This article is written for analyzing eligibility of GST refund on account of deductions and the same is analysed with the help of below mentioned case study:
ABC Private Limited has raised B2B Tax invoice of Rs.1 crore to XYZ on 14th January 2019 for the services.
In the month of March 2020, XYZ deducts the payment of 30 Lakh on account of non-fulfillment of conditions stated in the contract
Time limit specified for issuing the credit note u/sec 34 (2) has also expired but the time limit for claiming GST refund has not expired as per section 54.
The tax has been paid on the supply to the extent it is covered by the invoice i.e. Rs. 1 Cr as per the provision of Section 13 on Time of supply.
1. What is passing of incidence of tax in Indirect tax and how the same is proved that the same has been passed or not?
2. Whether deductions on account of non-fulfillment of conditions stated in contract may be termed as non-rendering of supply?
3. Is M/s ABC eligible for GST refund on the amount deducted by XYZ? if yes, than how?
1. What is passing of incidence of tax in Indirect Tax and how the same is proved that the same has been passed or not?
Passing of incidence of tax in Indirect Tax means who ultimately bears the burden of the tax and the burden of proving that same has been passed or not lies with the person who has paid the tax.
To prove the same has been passed or not the person paying the tax may consider providing the following documents and evidence:
1. Proof of tax paid.
2. Certificate issued by a Chartered Accountant that assessee had borne burden of duty and is eligible for refund.
3. Confirmation of account along with own bank statement showing the fact that the tax has not been collected from customer.
4. Affidavit from customer that credit of the tax has not been claimed by him.
To further explain, we may construct following scenarios:
Scenario 1: That the payer [Recipient of supply] will deduct 30 lakh was known to the supplier at the time of issuing the tax invoice:
In this case, the supplier would have reduced the taxable value and paid the tax on the net amount that is 70 lakh and Government would have collected the required tax which was due.
Scenario 2: The deduction of 30 lakh was known after the issuing the tax invoice but before the time limit of issuing the credit note as prescribed under provision 34(2) of GST Act:
In this case, the supplier would pay tax on 1 crore first and at the time of issuing the credit note the tax liability shall be adjusted subject to a condition that the incidence of tax and interest on such supply has not been passed on to any other person as well as there is no unjust enrichment. Therefore, even in this situation, the supplier would have effectively paid tax on Rs. 70 lakh only.
Relevant extract of 34(2) is as under:
34(2) Any registered person who issues a credit note in relation to a supply of goods or services or both shall declare the details of such credit note in the return for the month during which such credit note has been issued but not later than September following the end of the financial year in which such supply was made, or the date of furnishing of the relevant annual return, whichever is earlier, and the tax liability shall be adjusted in such manner as may be prescribed:
Provided that no reduction in output tax liability of the supplier shall be permitted, if the incidence of tax and interest on such supply has been passed on to any other person.
Scenario 3: The deduction of 30 lakh was known after the issuing the tax invoice and the time limit of issuing the credit note as stated in provision 34(2) of GST Act has also passed but before the expiry of time limitation stated in the refund provisions:
In this case, the supplier would pay tax on 1 crore first but could not issue the GST credit note as stated in GST provisions as the time limit for issuing the same has expired. He would issue the accounting credit note stating the fact of reversing the GST credit so as to prove that the incidence of tax and interest on such supply has not been passed by him to the recipient of service and stating the fact that there is no unjust enrichment.
In this case the supplier of services may apply for the refund under section 54(8)(e) for the tax and interest, if any, or any other amount paid by the applicant, subject to the condition that he proves that incidence of tax has not been passed. Relevant extract of the same is as under:
(8) Notwithstanding anything contained in sub-section (5), the refundable amount shall, instead of being credited to the Fund, be paid to the applicant, if such amount is relatable to’
(e) 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; or
Scenario 4: The deduction of 30 lakh was known after the issuing the tax invoice and both the time limits of issuing the credit note as stated in provision 34(2) of GST Act and as stated in the refund provisions have also expired:
Then in this scenario, the refund would be allowed only where the Court condones the delay in filing the refund application subject to the fulfillment of conditions stated in scenario III.
Deduction while making payment to invoice raised on account of supply of services may happen on different grounds.
In case the deduction has happened due to deficiency in supply as agreed, and it’s further deemed that to the extent of deduction, there was no supply, tax paid, if any, on such portion will be refunded without which Government will suffer from undue and unjust enrichment.
It’s pertinent to refer clause (c) of section 54(8) that explicitly provides for refund of tax in case of non-supply.
Therefore, one can safely infer that where supply hasn’t happened or in case of short-supply, tax paid on such amount, will be refunded under S 54(8) as long as it doesn’t breach the limitation period set out in section 54(1).
Yes, the same can be availed as per Scenario III as stated above.
RELEVANT CASE LAWS ANALYSED:
1. Hon’ble Supreme court decision in case of Mohd. Ekram Khan and Sons Vs CIT (2004) 6 SCC 1083 (S.C.) – Issue of credit notes to the client also a form of payment. Hence there cannot be any question of unjust enrichment.
2. Hon’ble Supreme Court decision in case of Godfrey Phillips (I) Ltd.& Anr vs State Of U.P.& Ors on 20 January, 2005 – Incidence of taxation.
3. Hon’ble Supreme Court decision in case of Union of India Vs Solar Pesticide Pvt Ltd. [ 2000 (116) E.L.T. 401 (S.C.)] – One should not pass on the tax incidence to another person directly or indirectly considering the principle of unjust enrichment.
4. Hon’ble Supreme Court decision in case of Mafatlal Industries Ltd vs Union of India 1997 (89) ELT 247 (S.C). – Principle of unjust enrichment. i.e. One person cannot be doubly benefited i.e. on the one hand, collecting duty from buyer and on the other hand obtaining refund of such duty from the revenue.