing mechanism in GST was GSTR 1, 2 & 3, wherein auto-populated data of GSTR 1 filed by counter parties will be reflected in GSTR 2A. Upon accept, reject and hold thereof, GSTR 2 will become consolidated statement of ITC claim for the particular tax period. However, due to GSTN system glitches, the same has been kept in abeyance and a temporary summary Form GSTR 3B has been introduced for reporting of outward liability, claiming of ITC and payment of taxes.

b. Hence, as of now, the claim of ITC is purely on self-assessment basis, without emphasising on the invoices uploaded by counter parties. Although restrictions have been put by virtue of Rule 36(4), which restricts “All other ITC” in GSTR 3B up to 110% of invoices reflecting in GSTR 2A, on which ITC is eligible.

c. Now, coming back to the issue, previously while filing refund applications, it was permitted that the assessee shall submit GSTR 2A and physical copy of those invoices which are not reflecting in GSTR 2A. However, the same has been amended vide circular 135/5/2020 – GST dated 31st March, 2020, which restricts the NET ITC for the purpose of refund application to the extent of invoices reflecting in GSTR 2A only.

d. Now the real problem arises. Hon’ble FM has announced a relaxation in filing of GSTR 1 for the month of March to May till 30th June, 2020. Hence, there are least chances that full ITC will be reflecting in GSTR 2A. This certainly means that the exporters, person claiming under inverted duty structure will not be able to claim full amount of refund. This harsh provision will definitely block considerable working capital of the businesses!!!

Probable solution:

a. In absence of any relaxation on this front, it is advisable for the person seeking refund of ITC should claim ITC in GSTR 3B to the extent of invoices reflecting in GSTR 2A only in such particular month. Any invoice of preceding month, which is reflecting in current month, can be claimed in such particular GSTR 3B.

b. One welcome relaxation has been given for GSTR 3B, where application of rule 36(4) has been partially relaxed by way of combined application of such rule, while claiming ITC, for the tax period of February 2020 to August 2020 in the GSTR 3B of September 2020. On similar lines, CBIC should come up with a relaxation that, for the purpose of ITC refund, cumulative matching mechanism will be applicable while filing refund application during the month of September 2020, so that assessee can do necessary follow up with their vendors and get all the eligible ITC reflected in GSTR 2A.

c. Alternatively, deferment of said para of the circular which restricts NET ITC to the extent of GSTR 2A till 30.09.2020 will be a momentary solution.

2. Mandatory requirement to mention HSN/SAC in ITC sheet for the purpose of refund application

a. Mentioning of HSN/SAC of the inward supplies on which ITC has been made compulsory in the ITC sheet to be submitted for the purpose of refund application.

b. However, it is worthwhile to note that with regards to issuance of invoice for outward supplies, the requirement of mentioning HSN/SAC has been relaxed initially to some extent. For instance, a person having Turnover up to Rs. 1.50 Crore p.a. need not mention HSN/SAC.

c. In case of procurement of supplies from such SME dealers having Turnover up to Rs. 1.50 Crores, in absence of HSN/SAC on the invoice, it will be highly difficult for the recipient of such supplies to find out the HSN/SAC thereof and mention the same in the ITC sheet.

Probable solution:

a. At the time of procurement of inward supplies, assessee should ensure that proper HSN / SAC has been mentioned on the invoice issued by the vendor.

b. Even if in case of procurement of supplies from a person having Turnover up to Rs. 1.50 Crores, mentioning of HSN / SAC can be insisted.

c. Masters of Accounting software need to be integrated with HSN / SAC code in a manner that it should be a mandatory field while making entry of any voucher in the books, so that the problem of non-availability of HSN / SAC can be mitigated at the preliminary level itself.

d. At the government level, the requirement of mentioning HSN/SAC need to be deferred till implementation of new returns in ANX-01 and ANX-02. Since, under new returns, mentioning of HSN/SAC is a mandatory field. Hence, such issue will not arise in new return system. Alternatively, option can be given that where the supplier has mentioned HSN/SAC on the invoice, the same need to be mentioned in the ITC sheet. In rest of the invoices, scanned copy can be attached with refund application.

I hope this will help readers in effective planning for GST refunds, precautions to be taken and necessary changes required in existing SOP of GST refund. In case of any query, please reach to the author at mihir.s.modi@gmail.com.

Disclaimer: This article doesn’t constitute professional advice and purpose is to share the knowledge of author on subject. The views contained in this presentation are personal views of the author and may change depending upon underlying facts and circumstances. Judicial and legal authorities may not subscribe to the views of author and can take different view. No part of this article should be copied or used without the prior approval of the author.

Author Bio

Qualification: CA in Job / Business
Company: RSM Astute Consultech Private Limited
Location: surat, Gujarat, IN
Member Since: 11 Oct 2018 | Total Posts: 1
An Experienced General Manager in Indian Indirect Taxation and Income Tax. Having a professional degree of Chartered Accountant along with B.Com specialised in Accounts and Finance. Having good public speaking skills with track record of numerous sessions on GST with target audience of professionals View Full Profile

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2 Comments

  1. sunil JB says:

    Hello madam/sir,
    This is very good article.

    I have a doubts if the exporter imported inputs under Advance Authorization and finished goods exported India on payment of IGST.

    N.N.18/2015-Customs, dated 01.04.2015 as amended vide N.N.79/2017-Customs, dated 13.10.2017 ineralia grants exemption from payment of Basic Custom duty and Integrated tax to inputs imported under advance authorization scheme.
    so i have below doubts:
    1. if he imports partially inputs availing the above mentioned notification(i.e. without IGST payment import), then under which Rule he claimed refund (Whether Rule 89(4) or Rule 89(4B) ? then shall he file two refund application for same tax period.

    2. if he import all inputs availing the above mentioned notification(i.e. without IGST payment import), then under which Rule he claimed refund. (Whether Rule 89(4) or Rule 89(4B) ? and If the exporter have claimed refund under Rule 89(4B), how he quantified the refund amount as there is no refund formula ?

    Thanking You
    Sunil JB

    1. mihirsmodi says:

      Dear Sunil,

      Thanks for your kind words. Please find my reply as under:

      There have been constant controversy wrt particular exemption given for AA, EPCG etc. The said controversy has finally been settled by way of notification 16/2020 – CT dated 23rd March 2020, wherein an explanation to rule 96(10) has been inserted with retrospective effect from 23rd October 2017, which states that refund under “With payment of IGST can be claimed, when benefit of these exemption notification has been availed [viz., EPCG, AA etc.] when IGST has been paid while procurement of input”.
      As per my understanding, 2 interpretation can be made:
      1. If registered person has procured CAPITAL GOODS under EPCG, he may go for refund under “With payment of IGST”, even though BCD + IGST has not been paid.
      2. In case of procurement of inputs under AA, refund under “With payment of IGST” can only be claimed if IGST has been paid. [Although technically seems impractical!!!]

      With regard to your second query about how to calculate refund amount under 89(4B), please find my view as under:
      1. Although no formulae has been specified wrt rule 89(4A) and (4B), we need to understand the substance behind insertion of such rule.
      2. Since exemption of EPCG / AA was there in customs law and VAT/Excise even before enactment, in order to maintain equilibrium, similar benefit was later on in GST rule. Since rule 4A & 4B is sub-part of main rule 89(4), the refund in case of 4B need to be calculated in the same formulae as prescribed for rule 89(4) [i.e. proportionate in the ratio of export to total turnover].

      I hope this is fine. The views herein expressed are personal and can never be construed as a professional advise.The views contained hereinabove are personal views of the author and may change depending upon underlying facts and circumstances. Judicial and legal authorities may not subscribe to the views of author and can take different view. The author disclaims any liability / losses arise by following above advise.

      For further updates, follow me on twitter at “https://twitter.com/CA_MihirModi?s=08”

      Thanks & Regards,
      CA Mihir Modi

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