IMPORTANT GST UPDATE
Circular to claim refund for unregistered person long term Insurance Policy holder and Home Buyers/ Building buyers
“REFUND APPLICATION PREFERED BY THE UNREGISTERED PERSON FOR HOME BUYERS/ BUILDING PURCHASERS and LONG TERM INSURANCE POLICYHOLDERS”.
Recently the Ministry of Finance released the Circular dated 27th December 2022 pertaining to “Prescribing manner of filing an application for refund by an unregistered person”.
The said circular is a relief for those individuals who were aggrieved in those circumstances wherein the said builder was unable to complete the project and the Home Buyers have approached the National Company Law Tribunal invoking Insolvency Provisions as a Financial Creditor, RERA Authority and Consumer Courts (NATIONAL CONSUMER REDRESSAL COMMISSION, STATE COMMISSION as per the pecuniary jurisdiction mentioned under the Consumer Protection Act old and new as a Complainant ) for taking a plea for delay in giving possession by the builder and not honoring the contract entered between the respective parties. I have tried to provide an example wherein this could be one of the situations. Maybe a lot of Homer buyers or individuals purchasing the buildings are unregistered persons under the GST regime. Hence are not involved in any business affairs to opt for GST registration.
Example – Presuming that Mr. A has booked a flat in Mumbai. The builder has mentioned in the Contract that the Home Buyer will receive possession of the flat say in 3 years. However, the Builder due to some circumstances was not able to hand over the possession as stipulated. The Home Buyer approached the Consumer Court, RERA Authority, or NCLT as per the available option to the respective Home Buyers. Now in these given circumstances, the Homebuyer while paying the instalments has also paid the GST as per the law. However, as and when the respective Courts have ordered in the favour of the Home Buyer, the developer was unable to return the GST as the Developer has already submitted the same to the GST authority therefore, it’s not in the control of the Developer to refund the GST. Therefore, this Circular is the relief for the individual where such circumstances have arisen.
Now for the benefit of the readers, I have reproduced the relevant part of the Circular Verbatim hereinbelow: –
“Instances have been brought to the notice where the unregistered buyers, who had entered into an agreement/contract with a builder for the supply of service of construction of flats/building,etc. and had paid the amount towards consideration for such service, either fully or partially, along with applicable tax, had to get the said contract/agreement cancelled subsequently due to non-completion or delay in construction activity in time or any other reasons. In a number of such cases, the period for issuance of a credit note on account of such cancellation of services under the provisions of section 34 of the Central Goods and Service Tax Act, 2017 may have got expired by that time. In such cases, the supplier may refund the amount to the buyer, after deducting the amount of tax collected by him from the buyer.”
In the said paragraph the respected officer mentioned that unregistered buyers thereby mean that unregistered with GST authority is my interpretation of the sentence. Wherein it is could be a reference to those Home Buyers/ or the buyers of the plots/ building who paid the consideration fully and partially, along with applicable tax as per the Contract entered between the parties for the purchase of the Flats/buildings. However, due to some reason, the possession of the flat/ building was not handed over to the party who paid the consideration. Therein issuing of the credit note on account of such cancellation of services under the provisions of Section 34 of the Central Goods and Services Tax Act, 2017 has expired. Why? Because the said individual who claims for delay in possession/non-completion of the project has to approach the relevant Court explained above for a refund of money and that Judgment takes time to come therefore the Credit note under Section 34 of the Central Goods and Service Tax cannot be invoked. Hence this circular is the relief to claim the refund of the GST money paid.
Another situation wherein the individual has purchased the Insurance Policy (could be Health Insurance, Error and Omission Policy, Marine Insurance Policy, Motor Insurance Policy, Fire Insurance Policy, Shop Keepers Insurance Policy, Machine breakdown Insurance Policy, Machine Insurance Policy, etc. The Circular states and the same is reproduced hereinbelow verbatim: –
“1.2 Similar situation may arise in the case of long-term insurance policies where premium for the entire period of the term of policy is paid upfront along with applicable GST and the policy is subsequently required to be terminated prematurely due to some reason. In some cases, the time period for issuing credit note under the provisions of section 34 of the CGST Act may have already expired and therefore, the insurance companies may refund only the proportionate premium net off GST”.
Therefore, to claim the refund for the tax paid on the premium amount on the policy the said individual who is unregistered with the GST authority can claim the refund as per the circular guidelines.
The relevant portion of the circular is reproduced hereinbelow verbatim: –
2. It would be pertinent to mention that sub-section (1) of section 54 of the CGST Act already provides that any person can claim a 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 terms of clause (e) of sub-section (8) of section 54 of the CGST Act, in cases where the unregistered person has borne the incidence of tax and not passed on the same to any other person, the said refund shall be paid to him instead of being credited to Consumer Welfare Fund (CWF).
2.1 In order to enable such unregistered person to file application for refund under sub-section (1) of section 54, in cases where the contract/ agreement for supply of service of construction of flat/building has been cancelled or where long term insurance policy has been terminated, a new functionality has been made available on the common portal which allows unregistered persons to take a temporary registration and apply for refund the category ‘Refund for Unregistered person’. Further, sub rule (2) of rule 89 of Central Goods and Service Tax 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 along with application of refund by the unregistered persons and the statement to be uploaded along with the said refund application.
The unregistered person, who wants to file an application for refund under sub-section (1) of section 54 of CGST Act, in cases where the contract/agreement for supply of service of construction of flat/ building has been cancelled or where long term insurance policy has been terminated, shall obtain a temporary registration on the common portal using his Permanent Account Number (PAN). While doing so, 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. Thereafter, the unregistered person would be required to undergo Aadhaar authentication in terms of provision of rule 10B of the CGST Rules. Further, the unregistered person would be required to enter his bank account details in which he seeks to obtain the refund of the amount claimed. The applicant shall provide the details of the bank account which is in his name and has been obtained on his PAN.
The application for refund shall be filed in FORM GST RFD-01 on the common portal under the category “Refund for unregistered person”. The applicant shall upload statement 8 and all the requisite document as per the provisions of sub rule (2) of rule 89 of the CGST Rules. The refund amount claimed shall not exceed the total amount of tax declared on the invoice in respect of which refund is being claimed. Further, 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 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.
Where the time period for issuance of credit note under section 34 of the CGST Act has not expired at the time of cancellation/termination of agreement/contract for supply of services, the concerned suppliers can issue credit note to the unregistered person. In such cases, the supplier would be in a position to also pay back the amount of tax collected by him from the unregistered person and therefore, there will be no need for filing refund claim by the unregistered person in these cases. Accordingly, the refund claim by the unregistered person in these cases. Accordingly, the refund claim can be filed by the unregistered person only in those cases where at the time of cancellation/termination of agreement/contract for supply of service, the time period for issuance of credit note under section 34 of the CGST Act has already expired.
Also, the relevant date for filling out the refund
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 provisions of making payment in advance or in instalment, 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, it has been decided that for the purpose of determining relevant date in terms of clause (g) of Explanation (2) under section 54 of the CGST Act, 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.
It is a relief for the Homebuyers/ Building buyers and the long-term Insurance policyholders who are unregistered with the GST authority to claim the refund. However, the date is 2 years as per section 54(1) of the CGST Act from the relevant date has been specified for filing an application for a refund. It is pertinent to note that the Homer Buyer/ Building buyers do not have to wait for the Court Order in cases wherein the home buyers have approached the respective National Company Law Tribunal, RERA Authority, NATIONAL CONSUMER REDRESSAL COMMISSION, STATE COMMISSION to deliver their judgments. However, what in those circumstances wherein the developer has not issued the cancellation letter to the home buyers? In my limited opinion wherein, the Developer is not issued the cancellation letter, the Home Buyers or Building Buyers may consider filing an application along with the Petition/ Complaint / Application before the respective Court to direct the Developer to issue the Termination letter. The reason is that issuance of the letter of cancellation will be considered as the receipt of the services by the applicant to file the refund application.
Kindly refer to the Original Circular No 188/20/2022-GST issued dated 27th December 2022.
The author can be reached at firstname.lastname@example.org for any discussion or clarification. Please feel free to drop me a mail.
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 Deepanshu Arora holds a degree in B.COM from the University of Delhi and a Law
Thanks. Update is helpful.