In this pandemic situation across the globe, the department is active in processing the refund applications to help the export community especially the MSME sector to combat the present situation. The next 3-6 months may be the golden period to get refunds expedited. However, at the ground level there are many issues which crop up while uploading the documents and also few clarifications which are restrictive compared to the GST law. In the articles let us discuss the issues and possible solutions. Many solutions lie with the Government which needs to act upon and rectify the anomalies to fasten the process of refunds claims.
Circular and rules traversing beyond the GST law
Circulars are issued to provide the instruction and directions by the authority that aims clarify the ambiguity and Rules are considered as delegated legislature to provide the procedures to comply with the authority provided in parent law. Following are the settled principles of law relating to Circulars issued by the authority which can be noted:
1. Beneficiary Circulars are binding to the department and Circular contrary to the statutory provisions has really no existence in law same has been held in Commissioner v. Ratan Melting and Wire Industries 2008 (12)T.R. 416 (S.C.).
2. Circular cannot impose limitations/conditions which are not provided in the statute and further it cannot take away the rights conferred by statute. Reliance is placed on Tata Teleservices Ltd. v. Commissioner 2006 (194) L.T. 11 (S.C.).
If the subordinate or delegated legislation exercises its power in excess of as conferred by the enabling or Parent Act or is in conflict with the provisions of the Enabling or Parent Act it would be ultra vires.
Let us now understand some of the issues under GST refund where the authority has gone beyond the delegated powers to provide the restriction to claim the GST refund.
1. Restricting input tax credit to GSTR 2A:
The availment of credit restricted w.e.f. 09th October 2019 to the extent of invoices reflecting in GSTR-2A with an additional scope of 10%/20%. Such restriction has been provided from the delegated authority and not from the principal law which could be invalid.
Further, prior to introduction of Rule 36(4), the refund of input tax credit was allowed on credit reflecting in GSTR-2A and if not reflecting, then upon the submission /uploading hard copy of invoices. The impugned circular no 135/05/2020 dated 31.03.2020 clarified that the refund has to be restricted to the extent of invoices reflecting in GSTR-2A and does not provide for the refund of additional 10%/20% as provided in the Rule 36(4). CBIC/ Govt. need to correct the anomaly.
2. Clarification with regard to inverted duty structure
Circular provides the inverted duty structure refund would not be eligible in the scenario where the inversion is due to change in the GST rate on the same goods. Section 54(3)(ii) of CGST Act, 2017 provides that where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies (other than nil rated or fully exempt supplies) may claim refund of unutilised input tax credit. Such denial of refund of inverted duty structure on account of change in GST rate on the same goods provided in the Circular has not been restricted in the Act. Accordingly such restriction cannot hold good. CBIC/ Govt. need to correct the anomaly.
3. Putting a cap on valuation for restricting the refunds
In case of a refund of ITC in case of zero-rated supply of goods made without payment of tax under bond or LUT, the Government has capped the maximum value of turnover of zero-rated supply of goods up to 1.5 times the value of like goods domestically supplied by the supplier or similarly placed supplier as stated in Rule 89(4)(c). This amendment is inconsistent with the Section 15 of CGST Act 2017 which lays down the provision for valuation.
Now, this rule is very restrictive and causing hardship to genuine exporter of goods. Exporter engaged in customized client specific products, may face challenges in identifying a domestic supplier and finding a comparable value in order to ascertain the value of goods only for the purpose of refund calculation. These kinds of restriction would also make our Indian products internationally incompetent, which basically defeats the primary purpose for providing various benefits for exports. Author is of the view limiting the value of export turnover only for the purpose of refund calculation is arbitrary, when there is a specific rule emphasizing on realization of export proceeds for goods. CBIC/ Govt. need to correct the anomaly.
4. Recovery provisions for non-realization of export proceeds
Rule 96B of CGST Rules 2017 has been introduced w.e.f. 23.03.2020 to provide for recovery of refund of unutilised ITC or IGST in case non-realization of proceeds for export of goods. Definition of export of goods under Section 2(5) of IGST Act does not provide for realisation of proceeds unlike export of services. Now, inserting this kind of provisions in the rules, where parent act doesn`t provide so would create difficulty and enhances the litigation. Especially in case of export of goods, where the definition under both Indian customs act and GST merely stress upon taking goods outside India and doesn`t emphasis on realization of the proceeds. Hence, this rule could be quashed. CBIC/ Govt. need to correct the anomaly.
5. Restriction of refund of IGST paid on export of goods to specified person under Rule 96 (10)
According to Rule 96(10) as introduced originally, the “exporter” was allowed to export goods on payment of IGST only if the said exporter has not received goods from a “supplier” who had availed the benefit of any of the notifications specified in the said rule. However, after multiple amendments, the rule now provides that an exporter who is availing the benefit of the notifications specified in (b) or receives supplies from a person who is availing the benefits under clause (a) of Rule 96(10) will not be entitled to claim refund of IGST paid on export of goods w.e.f 9-10-2018. However, there is still an ambiguity on the periodicity & extent of restriction i.e. till what period the restriction is going to be applied.
For example, If the exporter received supplies either under notification 48/2017-CT or 40/2017-CT, at any time during the year, will such exporter be barred for the life time from claiming refund under exports on payment of IGST or be restricted from claiming refund on exports on payment of IGST during the financial year in which supplies were received under the prescribed notifications. Author is of the view that supplier upon exhausting the stock of supplies received under notification 48/2017-CT or 40/2017-CT, would be entitled for claiming the benefit of exporting on payment of IGST. A clarification in this regard will be helpful to the industry.
6. New Requirement to mention HSN/SAC in Annexure ‘B’
The circular instructed the taxpayer to provide the HSN/SAC and also the category of input tax credit (Inputs/Input Services/Capital Goods) which helps the officers to identify the eligible credit for refund. Though the modification seems reasonable, the question arises whether a circular can modify or amend the forms / annexure to the forms which are notified by the Government. CBIC/ Govt. need to correct the anomaly and clarify that these requirements would not apply for refunds filed upto December 2020.
GSTIN system related issues
1. GSTIN website not working: While uploading of the requisite documents, the website shows errors which keep occurring and thereby submission of application would get delayed by 3 to 4 days.
Solution: After trying multiple times, it will accept and submission is possible. In case still the documents are not been uploaded then raise the grievance through GST portal.
2. Documents have to be compressed: Taxpayers are expected to upload the supporting documents while filing their refund application (Form GST RFD-01). The GST Common Portal allows taxpayers to upload 4 documents up to 5 MB each (total 20 MB). While submitting, tax payers are required to keep all the scanned documents within the maximum size of file allowed on the portal so the assessee are expected to go through lot of trimming and compressing procedure.
Solution: Till the department expands the capacity of the server and strength of the same, the taxpayer is expected to upload only the requisite documents.
3. Unable to view the documents uploaded by taxpayers: Its quite surprising to notice that, few times deficiency memos were issued instructing to submit the documents which are already uploaded along with refund application. It was noticed that, the list of documents which are uploaded on the website which was acknowledged to taxpayers also but such documents were not been viewed by the officers. Such a case is a pitiful situation.
Solution: The taxpayers are advised to upload the documents again after issuing deficiency memo or could even send an e-mail to concerned officer attaching all the documents. If required, taxpayers are advised to keep nodal officers into loop which helps to escalate it further, if required. The Government in this case should focus to resolve the system related issues and fix the same.
1. FIRC/BRC expected by the department to furnish where banks have stopped issuing such documents and has been issuing Bank Credit Advise. In such case, department has been denying refund as documents are not been furnished. CBIC/ Govt. need to correct the anomaly clarifying to accept evidence.
2. Circular 135/05/2020 – GST has been issued on 31st March 2020 providing the additional requirements to be submitted for claiming the refund such as Annexure B for HSN wise details and restricting the refund for input invoices available in GSTR 2A. Department has started issuing the deficiency memo for the refund applications filed before the circulars was issued causing the hardship to the genuine claimant. CBIC/ Govt. need to correct the anomaly and give instruction to stop these type of denial/ delaying of refunds.
Conclusion: In such pandemic situation where the Government has been aiming to provide the refunds to the genuine tax payers, Such issues have delayed the processing of refund claim affecting the working capital of the taxpayers. It is settled position in law that procedural lapse cannot deny the substantial benefit, denial on the above stated points can be challenged. It is also suggested to tax payers to request to the department to exercise the power under Section 54(6) of CGST Act 2017 to provide the refund up to 90% of refund claim on provisional basis which could be beneficial to the genuine exporter during this pandemic situation.
Thanks for the assistance CA Dhruv Dedhia.