CBIC came with a clarification vide Circular no. 162 dated 25th September 2021 regarding the refund of taxes wrongly to the Government. There were few doubts which to a certain extend has been cleared. Firstly, the manner to claim refund of wrongly paid taxes was a big challenge as there was no properly laid procedures, secondly the Section 77 of the CGST Act says the situations where it is subsequently held to be a wrongly paid tax, the words used in the section is subsequently held, meaning held by the revenue or even the registered person can subsequently find out the mistake and correct it. These issues are clarified in the said circular.

Section 77(1) reads as follows:

A registered person who has paid the Central tax and State tax or, as the case may be, the Central tax and the Union territory tax on a transaction considered by him to be an intra-State supply, but which is subsequently held to be an inter-State supply, shall be refunded the amount of taxes so paid in such manner and subject to such conditions as may be prescribed.

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Sub section 2 of the section clarifies that no interest to be paid for the delay in payment of the correct tax. Similarly, Section 19 of the IGST Act, 2017 reads as follows:

A registered person who has paid integrated tax on a supply considered by him to be an inter-State supply, but which is subsequently held to be an intra-State supply, shall be granted refund of the amount of integrated tax so paid in such manner and subject to such conditions as may be prescribed.

Doubts regarding the interpretation of the term “subsequently held” has been clarified by the said circular as follows: In this regard, it is clarified that the term “subsequently held” in section 77 of  CGST Act, 2017 or under section 19 of IGST Act, 2017 covers both the cases where the inter-State or intra-State supply made by a taxpayer, is either subsequently found by taxpayer himself as intra-State or inter-State respectively or where the inter-State or intra-State supply made by a taxpayer is subsequently found/ held as intra-State or inter-State respectively by the tax officer in any proceeding. Accordingly, refund claim under the said sections can be claimed by the taxpayer in both the above mentioned situations, provided the taxpayer pays the required
amount of tax in the correct head.

What is the procedure to claim the refund and what is the time limit?

Rule 89(1) of the CGST Rules has been amended to prescribe the manner and conditions for refund of such taxes. A new sub rule (1A) has been inserted in the rule 89 vide notification no. 35/2021 CT dated 24.09.2021 which reads as follows:

Any person, claiming refund under section 77 of the Act of any tax paid by him, in respect of a transaction considered by him to be an intra-State supply, which is subsequently held to be an inter-State supply, may, before the expiry of a period of two years from the date of payment of the tax on the inter-State supply, file an application electronically in FORM GST RFD-01 through the common portal, either directly or through a Facilitation Centre notified by the Commissioner:

Provided that the said application may, as regard to any payment of tax on inter-State supply before coming into force of this sub-rule, be filed before the expiry of a period of two years from the date on which this sub-rule comes into force.

After the insertion of the said sub rule, the application for refund can be filed within two years from the date of actual payment of correct tax, and any payment done before the notification date, two years will be taken from the date of notification.

The Circular gives few examples for our better understanding as follows:

1. Scenario: Having realized on his own that the said transaction is an inter-State supply, “A” paid IGST in respect of the said transaction on 10.05.2021.

Since “A” has paid the tax in the correct head before issuance of notification no. 35/2021 CT dated 24.09.2021 , the last date for filing refund application in FORM GST RFD-01 would be 23.09.23 (two years from date of notification).

2. Scenario: Having realized on his own that the said transaction is an inter-State supply, “A” paid IGST in respect of the said transaction on 10.11.2021 i.e. after issuance of notification no. 35/2021 CT dated 24.09.2021.

Since “A” has paid the correct tax on 10.11.2021, in terms of rule 89 (1A) of the CGST Rules, the last date for filing refund application in FORM GST RFD-01 would be 09.11.2023 (two years from the date of payment of tax under the correct head, i.e. integrated tax).

3. Scenario: Proper officer or adjudication authority or appellate authority of “A” has held the transaction as an inter-State supply and accordingly, “A” has paid the IGST in respect of the said transaction on 10.05.2019.

Since “A” has paid the tax in the correct head before issuance of notification no. 35/2021 CT dated 24.09.2021 , the last date for filing refund application in FORM GST RFD-01 would be 23.09.23 (two years from date of notification).

4. Scenario: Proper officer or adjudication authority or appellate authority of “A” has held the transaction as an inter-State supply and accordingly, “A” has paid the IGST in respect of the said transaction on 10.11.2022 i.e. after issuance of notification no. 35/2021 CT dated 24.09.2021

Since “A” has paid the correct tax on 10.11.2022, in terms of rule 89 (1A) of the CGST Rules, the last date for filing refund application in FORM GST RFD-01 would be 09.11.2024 (two years from the date of payment of tax under the correct head, i.e. integrated tax).

Hopefully the problems which the taxpayers were facing regarding the refund of wrong payment of taxes has been put to rest and hoping the refunds are issued smoothly by the department going by the spirit of the circular.

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