All about GST Refunds | A Reference Manual | Version 2.0 | 1st July 2020 is issed by DGTS – CBIC, Bengaluru & CGST (GST), Bengaluru Zone.

The information in this Reference Manual is intended only to provide a general overview and is not intended to be treated as legal advice or opinion. For greater details, you are requested to refer to the respective CGST/SGST/UTGST/IGST Acts, Rules, Notifications, Circulars & Orders issued from time to time.

Sabrina Cano, Superintendent
Principal Chief Commissioner’s Office
Central Tax (GST), Bengaluru Zone

Amitesh Bharat Singh
Additional Director General
Directorate General of Taxpayer Services –CBIC
Bengaluru

Download All about GST Refunds | A Reference Manual | Version 2.0 | 1st July 2020

Introduction

Goods and Services Tax (GST) in India, is a form of a Value–Added Tax (VAT). The overarching purpose of GST was to impose a broad-based tax on Consumption. It is a destination-based consumption tax.

The existing taxes before GST operated under the origin principle – the jurisdiction where the taxable activity took place levied and collected the tax. Origin based taxation created a scope at the sub-national level for a State to either export taxes onto other states or to undermine the companion State’s tax base by undercutting the tax rates charged elsewhere. Levying VAT on an origin basis, as it was happening in VAT before GST meant that taxes were being charged on the value that was added to a product in a different jurisdiction, at the rates charged by those jurisdictions which could well have been different from the rates in the destination states. The Firms producing in multiple jurisdictions then had an incentive to transfer price value-added into low tax jurisdictions, for instance by charging high internal prices for intra­firm sales out of them.

The change in GST to the destination principle places all firms competing in a given jurisdiction on an even footing. Thus, the tax paid on any taxable supply made under GST is determined by a set of rules to decide where this tax revenue will be destined to. These ground rules are contained in Sections 8 through 14 of the Integrated Goods and Services Tax (IGST) Act, 2017 that determine the nature and the place of consumption for every transaction of ‘supply’. All revenues in GST accrue to the jurisdiction where the supply is said to be consumed. There is a widespread consensus now that the destination principle, with revenue accruing to the country (and at a sub-national level – to the State/UT) where the final consumption occurs, is preferable to the origin principle from both a theoretical and practical standpoint.

The GST has unified the tax base at the Federal and the sub-national level in the Indian context. This has happened through uniformity of laws, tax rates, and the adoption of a single taxable event across both national and sub-national levels. The taxable event in Indian GST is that of ‘supply’ which is more broad-based than any single taxable event like manufacture or sale, in the taxes that it replaced. In GST, we have managed to achieve compliance symmetry (Identical compliance requirement for inter- and intra-provincial traders) – it was desirable to have such a compliance symmetry to have significant cost savings and efficiency at the firm level and thereby, at an aggregate level for the nation.

In general, the GST is imposed at every stage of the economic process and a deduction of taxes on purchases is allowed by all but the final consumer. The mechanism of input tax credits through the supply chain, except by the final consumer, ensures the neutrality of the tax, whatever the nature of the product, the structure of the distribution chain, and the means used for its delivery (e.g. retail stores, physical delivery, Internet downloads). There is a clear mechanism in place that allows for a credit of the tax levied on transactions between businesses. The system is based on tax collection in a staged process, with successive businesses entitled to deduct input tax on “capital goods”, “inputs” or “input services” and account for a tax on “outward supplies”. As a result of the staged payment system, GST thereby “flows through the businesses” to tax supplies made to final consumers. Following the destination principle, in GST exports are not subject to tax with a refund of input taxes (that is “zero-rated”) being made available, but imports are taxed (through the impost of an Integrated Goods and Services Tax -IGST) on the same basis and at the same rates as domestic supplies. These features give GST one of its main characteristics, that of neutrality.

This destination principle is sanctioned by the World Trade Organization (WTO) rules. In the predecessor GATT System that existed before the WTO, addenda to Article XVI of the 1947 General Agreement on Trade and Tariffs (GATT) excluded explicitly that such an exemption could be considered a subsidy: The exemption of an exported product from duties or taxes borne by the like product when destined for domestic consumption or the remission of such duties or taxes in amounts not over those which have accrued were not deemed to be a subsidy. Consequently, Article 6.4 of the 1947 General Agreement stipulated that: No product of the territory of any contracting party imported into the territory of any other contracting party shall be subject to … countervailing duty by reason of [such exemptions or refunds]. This principle was not changed within the framework of the WTO system, since Article I of the Uruguay Round Subsidies Agreement, which defines a subsidy, stipulates once again in footnote 1 that: the exemption of an exported product from duties or taxes borne by the like product when destined for domestic consumption or the remission of such duties or taxes in amounts not in excess of those which have accrued, shall not be deemed to be a subsidy1.

In GST law, the Integrated Goods and Service Tax (IGST) Act, 2017, in Chapter VII deals with the ZERO RATED SUPPLY. Section 16 of the IGST Act defines a “zero-rated supply” to mean any of the following supplies of goods or services or both, namely:-

a) Export of goods or services or both; or

b) Supply of goods or services or both to a Special Economic Zone developer or a Special Economic Zone unit.

The credit of input tax can also be availed for making zero-rated supplies subject to the provisions of sub-section (5) of section 17 of the Central Goods and Services Tax Act, 2017 (CGST Act). Under the provisions of section 54 of the Central Goods and Services Tax Act any person registered under GST and making zero-rated supply is eligible to claim a refund under either of the following options: –

a) He may supply goods or services or both under bond or Letter of Undertaking, without payment of integrated tax and claim refund of the unutilised input tax credit; or

b) He may supply goods or services or both, on payment of integrated tax and claim a refund of such tax paid on goods or services or both supplied.

More generally, the following kinds of Refunds are available to eligible taxpayers under GST:

i. A refund of tax paid on zero-rated supplies of goods or services or both or on inputs or input services used in making such zero-rated supplies,

ii. A Refund of tax on the supply of goods regarded as deemed exports,

iii. A refund of the unutilized input tax credit.

‘Supply’ in GST

In GST, the taxable event is the event of a “Supply”. In ordinary language, supply means make (something needed or wanted) available to someone; to provide. Supply could be an interstate supply or an intrastate one.

The GST is levied in the form of a Central Goods and Services Tax (CGST) and a State or Union Territory Goods and Services Tax (SGST or UTGST) on all intra-State supplies of goods or services or both, except on the supply of alcoholic liquor for human consumption. The value taken for the charge of the tax is determined under Section 15 of the CGST Act and the tax is calculated at such rates, not exceeding twenty percent, as may be notified by the Government on the recommendations of the Council. An Integrated Goods and Services Tax (IGST) is levied instead of a Central Goods and Services Tax and a State or Union Territory Goods and Services Tax whenever the supply happens to be an interstate one.

In terms of Section 7 of the CGST Act that deals with the “Scope of Supply’, “supply” includes all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business. Thus, the general tests for a transaction to be reckoned as a supply or not are two – the first being the Business Test (whether the supply is made in the course or furtherance of business) AND the Second is the Test of the Consideration for the particular supply concerned in the transaction that may have been made or agreed to be made. However, in GST law, the Business Test mentioned above does not apply to the situation of import of services for a consideration. Any Import of Services thus become liable to tax whether or not made in the course or furtherance of business. Besides, there is a set of activities specified in Schedule I to the CGST Act, made or agreed to be made without any consideration, that if engaged in have to be construed as being an instance of a ‘supply’.

Schedule II to the CGST Act contains a listing of activities or transactions that constitute a supply in the sense of the meaning assigned to the expression but are to be treated either as a supply of goods or supply of services to ease the matters relating to the determination of the place of supply and matters relating to the rate of tax attracted on the particular transactions.

Furthermore, Activities or transactions specified in Schedule III to the CGST Act; or such activities or transactions undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities, as may be notified by the Government on the recommendations of the Council are to be treated neither as a supply of goods nor a supply of services.

Input Tax Credits in GST

Chapter V of the CGST Act deals with Input Tax Credit (ITC).

Section 16 of the CGST Act entitles every registered person to take credit of input tax charged on any supply (of goods or services or both) to him which are used or intended to be used in the course or furtherance of his business.

Credit is permitted to be taken on ‘capital goods’, ‘inputs’, and on ‘input services’. The entitlement to credit is subject to certain prescribed conditions and restrictions. The ITC is made available to the registered person as a credit in his electronic credit ledger. To take credit, the registered person should have a tax invoice or debit note (or any other prescribed taxpaying documents) issued by a GST registered supplier and he should also have received the goods or services or both on which the ITC is sought to be taken. Section 49 of the CGST Act deals with how the input tax credit is credited to the electronic credit ledger of the registered taxpayer.

The CGST law – Section 16 (2) (c) & (d) also entails that before the ITC is taken by the Recipient of either goods or services or both, the tax charged in respect of such input supplies should have been actually paid to the Government, either in cash or through utilization of input tax credit admissible in respect of the such a supply; and that the supplier making the input supplies furnish the return under section 39.

In terms of the 1st, and 2nd Provisos to Section 16(2)(c) of the CGST Act, where the goods against an invoice are received in lots or installments, the registered person is entitled to take credit upon receipt of the last lot or installment. Besides, it is also stipulated that the recipient of input supplies (either goods or services or both) should pay the amount towards the value of supply along with tax payable thereon within a period of one hundred and eighty days from the date of issue of invoice by the supplier of goods or services or both, other than the supplies on which tax is payable on reverse charge basis- in case, the stipulated payments are not made in this time of 180 days an amount equal to the input tax credit availed by the recipient would be added to his output tax liability of the recipient, along with interest thereon.

The 3rd Proviso to Section 16(2) (c) of the CGST Act deals with the reverse charge situations and provides that the recipient of goods and services or both, is entitled to avail of the credit of input tax on payment made by him of the amount towards the value of supply of goods or services or both along with tax payable thereon.

Section 16 (3) of the CGST Act disallows the registered person from claiming input tax credit on the tax component of the cost of capital goods and plant and machinery that has been claimed as depreciation on under the provisions of the Income-tax Act, 1961 (43 of 1961). Section 16 (4) permits input tax credit in respect of any invoice or debit note for the supply of goods or services or both but puts a timeline within which such a credit can be taken.

The amount of input tax credit is restricted to so much of the input tax as is attributable to the purposes of his business – in cases where the goods or services or both are used by the registered person partly for any business and partly for other purposes [Section 17(1) of the CGST Act] – this is a practice consistent with the laws and practices in many other tax jurisdictions outside India which follow GST/ VAT models. In cases where the goods or services or both are used by the registered person partly for effecting taxable supplies including zero-rated supplies and partly for effecting exempt supplies under the said Acts, the amount of credit is restricted to the input tax as can be attributed to the said taxable supplies including zero-rated supplies [Section 17(2) of the CGST Act]. The value of exempt supply can be worked out using [Section 17(3) of the CGST Act]. Section 17(4) of the CGST Act gives two options on the manner of taking ITC, either one of which may be exercised, to a banking company or a financial institution including a non-banking financial company, engaged in supplying services by way of accepting deposits, extending loans or advances.

Section 17(5) restricts the input tax credit from being available in respect of certain input supplies – like on certain classes of motor vehicles, vessels, and aircraft, on food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, life insurance, etc. However, some of these exclusions are not absolute and there are specific situations in which ITC can be taken on some such supplies.

Section 18 of the CGST Act makes input tax credit available in respect of inputs and capital goods sent for a job-work, subject to observance of stipulated conditions.

Section 20 of the CGST Act deals with the manner of distribution of credit by an “Input Service Distributor”.

The framework of the input tax credit mechanism outlined above applies to all three taxes in GST – the central tax, the integrated tax, and the State Tax.

Exports in GST

In terms of Section 2 (5) of the IGST Act, “export of goods” with its grammatical variations and cognate expressions, means taking goods out of India to a place outside India. An “export of services” in terms of Section 2(6) of the IGST Act means the supply of any service when, –

(i) The supplier of service is located in India;

(ii) The recipient of service is located outside India

(iii) The place of supply of service is outside India

(iv) The payment for such service has been received by the supplier of service in convertible foreign exchange [or in Indian rupees wherever permitted by the Reserve Bank of India]; and

(v) The supplier of service and the recipient of service are not merely establishments of a distinct person

In GST certain establishments are treated as establishments of distinct persons where a person has –

(i) An establishment in India and any other establishment outside India;

(ii) An establishment in a State or Union territory and any other establishment outside that State or Union territory; or

(iii) An establishment in a State or Union territory and any other establishment registered within that State or Union territory.

The location of the supplier of service, the location of the recipient of service, and the place of supply of service are determinable in terms of Sections 2(15) and Section 2(14) of the IGST Act. In cases where the location of the supplier or location of the recipient is outside India, the place of supply of the concerned service can be determined with reference to provisions of Section 13 of the IGST Act.

Zero‐rated supplies under GST

Export of goods or services or both, and the supply of goods or services or both, to a Special Economic Zone developer or a Special Economic Zone unit – are zero-rated as per Section 16(1)(a) & (b) respectively of the IGST Act, 2017.

By zero-rating it is meant that the tax impact on the entire supply chain leading up to the particular transaction that is being ‘Zero Rated” is made tax free i.e. there is no burden of tax to be borne either on the inputs leading up to the particular outward supply or on the outward supply itself. [In terms of Section 2 (83) of the CGST Act 2017, “outward supply” in relation to a taxable person, means a supply of goods or services or both, whether by sale, transfer, barter, exchange, licence, rental, lease or disposal or any other mode, made or agreed to be made by such person in the course or furtherance of business.]

Zero- rating in GST implies the following: –

(i) The credit of input tax may be availed for making zero-rated supplies; notwithstanding that such supply may be an exempt supply (note: credit eligibility still needs to be checked with reference to terms of provisions of Chapter V of the CGST Act, 2017).

(ii) A registered person making zero rated supply shall be eligible to claim refund in accordance with the provisions of section 54 of the CGST Act under either of the following options, namely :-

(a) he may supply goods or services or both under bond or Letter of Undertaking, without payment of integrated tax and claim refund of unutilised input tax credit; or

(b) he may supply goods or services or both, on payment of integrated tax and claim refund of such tax paid on goods or services or both supplied.

The Zero- Rated situations can be contrasted with the other situation where a particular supply under the GST has been exempted from the charge of the tax – in the latter situation, it is only that the outward supply or the output that is exempted from tax, but the tax borne on all the inputs that may have gone into making this outward supply is not refunded. The essence of zero-rating is thus, to make Indian goods and services competitive in the international market by ensuring that domestic taxes do not get added as a cost in exports.

The objective of zero-rating of exports and supplies to SEZ/SEZ Developer is achieved through the provision contained in Section 16(3) of the IGST Act, 2017.

Refund in GST

When tax, interest, or any other amount is paid to the Government more than the liability incurred or accrued, then a refund situation arises. In terms of the explanation to Section 54 of the CGST Act, “refund” includes a refund of tax paid on zero-rated supplies of goods or services or both or on inputs or input services used in making such zero-rated supplies, or refund of tax on the supply of goods regarded as deemed exports, or refund of the unutilized input tax credit.

Statutory provisions relating to refunds in GST

Chapter XI of the CGST Act, 2017, in Sections 54 to 56 deal with refunds under GST. The procedure for claiming refunds is contained in Chapter X of the CGST Rules, 2017 under Rules 89 to 97A.

GST Council Resolution on permitting refunds without matching and without excluding the amount of provisionally accepted input tax credit

Since the functionality of furnishing of FORM GSTR‐2 and FORM GSTR‐3 remains unimplemented, it has been decided by the GST Council to sanction refund of provisionally accepted input tax credit. However, the applicants applying for refund must give an undertaking to the effect that the amount of refund sanctioned would be paid back to the Government with interest in case it is found subsequently that the requirements of clause (c) of sub-section (2) of section 16 read with sub-section (2) of section 42 of the CGST Act have not been complied with in respect of the amount refunded. This undertaking should be submitted electronically along with the refund claim

The concerned portion of the Minutes of 24th GST Council Meeting held on 16 December 2017 is reproduced below:

Agenda item 3:

Any other agenda item with the permission of the Chairperson

(i) Refund of provisionally accepted input tax credit

8. Introducing this agenda item, the Secretary stated that as no automated refund system had been operationalised as yet, the refund applications were being filed online and then the applicants would take a hard copy of the same to the jurisdictional officer for processing the refund claim manually, after which a single order would be passed. He stated that some officers in the field had raised a doubt that as per the law, refund could be given only if the inward and outward supplies were matched and tax was paid on the supply. He stated that as presently no matching was possible, it was proposed to take an undertaking as part of refund application itself that the amount of refund would be paid back to the Government in case it was subsequently found that the tax had not been paid on the supply as required under Section 16(2)(c) of the CGST Act/SGST Act or the inward and the outward supply involving the refund claim did not match (requirements under Sections 41 and 42 of CGST/SGST Act). He stated that it was proposed to allow following refunds (both provisional and final) without matching and without excluding the amount of provisionally accepted input tax credit: (i) Unutilised input tax credit in case of zero rated supplies (exports and supplies to SEZs) of goods or services or both; (ii) Unutilised input tax credit in case of inverted duty structure in case of goods (including supply of goods to merchant exporters); (iii) IGST paid on zero rated supplies (exports and supplies to SEZs) of goods or services or both; (iv) IGST or CGST/SGST/UTGST paid on deemed export of goods subject to furnishing an undertaking as part of refund application itself that the amount of refund would be paid back to the Government in case it is found subsequently that the requirement of Section 1 6(2)(c) read with Section 42 (2) of the CGST/SGSTAct have not been complied with. He stated that this relaxation was proposed by exercising the power conferred under Section 148 of the CGST/SGST Act regarding special procedure for certain processes.

8.1. The Hon’ble Minister from West Bengal strongly supported the proposal. He stated that since GSTR‐2 stood suspended, no matching of inward .and outward supply was possible, and therefore, it was a very good proposal to permit refund without matching. The Hon’ble Minister from Tamil Nadu had circulated a written speech in which it was mentioned that Section 148 of the CGST/SGST Act had no non‐obstante (“notwithstanding clause”) and hence, it needed to be examined whether the special process prescribed under Section 148 would over‐ride the substantive provision of Section 54(6) of the CGST/SGST Act which required that any claim for refund on account of zero rated supply of goods or services or both made by registered persons be refunded on a provisional basis to the extent of 90% of the total amount so claimed, excluding the amount of input tax credit provisionally accepted. In the written speech, he also pointed out that refund based on GSTR‐3B returns might lead to bogus claim of input tax credit by unscrupulous taxpayers taking advantage of non‐matching of input tax credit. He suggested to stipulate sufficient safeguards for the revenue as well as for the Departmental officers. In view of this, he recommended that the matter be examined in further detail as it involved substantial question of law. However, the Hon ‘ble Minister from Tamil Nadu did not express these apprehensions during the Council Meeting. No other Member expressed any reservation on the proposal. The Hon ‘ble Chairperson suggested that the proposal made by the Secretary could be approved. The Council approved the same.

9. for agenda item 3(i), the Council approved the following:

a. to allow following refunds (both provisional and final) without matching and without excluding the amount of provisionally accepted input tax credit: (i) Unutilised input tax credit in case of zero rated supplies (exports and supplies to SEZs) of goods or services or both; (ii) Unutilised input tax credit in case of inverted duty structure in case of goods (including supply of goods to merchant exporters); (iii) IGST paid on zero rated supplies (exports and supplies to SEZs) of goods or services or both; (iv) lGST or CGST/SGST/UTGST paid on deemed export of goods.

b. Such refund shall be given subject to furnishing an undertaking as part of refund application itself that the amount of refund would be paid back to the Government in case it is found subsequently that the requirement of Section 16(2)(c) read with Section 42 (2) of the CGST/SGST Act have not been complied with in respect of the amount refunded

Types of refund in GST

Refunds under GST are broadly categorized as follows:

(a) Refund of tax paid on supplies of goods or services or both

a. Refund of tax paid on export of good with payment of tax

b. Refund of tax paid on export of services with payment of tax

c. Refund of tax paid on supplies made to SEZ Unit/SEZ Developer with payment of tax

d. Refund to the supplier of tax paid on deemed export supplies.

e. Refund to the recipient of tax paid on deemed export supplies.

(b) Refund of unutilized ITC

a. Refund of unutilized input tax credit (ITC) on account of exports without payment of tax.

b. Refund of unutilized ITC on account of supplies made to SEZ Unit/SEZ Developer without payment of tax.

c. Refund of unutilized ITC on account of accumulation due to an inverted tax structure.

(c) Refund of balance in electronic cash ledger

(d) Refund of advance tax deposited by Casual Taxpayer or Non-resident Taxpayer

(e) Refund of tax paid on supplies received by Embassies, Consulates, Agencies of UNO, etc.

(f) Others

a. Refund of excess payment of tax.

b. Refund of tax paid on an intra-State supply which is subsequently held to be inter-State supply and vice versa.

c. Refund on account of assessment/provisional assessment/appeal/any other order.

d. Refund on account of “any other” ground or reason.

Time limits to claim a refund in GST

The time limit for claiming a refund is two years from the relevant date. However, in terms of the Explanation to Section 54, the ‘relevant date’ or the reference date is different for different situations as indicated in the following table: –

Table 1

S. No. Refund event Relevant Date
1. Goods exported out of India where the refund is in respect of the goods themselves or with respect of the inputs or input services used in such goods:
(a) Goods are exported by sea or air The date on which the ship or aircraft in which such goods are loaded, leaves India
(b) Goods exported by land The date on which such goods pass the frontier
(c)  Goods exported by post Date of despatch of goods by the Post Office concerned to a place outside India
2. Goods supplied as deemed exports The date on which the return relating to such deemed exports is furnished
3.

 

Export of services where the refund is in respect of the services themselves or in respect of the inputs or input services used in such services:
(a) Where the supply of services has been completed before the receipt of payment Date of receipt of payment in convertible foreign exchange
(b) Where the payment for the services has been received in advance before the date of issue of invoice Date of issue of invoice
4. Refund arising out of a judgment, decree, order or direction of the Appellate Authority, Appellate Tribunal or any court Date of communication of such judgment, decree, order or direction
5 Refund of unutilized Input Tax credit The end of the financial year in which such claim for refund arises
6 Refund of tax paid provisionally Date of adjustment of tax after the final assessment
7 Refund claimed by a person other than the supplier Date of receipt of goods or services or both by such person
8 In any other case Date of payment of tax

Please Note:-

A refund application filed after correction of deficiency is treated as a fresh refund application, and such a rectified refund application, submitted after correction of deficiencies, will also have to be submitted within 2 years of the relevant date as defined in the explanation after sub-section (14) of section 54 of the CGST Act.

Update on account of the COVID-19 pandemic

In wake of COVID pandemic, date further extended till 3 1.08.2020 for certain compliance under GST laws and till 30.09.2020 for certain compliance Customs, Central Excise and Service Tax Laws – https://www.cbic.gov.in/htdocs-cbec/home_links/tickers as of 30.6.2020 at 19:30 hours

The Refund Mechanism in GST

After the rollout of GST w.e.f. 1-7-2017, on account of the unavailability of electronic refund module on the common portal, a temporary mechanism had to be devised and implemented wherein applicants were required to file the refund application in FORM GST RFD01A on the common portal, take a print out of the same and submit it physically to the jurisdictional tax office along ith all supporting documents. Further processing of these refund applications, i.e. issuance of acknowledgment of the refund application, issuance of deficiency memo, the passing of provisional/final order, payment advice, etc., was also being done manually.

RULE 97A of the CGST Rules had enabled the Manual filing and processing of refund claims It states that notwithstanding anything contained in CHAPTER X of the CGST Rules 2017, dealing with REFUND and with respect to any process or procedure prescribed for refunds, any reference to electronic filing of an application, intimation, reply, declaration, statement or electronic issuance of a notice, order or certificate on the common portal shall, in respect of that process or procedure, include manual filing of the said application, intimation, reply, declaration, statement or issuance of the said notice, order or certificate in the concerned Forms as appended were appended to the CGST rules.

To make the process of submission of the refund application electronic, Circular No. 79/53/2018-GST, dated 31-12-2018 was issued wherein it was specified that the refund application in FORM GST RFD01A, along with all supporting documents, is to be made electronically on the GST portal. However, various post submission stages of processing of the refund application continued to be manual.

The necessary capabilities for making the refund procedure fully electronic, in which all steps of submission and processing were undertaken electronically, was deployed on the common portal with effect from 2692019 the refund from this date on is processed by a single tax authority, in contrast to the earlier treatment where the claim was processed for the State or the Central part by the concerned tax agency and processed by the disbursement was processed by the accounting departments of state and central individually.

The refund mechanism under GST is now fully automated. Barring the refund of IGST paid on the export of goods, the following types of refunds are dealt with under the provisions of Rule 89 of the CGST Rules.

With effect from 26‐9‐2019, the claim in respect of the following types of refund is now to be filed online on the GST Portal in Form GST RFD 01 and is processed electronically:

(a) Refund of unutilized input tax credit (ITC) on account of exports without payment of tax.

(b) Refund of tax paid on export of services with payment of tax.

(c) Refund of unutilized ITC on account of supplies made to SEZ Unit/SEZ Developer without payment of tax.

(d) Refund of tax paid on supplies made to SEZ Unit/SEZ Developer with payment of tax.

(e) Refund of unutilized ITC on account of accumulation due to an inverted tax structure.

(f) Refund to a supplier of tax paid on deemed export supplies.

(g) Refund to a recipient of tax paid on deemed export supplies.

(h) Refund of excess balance in the electronic cash ledger.

(i) Refund of excess payment of tax.

(j) Refund of tax paid on an intra-State supply which is subsequently held to be inter-State supply and vice versa.

(k) Refund on account of assessment / provisional assessment/appeal/any other order.

(l) Refund on account of “any other” ground or reason.

In case an exporter makes supplies of goods out of India on payment of integrated tax, the refund process is governed by Rule 96 of the GST Rules. The refund in such cases shall be processed by the system designated by the Customs Department. This does not apply to the  export of services out of India.

In all other cases, the refund application shall be processed by the proper officers under GST from the Centre or the State Tax Administration.

Refund of IGST paid on Export of Goods

The case of a refund of the IGST paid on exports of goods is dealt with under Rule 96 of the CGST Rules, 2017. The most important point here is that there is no specific form that needs to be filled out for claiming refund of IGST paid on export of goods- As per Rule 96(1) of the CGST Rules, 2017, the shipping bill filed by an exporter of goods shall be deemed to be an application for refund of IGST paid on the goods exported out of India.

Such an application is deemed to have been filed only when:

i. The person in charge of the conveyance carrying the export goods duly files an export manifest or an export report covering the number and the date of shipping bills or bills of export; and

ii. The applicant has furnished a valid return in FORM GSTR-3 or FORM GSTR-3B, as the case may be. The term valid return means a return furnished under section 39(1) of the GST Act, 2017 on which self-assessed tax has been paid in full.

Filing of a correct EGM is a must for treating the shipping bill or bill of export as a refund claim. The details of the relevant export invoices contained in FORM GSTR-1 are transmitted electronically by the GST portal to the Customs system and the said system, in turn, transmits back to the GST portal a confirmation that the goods covered by the said invoices have been exported out of India.

Filing of a valid return in GSTR 3B is another pre-condition for considering the shipping bill/bill of export as the claim for refund. Upon receipt of information regarding furnishing of a valid return in FORM GSTR-3B from the common portal the Customs System, processes the claim for refund and an amount equal to the integrated tax paid in respect of each shipping bill or bill of export is electronically credited to the bank account of the applicant mentioned in the taxpayer exporter’s registration particulars. Shipping Bill formats (both manual/ electronic) have been modified to make them congruent with the requirements of the IGST law.

In cases where the exporter has filed the GSTR 3B and the information furnished by the exporter in the returns GSTR 1 and GSTR 3B matches with the details filed by them in the Shipping Bills, the refunds are disbursed to the bank account of the exporter.

Important:- Remember to file your GSTR 3B and the GSTR 1 details in time; ensure that the details entered in these returns concerning what has been claimed as Exports matches with the details declared in the Shipping Bills this will ensure that there are no unnecessary hitches in the clearance of your claims for refunds by the Customs Authority concerned.

IGST Refund module for exports is operational in ICES since 10.10.2017. The procedure for refund of IGST paid on export of goods under Rule 96 of CGST Rules, 2017 for all EDI locations, was provided vide instruction 15/2017- Customs, dated 9-10-2017 issued from F. No. 450/119/2017-Cus IV. The IGST refund module has been designed in line with the Rule 96 of the CGST Rules and has an in built mechanism to automatically grant refund after validating the Shipping Bill data with available in ICES against the GST Returns data transmitted by GSTN. The matching between the two data sources is done at Invoice level and any mis-match of the laid down parameters returns following error/response codes:

Code Meaning
SB000 Invoice successfully validated
SBV00 SB already validated successfully
SB001 Invalid SB details
SB002 EGM not filed
SB003 GSTIN mismatch
SB004 Invoice already received and validated
SB005 Invalid Invoice Number
SB006 Gateway EGM not available

If the necessary matching is successful, ICES shall process the claim for refund and the relevant amount of IGST paid with respect to each Shipping Bill or Bill of export shall be electronically credited to the exporter’s bank account as mentioned with the Customs authorities

M.F. (D.R.) Instruction No. 20/2018-Cus., dated 26-11-2018 issued from F. No. 450/119/2017-Cus. IV (Pt-I) deals with the Refund of IGST paid on exports of goods done from Non‐EDI sites. The facility to disburse IGST refund of goods exported from Non-EDI locations is provided by DG (Systems). The procedure for processing IGST refund claims for exports made from Non-EDI sites, indicated in this Instruction, are:

  • Firstly, the export data is to be captured using offline utilities and transmitted by the field formations to DG (Systems) by email.
  • The data is then uploaded for verification and final submission by the Customs officer in ICES at the nearest EDI site.
  • The refund scroll is then generated for the verified SBs after these are matched with the GST Returns data received from GSTN;
  • A public inquiry has been made available on ICEGATE website for checking the details and IGST status of manual SBs verified in ICES.
  • Specific IGST related errors or mismatches can also be checked by an importer/Customs Broker for his SBs using his ICEGATE login.
  • It is only when a SB is verified by the Customs officer in ICES does it become ready for the IGST validation procedure.

The Error Codes explained

(i) SB000: Successfully Validated

This response code comes when all the decided parameters like GSTIN, SB number, Invoice Number etc. match between GSTN and Customs databases. This code implies that the SB is ripe for inclusion in the IGST refund scroll.

However, it might happen that even with SB000, the SB does not appear in the refund scroll. This could be due to:

a) The exports might have been made under bond or LUT, hence not liable for

b) If a shipping bill covers multiple invoices, few of the invoices might have been successfully validated with code SB000 whereas other invoices might be stuck with any of the other errors.

c) Higher rate of Drawback has been claimed for that SB, thus making the SB ineligible for IGST refund.

d) Where the IGST claim amount is less than Rs. 10 00/-.

In all the above cases, the scroll amount (check SB Wise IGST Claimed Status Report) shall automatically become zero and the SBs shall not be included in the refund scroll. There are two more reasons where the SBs will figure in the Temporary IGST Scroll but not in the Final Scroll. This could happen if there is an alert/suspension on the IEC in ICES or if the account of the IEC is not validated by PFMS. These cases have been elaborated below.

In respect of (a) above, there may be cases that the exporter has erroneously declared exports under LUT or zero IGST amount paid in the Shipping Bill while actually having declared and paid it in the GST Returns. Such cases can be dealt with through the officer interface.

(ii) SB001: Invalid Shipping Bill Number

This may occur due to a mismatch between the SB No. furnished in GSTR­1/6A and the SB No. with customs. The possible reason for such mismatch could be a clerical error made by the exporter at the time of filing of GSTR­1/6A, which can be rectified by making amendments in GSTR-1 by using Form 9A. Form 9A has been made available by GSTN w.e.f 15.12.2017 in exporter’s login at the GST Common Portal.

(iii) SB002: EGM not filed

Exporter may approach the Shipping Lines to file the EGM immediately. If EGM is already filed by shipping Line correctly, “Revalidate EGM” option may be used by EGM Officer.

(iv) SB003: GSTIN mismatch

This error occurs when GSTIN declared in the SB does not match with the GSTIN used to file the corresponding GST Returns. In this case too, the Exporter may be asked to make necessary adjustments in GSTR-1 by use of amendment Form 9A. If, however, the exporter has declared PAN instead of GSTIN in the Shipping Bill, the option to sanction the refund through officer interface shall be available, provided that the PAN given in the SB matches with the PAN of the GSTIN used to file the returns. Even in cases where the exporter has used one GSTIN to file the returns and another GSTIN issued on the same PAN to file the SB, officer interface can be used to sanction the refund. Detailed procedure is given in Annexure D.

(v) SB004: Record already received

This error code occurs due to duplicate/repeat transmission of SB-Invoice record from GSTN. The previous transmission would have already been validated with SB000 by ICES. Since these invoices are already validated, this response code may not be treated as an error. The scroll status of such SBs can be checked. If, however, the corresponding SBs are not getting scrolled out despite having SB004 response code, the reasons could be any of those listed above for SB000 cases.

(vi) SB005: Invalid Invoice Number

This is the most common error faced by the exporters, which occurs due to mismatch of invoice number as declared in the Invoice Table in the SB and that declared in the GSTR 1 for the same supply. This can happen due to:

a) Typographical mistake while entering data in GSTR 1 or the SB.

b) The exporter uses two sets of invoices, one invoice for GST and another invoice for exports resulting in mismatch of invoice numbers.

After the implementation of GST, it was explained that the details an exporter is required to enter in the “invoice” column while filing the SB pertains to the invoice issued by him compliant to GST Invoice Rules. The invoice number shall be matched with GSTN to validate exports and IGST payment. It was understood that there would not be any difference between Commercial Invoice and GST Invoice after GST since as per the GST Laws, the IGST is to be paid on the actual transaction value of the supply between the exporter and the consignee, which should be the same as the one declared on the commercial invoice. However, cases have been noticed on the continuing use of separate commercial invoice leading to mismatch. If SB005 is due to a data entry mistake in GSTR 1, it can be amended now in Form 9A. But any mistake in the SB cannot be amended once EGM is filed. Also, if the exporter has indeed used a separate invoice in the SB, he cannot include that in his GSTR 1 in lieu of his GST Invoice. Thus SB005 error, largely, cannot be corrected by any amendment either in GSTR 1 or in the Shipping Bill. It is advised that the exporters not repeat this mistake and ensure that the same GST compliant export invoice is declared at both ends.

(vii) SB006: Gateway EGM not available

In case of ICDs, if the Gateway EGM is not filed electronically or is stuck in some error, response code SB006 shall appear. The EGM shall have to be filed in ICES at the gateway port. Gateway EGM pendency and error reports can be viewed in New MIS role. The Gateway EGM details can also be checked by the exporters on ICEGATE website. In case of pending Gateway EGMs, Shipping Lines may be approached at gateway ports to file supplementary EGMs. The essential steps to file the gateway EGM successfully are:

a) File Train/Truck Summary immediately after cargo leaves the ICD.

b) Ensure that shipping Line mentions the ICD SB in his EGM filed at gateway port along with the transference copy received from gateway port.

c) Errors may be rectified through an amendment in Service Centre and approved by the proper officer. Some of the common EGM errors and their corrective action have been elaborated in Annexure B.

(viii) SBV00 – SB already validated

This response code comes in cases of SBs which had certain mismatch error(s) but was validated and sanctioned through the officer interface utility as detailed in Annexure C and D. Even for those single invoice SBs with invoice mismatch where the refund was sanctioned as per the interim procedure mentioned under para (vi) above, SBV00 shall appear. Since these SBs are already validated, this response code may not be treated as an error. The scroll status of these SBs shall also be “Ready” in the IGST Claimed Status Report.

Issues connected with the Non Transmission of Returns Data from GSTN

The above error codes can be seen by the field officer in the GSTN Integration Status Report in NewMIS. But this report includes only those SBs on which the IGST validation procedure is run. This view is also available to exporters in their ICEGATE login. As mentioned above, the validation procedure for IGST refund is run only for those SBs where EGM has been filed and for which the GSTN has transmitted the GSTR 1 returns data to Customs.

There are primarily two conditions for GSTN to transmit the data:

a) Both, GSTR1/6A and GSTR3B should have been filed for that supply

b) Invoice details (Invoice no, Invoice date or Port Code) are missing or are incorrect for that supply in GSTR 1

c) The cumulative IGST paid on exports declared in GSTR 3B (table 3.1 b) upto the month should not be less than that declared in GSTR1/6A

In respect of (a) and (b) above, the exporter can file or amend the returns accordingly. In case of (c), if the exporter has paid lesser amount in Table 3.1b of GSTR 3B, he can pay the remaining amount in the next GSTR 3B. Since GSTN compares the cumulative amounts, once the difference is paid and the cumulative of GSTR 3.1b becomes greater or equal to the cumulative of GSTR 1-Table 6A, GSTN would start transmitting the data to ICEGATE. However, in cases where the IGST on exports in GSTR 3B has been paid in the column for domestic interstate supplies (Table 3.1a) instead of Zero Rated Supplies, procedure as detailed in Board’s Circular 12/2018 dated 29.05.2018 may be followed. If the exporter finds that even after the correct filing of returns as above, their SBs do not reflect in this report, they may be advised to write to GSTN helpdesk.

Issues related to Scroll Generation

The refund of IGST on exports shall be given by generating a scroll of eligible Shipping Bills. The temporary IGST refund scroll shall be generated by the authorized officer in the CLK role in ICES. Consequently, a permanent scroll shall be generated by the authorized officer in the AC_DBK role. Only those SBs for which Temporary Scroll has been generated shall be considered for the final scroll. Once the final scroll is generated, there is no further action required from the sanctioning officer. The scroll will automatically be transmitted to PFMS and there is no further need to send the scroll to the bank separately. If a Shipping Bill is appearing in Temporary IGST refund scroll but not in Permanent IGST scroll, there could be two reasons for this:

a) Account details of the exporter have not been validated by PFMS and these scrolls may appear with the “#“ tag. A report consisting of account details which are not validated by PFMS is available both in New MIS role and COM role in ICES. The exporter may be advised to furnish correct bank account details to the proper officer in order to update the same in ICES through CLK List of possible PFMS errors reflected in the report and their solution is enclosed as Annexure A.

b) IEC of the exporter might have been suspended by the customs house for want of arrears and e-BRC etc. The SBs shall be available in the final scroll once the suspension is revoked.

There may be cases where the money does not get credited to the exporter’s account despite the SB having scrolled out successfully. Primarily, the two possible scenarios are:

i. The entire scroll gets rejected by PFMS. This happens in cases where the account details available with PFMS at the time of receipt of scroll is different than that in the scroll for one or more IECs. In such cases, the jurisdictional System Manager, after having confirmed that the money was indeed not credited to any of the exporters’ accounts from that scroll, can write to ICEGATE helpdesk at once 6 giving the scroll details. The reconciliation and scroll cancellation process may take 2-3 weeks. Once the scroll is cancelled, the SBs shall again be available for the next scroll.

ii. The scroll gets accepted by PFMS but the accounts of some exporters get failed by the respective banks due to inactive or invalid account. In such cases, only the exporters with failed accounts shall not have the credit of the refund. These are referred to by PFMS as “Failed after Success” cases for which ICES Advisory 21/2018 dated 17.05.2018 may be seen for the interim procedure to be followed.

The Role of the Exporter in Resolution of issues

(a) The exporter has the option to check the GST validation Status for his SBs in his ICEGATE website login. This report shows the exporter the response/error codes for each of his SBs wherever data has been received from GSTN. The reasons for non-receipt of data from GSTN have already been elaborated above.

(b) The exporter also has the option to view the SB details relevant for IGST validation on the ICEGATE website. The exporter can view this while filing the GST Returns and ensure that the details are entered accurately in the Returns as well so that no mismatch occurs.

(c) In case, the exporter’s account is not validated by PFMS, he may approach jurisdictional Customs Commissionerate with correct account details and get it updated in ICES. iv. If the exporter is not getting the refund due to suspension/alert on his IEC, he may clear his dues or submit e-BRC and have the suspension revoked.

Errors in PFMS Validation and their Rectification

S. No. Error Code Error Description Rectification
1. TBE0001 Error in reading file, File is malformed or Failed during schema validation. Not Applicable
2. TBE0002 Mandatory Tags values are missing in the Header Part. Not Applicable
3. TBE0003 Invalid Batch Format Not Applicable
4. TBE0004 Duplicate Batch ID/Message ID not allowed. Not Applicable
5. TBE0005 Invalid Assessee Type Not Applicable
6. TBE0006 Same [Assessee Code, Location Code, Assessee Type, Source] already exists in PFMS. This validation will be not be applied for Update and Delete type requests. Submit again
7. TBE0007 [Assessee Code, Location Code, Assessee Type, Source] not exists in PFMS. This validation will be applied for Update and Delete type requests. Submit Again
8. TBE0008 Rejected by Bank, As per Bank Account Number is Invalid. Check the Account Number for correctness – Submit correct details: Ensure that details are submitted only once during the day
9. TBE0009 Bank Name is not as per PFMS Bank Master. Not applicable – May occur only with other errors
10. TBE0010 Bank Account details have not been provided Check the Account Number for correctness – Submit correct details
11. TBE0011 Mobile Number should be of 10 digits only. Not Applicable
12. TBE0012 Invalid Value for Location Code Inform DG systems for rectification
13. TBE0013 Invalid Value for Division Code Inform DG systems for rectification
14. TBE0014 Invalid value for Purpose, It should be A/U/D. Not Applicable
15. TBE0015 Invalid IFSC Code. Check the IFSC Code for correctness – Submit correct details
16. TBE0016 Rejected by Bank, Account No does not exist in Bank Check the Account Number for correctness – Submit correct details
17. TBE0017 Rejected by Bank, Account status is closed. Check the Account Number for validity – Submit correct details
18. TBE0018 Duplicate Assessee Details [Assessee Code, Location Code, Assessee Type, Source] Found In The File. – Applied for ICEGATE. Can be modified for ACES Submit Again
19. TBE0019 Blocked Account Submit another valid Account details
20. TBE0020 One or more mandatory tags values are missing in the detail section. Not Applicable
21. TBE0021 IFSC Code does not exists in PFMS. Inform DG System for Rectification
22. TBE0022 Actual records count and No. of records in details, it should be same. Not Applicable
23. TBE0023 Assessee already exists. Submit Again
24. TBE0024 Assessee code does not exist during update. Submit Again
25. TBE0025 More than one record found during update data. Submit Again

”Not applicable” means that these are Structural errors which shall not appear in this report.

Other Common EGM errors and their Rectification

(a) Errors at Gateway Port – SB002 error Container No. Mismatch (Error Code: C)

If the Container Number mentioned in the Shipping Bill(S/B) differs from the Container Number mentioned in the EGM against that S/B, EGM will be submitted with error flag ‘C’ and the S/B will move to the EGM Error Queue with this error code.

(i) If the mistake is in the EGM, request for EGM Amendment – Update has to be submitted at the service centre. This EGM Amendment has to be approved by proper officer.

(ii) If the mistake is in the S/B, Container Number has to be amended in the S/B.

(b) Number of Container Mismatch (Error Code: N)

If the Total Number of Containers mentioned in the S/B differs from the Total Number of Containers mentioned in the EGM against that S/B, EGM will be submitted with error flag ‘N’ and the S/B will move to the EGM Error Queue with this error code.

(i) If the mistake is in the EGM, request for EGM Amendment – Delete has to be submitted at the service centre for deleting the concerned SB from EGM. This EGM Amendment has to be approved by the proper officer. After deletion, Amendment – Add has to be submitted at the service centre for adding SB with correct details. This too shall then be approved by the proper officer.

(ii) If the mistake is in the S/B, post stuffing stage, direct amendment is not possible in the S/B. In those cases, a procedure as detailed separately below has to be followed.

(c) LEO date greater than Sailing Date (Error Code: L)

If LEO granted for a S/B is cancelled in the System for amendments, the same would be granted again after carrying out the amendments in the System. If Sailing Report for the vessel (EGM), under which the said S/B is covered, is entered in the System before granting the subsequent LEO, then EGM will be submitted with error flag ‘L’

At times, while entering the Sailing Report, the Preventive Officer posted at Harbour Main Gate may enter the sailing date wrongly.

There is no option to rectify this error. In such cases, officers posted in EDC have to be contacted for exercising the option “Forceful Removal of SBs from EGM-ERROR”, which will remove the concerned S/B from the EGM Error queue.

(d) Nature of Cargo Mismatch (Error Code: T), Number of Packets Mismatch (Error Code: P)

(i) If the mistake is in the EGM, request for EGM Amendment – Update has to be submitted at the service centre. This EGM Amendment has to be approved by the officers posted in EDC.

(ii) If the mistake is in the S/B, post stuffing stage, direct amendment is not possible in the S/B. In those cases, a procedure as detailed separately below has to be followed.

(e) Procedure for correcting errors in Shipping Bill filed at Gateway Port (for SB002 error):

(i) Annexure has to be submitted at the Service Centre for EGM Amendment Delete for deleting the concerned SB from the EGM. This EGM Amendment has to be approved by proper officer.

(ii) After the approval of deletion, LEO granted for the concerned S/B has to be cancelled.

(iii) After the cancellation of LEO, amendments have to be carried out at the Service Centre, as per the procedure. These SB Amendments have also to be approved.

(iv) After the approval, Goods Registration and LEO has to be granted again in the System.

(v) After granting of LEO, Stuffing Report, if required, has to be entered in the System.

(vi) After LEO and/or Stuffing, Annexure has to be submitted at the Service Centre for EGM Amendment– Add for including that SB in the concerned EGM and have it approved by the proper officer.

NOTE: In some cases, after cancellation of LEO, entering correct details at the time of Re-registration, LEO and/or Stuffing alone will solve the problem.

(f) EGM related errors at ICD (SB006) – Mismatches between the Truck/Train Summary and Gateway EGM

Step 1: Check the Gateway EGM Status in ICES/ICEGATE

A view has been given both in ICES (in View SB) as well as ICEGATE public enquiry giving Gateway EGM details. The filing status and EGM error, if any, can be ascertained here. Gateway EGM error and success reports are also available in New MIS. Following are the main errors noticed in Gateway EGM filing:

M – Gateway Port code given in truck summary different from actual gateway port.

N – No. of Container Mismatch

C – Container No. Mismatch

T – Nature of Cargo Mismatch

L – LEO Date > Sailing Date

Step 2: Gateway EGM details are Blank:

2a. If the gateway EGM detail is blank in the SB View, kindly ascertain whether the Gateway EGM has indeed been filed and the Gateway EGM in which the particular cargo was exported.

2b. Enquire with the Shipping Line, if the EGM filed has the correct details of SB/AWB as the case may be.

2c. If the EGM is already filed, option “Revalidate EGM” in seaports or “Revalidate AWB” in air cargo may be used. The option is available in the EGM role

2d. If the EGM is not filed/ filed incorrectly, supplementary EGM needs to be filed by Shipping Line and approved by Gateway Port Officer.

Step 3: The Gateway EGM is in Error:

For errors M and L, ICES Advisory 04/2018 dt. 19.02.2018 may be seen. An option has been made available in the role of AC (Exports) of ICDs to rectify Gateway EGM errors M and L resulting in SB006 mismatch. In case of error M, the officer can fill in the actual gateway port of export, and in case of error L, the officer can give the actual sailing date as the LEO date after doing necessary verifications of actual exports as suggested in the advisory.

For errors N and C, an option has been made available in the Preventive Officer role (PREV_OFF) at the Gateway Port to rectify container details. (ICES Advisory 08/18 dt. 09.03.2018). The preventive officer can amend container details in the Gateway EGM CTR Amendment Option to remove the mismatch after verifying the package and quantity details and satisfying himself that there is no short shipment.

For Error A in Gateway EGM, the option of “Revalidate EGM” may be used.

Once the above corrections are made, the gateway port has been given the option to Revalidate EGM in the EGM role to validate the gateway EGM with the corrected values. Even in cases where the local EGM/truck summary is submitted after the filing of the Gateway EGM for some reason, the option to Revalidate EGM should be used first.

With the above options, solution is available with the customs officer for rectifying all the major EGM errors.

Alternate Mechanism with Officer Interface for SBs with Invoice Mismatch Error (SB005)

Board has issued Circular 05/2018 dt. 23.02.2018 in this regard, consequently, the officer interface module has been designed and made available in ICES (ICES Advisory 05/20 18 dt. 26.02.20 18).

The advisory lists the steps to be followed while using the officer interface.

(i) It may be noted that this utility is available only for those SBs where:

a) The error is SB005 only. The SB wise error can be seen from the IGST Integration Status Report in New MIS. Since this report is at invoice level, it may be verified that there is no error other than SB005 for any of the SBs. Only those SBs where there SB005 error exists for at least one invoice and the remaining invoices are validated with SB000 shall be available for rectification in this module. On entering any ineligible SB number, the system shall not allow further processing.

b) If all the invoices of that SB are already validated with SB000, that SB shall not be available for any modification in this utility. Similarly, those single invoice SBs filed before 31.10.2017 where the SB level validation was run despite the SB005 error shall also be not available in this For each of these invoices, the system will throw up an error stating that there is no invoice for this SB pending validation.

c) The SBs whose data have not been transmitted by GSTN will also not appear in this module. These SBs shall not be available in the IGST Integration Report either. For such SBs, system will throw up an error that “There is no information received from GSTN for this SB”. The exporter may be advised to correct the inconsistencies in GST Returns as detailed in Para 5 first before submitting the concordance table.

(ii) As discussed in the advisory, after entering the eligible SB number, the first screen shown on the system shall be the details as declared by the exporter in his GSTR 1 and as transmitted by GSTN. The next screen shall show the officer the details available in the SB. Here, the officer can accept/change the IGST refund amount basing on the concordance table as also discussed elaborately in the Illustration given in the advisory. The officer shall have to verify each invoice and enter the IGST Refund amount for the system to allow to continue to the next screen. The option to rectify the approved IGST amount has been given to the officer for him to correct any mistakes made by the exporter in declaring the same in SB. The officer can also change the amount if the exporter had inadvertently entered zero value in the SB although he has declared and paid the IGST in the GST Returns for that SB. While the officer shall do the verification basing on the concordance table submitted by the exporter, he can calculate the IGST amount against each invoice himself (ref ICES Advisory 011/2017 dt. 26.07.2017) in case he finds the concordance table to be inaccurate.

(iii) Once the verified IGST amount is entered for all the invoices, the officer can move to the next screen and confirm the invoice mapping as per the concordance table. Once completed, the system shall calculate the IGST scroll amount for that SB. It may be noted here that notwithstanding the amount entered by the officer, the IGST Scroll amount shall be reduced appropriately for the invoices where composite rate of drawback has been claimed for some items. In case, all the items in an invoice are composite drawback rate availed, the IGST scroll amount shall consequently be calculated as zero.

(iv) The verified SBs shall be available for the next scroll even if the error code in the IGST Integration status report does not change immediately. As also discussed above, once all the invoices of a SB are verified, it shall not be available again for any further rectification in this module.

With this module, solution is available with the customs officer for all the pending SB005 SBs.

Alternate Mechanism with Officer Interface for SBs with Certain Other Errors

In consonance with Para 2(ii) of Board’s Circular 08/2018 dt. 23.03.2018 and subsequent instructions from Board, the officer interface facility has been extended to sanction refund in the following two cases, in addition to invoice mismatch cases:

a) Cases where the exporter has erroneously declared that the shipment is without payment of IGST, although they have declared and paid the IGST in GST Returns.

b) SBs with error code SB003, where the exporter has either declared a different GSTIN in the SB or has only declared PAN, and the corresponding returns have been filed through another GSTIN with the same PAN

2. Such cases may now be handled through officer interface the same way as the Invoice Mismatch (SB005) cases, the procedure of which is detailed in Annexure C. In case of (a) above The officer may verify the actual IGST payment in GST Returns for each invoice which is displayed to the officer in the officer interface and basing that, may enter the admissible IGST refund amount in the next screen where data as declared in Shipping Bill is displayed. It is re-iterated that only those SBs where no other mismatch exists shall be available for rectification.

3. In case of (b), an undertaking may be obtained from the GST registered unit which has filed the returns that they have no objection to the refund being granted to the exporter who has filed the Shipping Bill and that they will not claim any IGST Refund for exports under that SB separately. Once satisfied, the Officer may sanction the applicable IGST Refund through the Officer interface.

Restrictions on the claim of refund of IGST paid on export of goods and services

In certain situations, the Exporters having already availed of specified benefits may not be eligible to claim a refund of the IGST relating to exports – these are dealt with in Sub-rule (10) of rule 96 of the CGST Rules.

As such, the refund of IGST paid on exported goods and services is not allowed if the goods are procured from a supplier who has availed the benefit of the following notifications: –

(i) Notification no. 40/2017-Central Tax (Rate) or Notification No 41/2017-Integrated Tax (Rate) both dated 23rd October 2017: – This notification prescribes a CGST rate of 0.05% / IGST 0.1% if goods are supplied by a registered supplier to a registered recipient for export (merchant exporter) subject to certain conditions.

(ii) Notification no. 48/2017-Central Tax dated 18th October 2017:- This notification notifies supplies to be considered as deemed exports.

However, exporters who have used the EPCG scheme to bring in Capital Goods, either through import in terms of notification No. 79/2017-Customs dated 13.10. 2017 or through domestic procurement in terms of notification No. 48/2017-Central Tax, dated 18.10.2017, continue to be eligible to claim a refund of Integrated tax paid on exports and would not be hit by the restrictions provided in sub-rule (10) of rule 96 of the CGST Rules.

Further, the refund of IGST paid on exported goods and services is also not allowed if the exporter has availed the benefit of the following Notifications:

a) Notification no. 78/2017-Customs dated 13th October 2017:- This notification provides an exemption to IGST and compensation cess levied on goods imported by EOU.

b) Notification no. 79/2017-Customs dated 13th October 2017:- This notification provides IGST exemption and Compensation Cess exemption to goods imported against advance authorization.

Please Note:- The exporter of goods and services in such cases can still export the goods and services only under LUT/ bond but cannot make such export on payment of the integrated tax (IGST).

The explanation to Rule 96(10) clarifies that, the benefit of the notifications mentioned above shall not be considered to have been availed only where the registered person has paid Integrated Goods and Services Tax and Compensation Cess on inputs and has availed exemption of only Basic Customs Duty (BCD) under the said notifications. This makes it clear that the exporter can import goods by availing the Basic Customs Duty exemption under the above notifications but on payment of IGST. In such a case, the provisions of Rule 9 6(10) will not be attracted, and the exporter can export on payment of IGST.

In any other case, the exporter of goods and services can export the goods and services only under LUT/ bond and cannot export on payment of the integrated tax (IGST).

The tabulation below explains the restrictions made under Rule 9 6(10) of the CGST Rules, 2017:

The persons claiming refund of integrated tax paid on exports of goods or services should not have received supplies on which the following benefits have been availed:-
1.

 

Notification No. 48/2017- Central Tax, dated the 18th October, 2017, except so far it relates to receipt of capital goods by such person against Export Promotion Capital Goods Scheme

 

Supply of goods by a registered person against Advance Authorisation
Supply of capital goods by a registered person against Export Promotion Capital Goods Authorisation
Supply of goods by a registered person to Export Oriented Unit
Supply of gold by a bank or Public Sector Undertaking specified in the
notification No. 50/2017-Customs, dated the 30th June, 2017 (as amended) against Advance Authorisation.
Notification 48/2017- CT.– Seeks to notify the above supplies as deemed exports under section 147 of the CGST Act, 2017.
2. Notification No. 41/2017- Integrated Tax (Rate), dated the 23rd October, 2017 Notification 41/2017-Integrated Tax (Rate), dt. 23- 10-2017 – Seeks to prescribe Integrated Tax rate of 0.1% on inter-State supply of taxable goods by a registered supplier to a registered recipient for export subject to specified conditions.
3. Notification No. 40/2017- Central Tax (Rate), dated the 23rd October, 2017, Notification 40/2017-Central Tax (Rate) ,dt. 23-10- 2017 – Seeks to prescribe Central Tax rate of 0.0 5% on intra-State supply of taxable goods by a registered supplier to a registered recipient for export subject to specified conditions.
The persons claiming refund of integrated tax paid on exports of goods or services should not have availed the benefit under the following: –
1. Notification No. 78/2 017- Customs, dated the 13th October, 2017 Seeks to exempt goods imported by EOUs from integrated tax and compensation cess by amending Notification No. 52/2003-Customs, dated 31st March, 2003
2. Notification No. 79/2017- Customs, dated the 13th October, 2017, except so far it relates to receipt of capital goods by such person against Export Promotion Capital Goods Scheme. Notification No. 79/2017-Customs, dated the 13th October, 2017 – Seek to amend various Customs exemption notifications to exempt Integrated Tax/Cess on import of goods under AA/EPCG schemes – the notification amended by this are the following: 16/2015-Customs, dated 1st April, 2015; 18/2015-Customs, dated 1st April, 2015; 20/2015- Customs, dated 1st April, 2015; 21/2015-Customs, dated 1st April 2015; 22/2015-Customs, dated 1st April, 2015 & 45/2016-Customs, dated 13th August, 2016

Applying for a refund on the GST Portal

A refund application in FORM GST RFD‐01 shall be filled on the common portal by an applicant seeking refund under any of the following categories:

(a) Refund of unutilized input tax credit (ITC) on account of exports without payment of tax.

(b) Refund of tax paid on export of services with payment of tax.

(c) Refund of unutilized ITC on account of supplies made to SEZ Unit/SEZ Developer without payment of tax.

(d) Refund of tax paid on supplies made to SEZ Unit/SEZ Developer with payment of tax.

(e) Refund of unutilized ITC on account of accumulation due to inverted tax

(f) Refund to supplier of tax paid on deemed export supplies.

(g) Refund to recipient of tax paid on deemed export supplies.

(h) Refund of excess balance in the electronic cash ledger.

(i) Refund of excess payment of tax.

(j) Refund of tax paid on intra-State supply which is subsequently held to be inter-State supply and vice versa.

(k) Refund on account of assessment/provisional assessment/appeal/any other order.

(l) Refund on account of “any other” ground or reason.

Important :- The statements/declarations/undertakings which are part of FORM GST RFD-01 itself, and also other documents/invoices which are to be uploaded as indicated in Table 2 above shall be required to be provided by the applicant for processing of the refund claim.

No other document needs to be provided by the applicant at the stage of filing of the refund application

Submitting Refund Pre‐Application Form

Refund Pre-Application is a form, which needs to be submitted by the taxpayers to provide certain information related to nature of business, Aadhaar Number, Income Tax details, export data, expenditure and investment etc. To submit Refund Pre-Application Form, perform following steps:

1. Login to the GST Portal. Navigate to Services> Refunds > Refund pre application Form option.

GST Portal

Note:

  • Taxpayer is not required to sign the Refund Pre-Application form.
  • Once the form is submitted, you cannot edit or re-submit the form.

2. Refund preapplication Form page is displayed.

3. Select the Nature of Business from the options given.

4. Select the Date of Issue of IEC (Only for Exporters).

5. Enter the Aadhaar Number of Primary Authorized Signatory.

6. Enter the Value of Exports made in the Financial Year 2019‐2020 (till date) (Only for Exporter), Income tax paid in Financial Year 2018‐2019, Advance tax paid in Financial Year 2019‐2020 (till date) and Capital Expenditure and investment made in Financial Year 2018‐2019.

7. Select the declaration checkbox and click SUBMIT.

declaration checkbox

8. A confirmation message about the submission of the form is displayed.

message about the submission

Note: On submitting the refund pre-application form, an acknowledgement message will be shown to you on the screen. No separate e-mail or SMS will be sent to you for the same.

Documents/Statements/Undertakings/Declarations to be made along with the refund application being filed on the GST Portal

S. No. Type of Refund Declaration/Statement/Undertaking/ Certificates to be filled online Supporting documents to be additionally uploaded
1. Refund of unutilized ITC on account of exports without payment of tax a) Declaration under the second and third proviso to section 54(3)

b) Undertaking in relation to sections 16(2)(c) and section 42(2)

c) Statement 3 under rule 89(2)(b) and rule 89(2)(c)

d) Statement 3A under rule 89(4)2

a)  Copy of GSTR-2A of the relevant period

b) Statement of invoices in prescribed format Annexure B

c) Self-certified copies of invoices entered in Annexure-B whose details are not found in GSTR-2A of the relevant period

d) BRC/FIRC in case of export of services and shipping bill (only in case of exports made through non-EDI ports) in case of goods

2. Refund of tax paid on export of services made with payment of tax a) Declaration under second and third proviso to section 54(3)

b) Undertaking in relation to sections 16(2)(c) and section 42(2)

c) Statement 2 under rule 89(2)(c)

a) BRC/FIRC /any other document indicating the receipt of sale proceeds of services

b) Copy of GSTR-2A of the relevant period

Statement of invoices
(Annexure-B)

c) Self-certified copies of invoices entered in Annexure-A whose details are not found in GSTR-2A of the relevant period

d) Self-declaration regarding non-prosecution under sub-rule (1) of rule 91 of the CGST Rules for availing provisional refund

3. Refund of unutilized ITC on account of Supplies made to SEZ units/developer without payment of tax a) Declaration under third proviso to section 54(3)

b) Statement 5 under rule 89(2)(d) and rule 89(2)(e)

c) Statement 5A under rule 89(4)

d) Declaration under rule 89(2)(f)

e) Undertaking in relation to sections 16(2)(c) and section 42(2)

f) Self-declaration under rule 89(2)(l) if amount claimed does not exceed two lakh rupees, certification under rule 89(2)(m) otherwise

a) Copy of GSTR-2A of the relevant period

b) Statement of invoices (Annexure-B)

c) Self-certified copies of invoices entered in Annexure-B whose details are not found in GSTR-2A of the relevant period

d) Endorsement(s) from the specified officer of the SEZ regarding receipt of goods/services for authorized operations under second proviso to rule 89(1)

4. Refund of tax paid on supplies made to SEZ units/develop er with payment of ta a) Declaration under second and third proviso to section 54(3)

b) Declaration under rule 89(2)(f)

c) Statement 4 under rule 89(2)(d) and rule 89(2)(e)

d) Undertaking in relation to sections 16(2)(c) and section 42(2)

e) Self-declaration under rule 89(2)(l) if amount claimed does not exceed two lakh rupees, certification under rule 89(2)(m) otherwise

a) Endorsement(s) from the specified officer of the SEZ regarding receipt of goods/services for authorized operations under second proviso to rule 89(1)

b) Self-certified copies of invoices entered in Annexure-A whose details are not found in GSTR-2A of the relevant period

c) Self-declaration regarding non-prosecution under sub-rule (1) of rule 91 of the CGST Rules for availing provisional refund

5. Refund of ITC unutilized on account of accumulation due to inverted tax structure a) Declaration under second and third proviso to section 54(3)

b) Declaration under section 54(3)(ii)

c) Undertaking in relation to sections 16(2)(c) and section 42(2)

d) Statement 1 under rule 89(5)

a) Copy of GSTR-2A of the relevant period

b) Statement of  nvoices (Annexure-B)

c) Self-certified copies of invoices entered in Annexure-B whose details are not found in GSTR-2A of the relevant period

6. Refund to supplier of tax paid on deemed export supplies a) Statement 5(B) under rule 89(2)(g)

b) Declaration under rule 89(2)(g)

c) Undertaking in relation to sections 16(2)(c) and section 42(2)

d) Self-declaration under rule 89(2)(l) if amount claimed does not exceed two lakh rupees, certification under rule 89(2)(m) that the amount claimed as refund has not been passed on to any other person.

Documents required under Notification No. 49/2017-Central Tax dated 18.10.2017 and Circular No. 14/14/2017-GST dated 06.11.2017
7. Refund to recipient of tax paid on deemed export supplies a) Statement 5(B) under rule 89(2)(g)

b) Declaration under rule 89(2)(g)

c) Undertaking in relation to sections 16(2)(c) and section 42(2)

d) Self-declaration under rule 89(2)(l) if amount claimed does not exceed two lakh rupees, certification under rule 89(2)(m) that the amount claimed as refund has not been passed on to any other person.

Documents required under Circular No. 14/14/2017-GST dated 06.11.2017
8. Refund of excess payment of tax a) Statement 7 under rule 89(2)(k)

b) Undertaking in relation to sections 16(2)(c) and section 42(2)

c) Self-declaration under rule 89(2)(l) if amount claimed does not exceed two lakh rupees, certification under rule 89(2)(m) that the amount claimed as refund has not been passed on to any other person.

9. Refund of tax paid on intra-state supply which is subsequently held to be an inter-state supply and vice versa a) Statement 6 under rule 89(2)(j)

b) Undertaking in relation to sections 16(2)(c) and section 42(2)

10. Refund on account of assessment / provisional assessment / appeal / any other order a) Undertaking in relation to sections 16(2)(c) and section 42(2)

b) Self-declaration under rule 89(2)(l) if amount claimed does not exceed two lakh rupees, certification under rule 89(2)(m) that the amount claimed as refund has not been passed on to any other person.

a) Reference number of the order and a copy of the Assessment / Provisional Assessment / Appeal / Any Other Order

b) Reference number/proof of payment of pre deposit made earlier for which refund is being claimed

11. Refund on account of any other ground or reason a) Undertaking in relation to sections 16(2)(c) and section 42(2)

b) Self-declaration under rule 89(2)(l) if amount claimed does not exceed two lakh rupees, certification under rule 89(2)(m) that the amount claimed as refund has not been passed on to any other person.

Documents in support of the claim

Annexure‐B

Statement of invoices to be submitted with application for refund of unutilized ITC

Please Note:- Four documents, each of maximum 5MB, may be uploaded along with the refund application. Neither the refund application in FORM GST RFD-01 nor any of the supporting documents shall be required to be physically submitted to the office of the jurisdictional proper officer.

The procedure for claiming a refund on the GST Portal

A refund application in FORM GST RFD‐01 is to be filed on the common portal by an applicant seeking refund under any of the following categories:

(m) Refund of unutilized input tax credit (ITC) on account of exports without payment of tax.

(n) Refund of tax paid on export of services with payment of tax.

(o) Refund of unutilized ITC on account of supplies made to SEZ Unit/SEZ Developer without payment of tax.

(p) Refund of tax paid on supplies made to SEZ Unit/SEZ Developer with payment of tax.

(q) Refund of unutilized ITC on account of accumulation due to inverted tax

(r) Refund to supplier of tax paid on deemed export supplies.

(s) Refund to recipient of tax paid on deemed export supplies.

(t) Refund of excess balance in the electronic cash ledger.

(u) Refund of excess payment of tax.

(v) Refund of tax paid on intra-State supply which is subsequently held to be inter-State supply and vice versa.

(w) Refund on account of assessment/ provisional assessment/ appeal/ any other order.

(x) Refund on account of “any other” ground or reason.

Impotant:- Refund claims under categories listed at (a), (c) and (e) above must be filed by the applicant chronologically. This means that an applicant, after submitting a refund application under any of these categories for a certain period, shall not be subsequently allowed to file a refund claim under the same category for any previous period. This principle/ limitation, however, shall not apply in cases where a fresh application is being filed in a situation where a deficiency memo had been issued earlier.

Important:-The statements/declarations/undertakings which are part of FORM GST RFD‐01 itself, and also other documents/invoices which are to be uploaded as indicated in Table 3 above are required to be provided by the applicant for processing of the refund claim. No other document needs to be provided by the applicant at the stage of filing of the refund application.

Remember:- The applicant, at his option, may file a refund claim for a tax period or by clubbing successive tax periods. Sub-section (3) of section 16 of the Integrated Goods and Services Tax Act, 2017 and sub-section (3) of section 54 of the CGST Act, there appears no bar in claiming refund by clubbing different months across successive Financial Years (Paragraph 2 of Circular No.135/05/2020-GST, dated 31st March 2020 refers)

Registered persons who are filing quarterly returns for having aggregate turnover less than 1.5 Crore and opting to file FORM GSTR-1 every quarter, can file for Refunds of inverted duty structure for a tax period on a quarterly basis.

FAQs:-

Q.1 Can Ifile nil refund for multiple tax period in one refund application?

Ans: Yes, you can file for nil refund for multiple tax periods in one refund application.

Q.2 Can the nil period of refund be combined with the period in which there is a refund in one application?

Ans: Yes, the nil period of refund can be combined with the period in which there is a refund in one application. Let us suppose you want to file a tax refund from Apr-Sep month, and you also want to file a nil refund for May-Jun month. There are two ways in which you can file your refund application.

a. You can select the Tax Period as Apr-Apr and file a normal refund You can then select May-Jun and file a Nil refund application. And, select Jul-Sep and file a normal refund application.

b. You can select the Tax Period as Apr-Sep and file a normal refund

please Note:- The Application Reference Number (ARN) will be generated only after the applicant has completed the process of filing the refund application in FORM GST RFD-01, and has completed the uploading of all the supporting documents/ undertaking/ statements/invoices and, where required, the amount has been debited from the electronic credit/cash ledger.

Important:- Any refund claim for a tax period may be filed only after furnishing all the returns in FORM GSTR-1 and FORM GSTR-3B which were due to be furnished on or before the date on which the refund application is being filed.

In case of a claim for refund filed by a composition taxpayer, a non-resident taxable person, or an Input Service Distributor (ISD) the applicant should have furnished returns in FORM GSTR-4(along with FORM GST CMP-08), FORM GSTR-5 or FORM GSTR-6, as the case may be, which were due to be furnished on or before the date on which the refund application is being filed.

If the application for refund is complete in terms of sub-rule (2), (3) and (4) of rule 89 of the CGST Rules, an acknowledgment in FORM GST RFD‐02 will be issued within 15 days of the filing of the refund application. (Refer Rule 90 (1) of the CGST Rules)

Processing Refund Applications which are filed on the GST Portal

Listed below are the steps involved in the processing of the refund application:

1. Applicant files the refund application on the GST Portal in Form GST RFD01. Such an application will be available at the Dashboard of Tax Official as a pending work item.

2. The refund application filed by the applicant has to be processed by the Refund Processing Officer.

3. Refund Processing Officer will scrutinize the application and attachments filed by the applicant.

Based on scrutiny of the refund application filed by the applicant, if the refund application is found to be complete in all aspects, Acknowledgement in Form GST RFD02 will be issued by the Refund Processing Officer, within 15 days from the date of filing of the refund application.

Based on scrutiny of the refund application and attachments filed by the applicant, in case, any deficiencies are noticed in refund application, the Deficiency Memo will be issued in Form GST RFD03 on the refund application by the Refund Processing Officer. In case of issuance of Deficiency Memo in Form GST RFD-03, there would be auto re-credit of refund claimed amount in Electronic Cash/ Credit Ledger, if the ledger has been debited at the time of filing refund application. In this case, the applicant needs to file a fresh refund application for the same period again, if needed, after rectification of the deficiencies mentioned in the deficiency memo.

4. Refund Processing Officer can issue an online notice for rejection of application for refund or recovery of erroneously granted refund for seeking any clarification in Form GST RFD08 if required.

5. The applicant is required to furnish a reply to the notice (issued in Form GST RFD-08) in Form GST RFD09 online on GST Portal, within 15 days of issuance of notice.

6. Tax Official may issue Provisional Refund Order in Form GST RFD-04 within 7 days from the date of acknowledgment up to 90% of the refund claimed amount, if the applicant is eligible to get a provisional refund. Refund Processing Officer can issue Provisional Order in Form GST RFD-04 in following cases:

> Refund in case of export of services with payment of tax

> Refund of accumulated ITC on account of export of goods/services under Bond/LUT without payment of integrated tax.

> Supplies made to SEZ Unit/SEZ Developer with payment of Tax

> Supplies made to SEZ Unit /SEZ Developer without payment of Tax

7. Refund Processing Officer will issue a Refund Sanction/ Rejection Order in Form GST RFD-06.

Note:

In case of refund applications, in which provisional refund order has been issued in Form GST RFD-04, the final order Form GST RFD-06 will quantify the total sanctioned amount out of the claimed amount and the net balance amount will be sanctioned by issuing Form GST RFD-06, after further verification and examination of the application by the Tax Official.

In case of complete adjustment of refund towards any demand, Refund Processing Officer may adjust it through Form GST RFD-06.

8. Payment Order needs to be issued in Form GST RFD-05 after issuance of Form GST RFD-04 or Form GST RFD-06 in case of sanction of refund.

9. The sanctioned refund amount may be withheld by the Refund Processing Officer by issuing Form GST RFD-07 (Part B). In such cases, Tax Official will not issue Form GST RFD-05, till the withholding order is in operation.

10. Order for re-credit of the amount to Electronic Cash or Credit ledger on rejection of refund claim (Form GST PMT-03) is required to be issued in case if :

  • the ledger has been debited at the time of filing refund application for such amount and
  • any amount of refund is marked as inadmissible/rejected by refund processing officer by the issue of an Order in Form GST RFD-06.

Processing of Refund applications in FORM GST RFD‐01A wrongly mapped on common portal when submitted by taxpayers

C.B.I. & C. Circular No. 104/23/2019‐GST, dated 28‐6‐2019

F. No. CBEC-20/16/04/2018-GST
Government of India
Ministry of Finance (Department of Revenue)
Central Board of Indirect Taxes & Customs, New Delhi

Subject: Processing of refund applications in FORM GST RFD01A submitted by taxpayers wrongly mapped on the common portal Regarding.

Doubts have been raised in respect of processing of a refund application by a jurisdictional tax authority (either Centre or State) to whom the application has been electronically transferred by the common portal in cases where the said tax authority is not the one to which the taxpayer has been administratively assigned. The matter has been examined. In order to ensure uniformity in the implementation of the provisions of the law across field formations, the Board, in exercise of its powers conferred by section 168(1) of the Central Goods and Services Tax Act, 2017 (hereinafter referred to as “CGST Act”), hereby clarifies the issues in succeeding paras.

2. It has been reported by the field formations that administrative assignment of some of the taxpayers to the Central or the State tax authority has not been updated on the common portal in accordance with the decision taken by the respective tax authorities, in pursuance of the guidelines issued by the GST Council Secretariat, vide Circular No. 1/2017, dated 20-9-2017 [2017 (7) G.S.T.L. C21], regarding division of taxpayer base between the Centre and States to ensure Single Interface under GST. For example, a taxpayer M/s. XYZ Ltd. was administratively assigned to the Central tax authority but was mapped to the State tax authority on the common portal.

3. Prior to 3 1-12-2018, refund applications were being processed only after submission of printed copies of FORM GST RFD-01A in the respective jurisdictional tax offices. Subsequent to the issuance of Circular No. 79/53/2018-GST, dated 31-12-2018 [2019 (20) G.S.T.L. C33], copies of refund applications are no longer required to be submitted physically in the jurisdictional tax office. Now, the common portal forwards the refund applications submitted on the said portal to the jurisdictional proper officer of the tax authority to whom the taxpayer has been administratively assigned. In case of the example cited in para 2 above, as the applicant was wrongly mapped with the State tax authority on the common portal, the application was transferred by the common portal to the proper officer of the State tax authority despite M/s. XYZ Ltd. being administratively assigned to the Central tax authority. As per para 2(e) of Circular No. 79/53/2018-GST, dated 31-12- 2018, the proper officer of the State tax authority should electronically reassign the said application to the designated jurisdictional proper officer. It has, however, been reported that the said re-assignment facility is not yet available on the common portal.

4. Doubts have been raised as to whether, in such cases, application for refund can at all be processed by the proper officer of the State tax authority or the Central tax authority to whom the refund application has been wrongly transferred by the common portal.

5. The matter has been examined and it is clarified that in such cases, where reassignment of refund applications to the correct jurisdictional tax authority is not possible on the common portal, the processing of the refund claim should not be held up and it should be processed by the tax authority to whom the refund application has been electronically transferred by the common portal. After the processing of the refund application is complete, the refund processing authority may inform the common portal about the incorrect mapping with a request to update it suitably on the common portal so that all subsequent refund applications are transferred to the correct jurisdictional tax authority.

6. It is requested that suitable trade notices may be issued to publicize the contents of this Circular.

7. Difficulty, if any, in implementation of this Circular may please be brought to the notice of the Board. Hindi version would follow.

Export promotion — Goods sent/taken out of India for Exhibition or on Consignment basis for export promotion — Clarification

C.B.I. & C. Circular No. 108/27/2019‐GST, dated 18‐7‐2019

F. No. CBEC-20/06/03/2019-GST
Government of India
Ministry of Finance (Department of Revenue)
Central Board of Indirect Taxes & Customs, New Delhi

Subject:  Clarification in respect of goods sent/taken out of India for exhibition or on consignment basis for export promotion – Regarding.

Various representations have been received from the trade and industry regarding procedure to be followed in respect of goods sent/taken out of India for exhibition or on consignment basis for export promotion. Such goods sent/taken out of India crystallise into exports, wholly or partly, only after a gap of certain period from the date they were physically sent/taken out of India.

2. The matter has been examined and in view of the difficulties being faced by the trade and industry and to ensure uniformity in the implementation of the provisions of the law across the field formations, the Board, in exercise of its powers conferred under section 168(1) of the Central Goods and Services Tax Act, 2017 (hereinafter referred to as the “CGST Act”) hereby clarifies various issues in succeeding paragraphs.

3. As per section 7 of the CGST Act, for any activity or transaction to be considered a supply, it must satisfy twin tests namely –

(i) it should be for a consideration by a person; and

(ii) it should be in the course or furtherance of business.

4. The exceptions to the above are the activities enumerated in Schedule I of the CGST Act which are treated as supply even if made without consideration. Further, sub-section (21) of section 2 of the Integrated Goods and Services Tax Act, 2017 (hereinafter referred to as the “IGST Act”) defines “supply”, wherein it is clearly stated that it shall have the same meaning as assigned to it in section 7 of the CGST Act.

5. Section 16 of the IGST Act deals with “Zero rated supply”. The provisions contained in the said section read as under :

16. (1) “zero rated supply ” means any of the following supplies of goods or services or both, namely :-

(a) export of goods or services or both; or

(b) supply of goods or services or both to a Special Economic Zone developer or a Special Economic Zone unit.

Therefore, it can be concluded that only such ‘supplies’ which are either ‘export’ or are ‘supply to SEZ unit/developer’ would qualify as zero-rated supply.

6. It is, accordingly, clarified that the activity of sending/taking the goods out of India for exhibition or on consignment basis for export promotion, except when such activity satisfy the tests laid down in Schedule I of the CGST Act (hereinafter referred to as the “specified goods”), do not constitute supply as the said activity does not fall within the scope of section 7 of the CGST Act as there is no consideration at that point in time. Since such activity is not a supply, the same cannot be considered as ‘Zero rated supply’ as per the provisions contained in section 16 of the IGST Act.

7. Since the activity of sending/taking specified goods out of India is not a supply, doubts have been raised by the trade and industry on issues relating to maintenance of records, issuance of delivery challan/tax invoice etc. These issues have been examined and the clarification on each of these points is as under:-

Sl. No. Issue Clarification
1.           Whether any records are required to be maintained by registered person for sending/taking specified goods out of India? The registered person dealing in specified goods shall maintain a record of such goods as per the format at Annexure to this Circular.
2.           What is the documentation required for sending/taking the specified goods out of India? (a) As clarified above, the activity of sending/taking specified goods out of India is not a supply.

(b) The said activity is in the nature of “sale on approval basis” wherein the goods are sent/taken outside India for the approval of the person located abroad and it is only when the said goods are approved that the actual supply from the exporter located in India to the importer located abroad takes place. The activity of sending/ taking specified goods is covered under the provisions of sub-section (7) of section 31 of the CGST Act read with rule 55 of Central Goods & Services Tax Rules, 2017 (hereinafter referred to as the “CGST Rules”).

(c) The specified goods shall be accompanied with a delivery challan issued in accordance with the provisions contained in rule 55 of the CGST Rules.

(d) As clarified in paragraph 6 above, the activity of sending/taking specified goods out of India is not a zero-rated supply. That being the case, execution of a bond or LUT, as required under section 16 of the IGST Act, is not required.

3. When is the supply of specified goods sent/taken out of India said to take place? (a) The specified goods sent/taken out of India are required to be either sold or brought back within the stipulated period of six months from the date of removal as per the provisions contained in sub­section (7) of section 31 of the CGST Act.

(b) The supply would be deemed to have taken place, on the expiry of six months from the date of removal, if the specified goods are neither sold abroad nor brought back within the said period.

(c) If the specified goods are sold abroad, fully or partially, within the specified period of six months, the supply is effected, in respect of quantity so sold, on the date of such sale.

4. Whether invoice is required to be issued when the specified goods sent/taken out of India are not brought back, either fully or partially, within the stipulated period? (a) When the specified goods sent/taken out of India have been sold fully or partially, within the stipulated period of six months, as laid down in sub-section (7) of section 31 of the CGST Act, the sender shall issue a tax invoice in respect of such quantity of specified goods which has been sold abroad, in accordance with the provisions contained in section 12 and section 31 of the CGST Act read with rule 46 of the CGST Rules.

(b) When the specified goods sent/taken out of India have neither been sold nor brought back, either fully or partially, within the stipulated period of six months, as laid down in sub-section (7) of section 31 of the CGST Act, the sender shall issue a tax invoice on the date of expiry of six months from the date of removal, in respect of such quantity of specified goods which have neither been sold nor brought back, in accordance with the provisions contained in section 12 and section 31 of the CGST Act read with rule 46 of the CGST Rules.

5. Whether the refund claims can be preferred in respect of specified goods sent/taken out of India but not brought back? (a) As clarified in para 5 above, the activity of sending/taking specified goods out of India is not a zero-rated supply. That being the case, the sender of goods cannot prefer any refund claim when the specified goods are sent/taken out of India.

(b) It has further been clarified in answer to question no. 3 above that the supply would be deemed to have taken place:

(i) on the date of expiry of six months from the date of removal, if the specified goods are neither sold nor brought back within the said period; or

(ii) on the date of sale, in respect of such quantity of specified goods which have been sold abroad within the specified period of six months.

(c) It is clarified accordingly that the sender can prefer refund claim even when the specified goods were sent/taken out of India without execution of a bond or LUT, if he is otherwise eligible for refund as per the provisions contained in sub-section (3) of section 54 the CGST Act read with sub-rule (4) of rule 89 of the CGST Rules, in respect of zero rated supply of goods after he has issued the tax invoice on the dates as has been clarified in answer to the question no. 4 above. It is further clarified that refund claim cannot be preferred under rule 96 of CGST Rules as supply is taking place at a time after the goods have already been sent/taken out of India earlier.

8. The above position is explained by way of illustrations below :

Illustrations:

(i) M/s. ABC sends 100 units of specified goods out of India. The activity of merely sending/taking such specified goods out of India is not a supply. No tax invoice is required to be issued in this case but the specified goods shall be accompanied with a delivery challan issued in accordance with the provisions contained in rule 55 of the CGST Rules. In case the entire quantity of specified goods is brought back within the stipulated period of six months from the date of removal, no tax invoice is required to be issued as no supply has taken place in such a case. In case, however, the entire quantity of specified goods is neither sold nor brought back within six months from the date of removal, a tax invoice would be required to be issued for entire 100 units of specified goods in accordance with the provisions contained in section 12 and section 31 of the CGST Act read with rule 46 of the CGST Rules within the time period stipulated under sub-section (7) of section 31 of the CGST Act.

(ii) M/s. ABC sends 100 units of specified goods out of India. The activity of sending/taking such specified goods out of India is not a supply. No tax invoice is required to be issued in this case but the specified goods shall be accompanied with a delivery challan issued in accordance with the provisions contained in rule 55 of the CGST Rules. If 10 units of specified goods are sold abroad say after one month of sending/taking out and another 50 units are sold say after two months of sending/taking out, a tax invoice would be required to be issued for 10 units and 50 units, as the case may be, at the time of each of such sale in accordance with the provisions contained in section 12 and section 31 of the CGST Act read with rule 46 of the CGST Rules. If the remaining 40 units are not brought back within the stipulated period of six months from the date of removal, a tax invoice would be required to be issued for 40 units in accordance with the provisions contained in section 12 and section 31 of the CGST Act read with rule 46 of the CGST Rules. Further, M/s. ABC may claim refund of accumulated input tax credit in accordance with the provisions contained in subsection (3) of section 54 of the CGST Act read with sub-rule (4) of rule 89 of the CGST Rules in respect of zero-rated supply of 60 units.

9. It is requested that suitable trade notices may be issued to publicize the contents of this circular.

10. Difficulty, if any, in the implementation of the above instructions may please be brought to the notice of the Board. Hindi version would follow.

ANNEXURE

RECORD OF SPECIFIED GOODS SENT/TAKEN OUT OF INDIA AND BROUGHT BACK/SOLD ABROAD

Folio No./ Reference No. Description of specified goods Quantity unit (Nos./ grams/ piece etc.) Value per unit Total value of the

specified goods

Date of removal from place of business Delivery Challan No. & date
            No. Date
(1) (2) (3) (4) (5) (6) (7) (8)
               
               
               
               

Shipping Bill no. & Date Details of specified goods supplied (i.e. specified goods not brought back) Invoice no. & date Details of specified goods brought back Bill of Entry No. & Date
No. Date Quantity Value No. Date Quantity Value No. Date
(9) (10) (11) (12) (13) (14) (15) (16) (17) (18)
         
         
         
         

The time limit for processing refund claims

The time limit for sanction of a refund is sixty days from the date of receipt of application which is complete in all respects. (Section 54(7) of the CGST Act, 2017 refers)

Interest on delayed refunds

In terms of Section 56 of the CGST Act, if any tax ordered to be refunded is not refunded within 60 days of the date of receipt of the application, interest at the rate of 6 percent (notified vide notification No. 13/2017-Central Tax dated 28.06.2017) on the refund amount starting from the date immediately after the expiry of sixty days from the date of receipt of application (ARN) till the date of refund of such tax shall have to be paid to the applicant.

On the point of interest on delayed refunds, any tax shall be considered to have been refunded only when the amount has been credited to the bank account of the applicant. Therefore, interest will be calculated starting from the date immediately after the expiry of sixty days from the date of receipt of the application till the date on which the amount is credited to the bank account of the applicant.

Where any claim of refund arises from an order passed by an adjudicating authority or Appellate Authority or Appellate Tribunal or court which has attained finality and the same is not refunded within sixty days from the date of receipt of an application filed consequent to such order, interest at such rate not exceeding 9% shall be payable in respect of such refund from the date immediately after the expiry of sixty days from the date of receipt of application till the date of refund.

Please Note:- Where any order of refund is made by an Appellate Authority, Appellate Tribunal or any court against an order of the proper officer in Form GST RFD 06 passed under Section 54(5), the order passed by the Appellate Authority, Appellate Tribunal or by the court shall be deemed to be an order passed under the said Section 54(5)

Deficiency Memo

Where deficiencies are noticed in the application for the refund, a deficiency memo in Form GST RFD‐03 will be issued within 15 days starting from the date of generation of ARN (Refer Rule 90(3) of the CGST Rules)

Once an acknowledgment has been issued in relation to a refund application, no deficiency memo, on any grounds, maybe subsequently issued for the said application.

After a deficiency memo has been issued, the refund application would not be further processed and a fresh application would have to be filed.

The applicant is required to rectify the deficiencies highlighted in deficiency memo and file fresh refund application electronically in FORM GST RFD-01 again for the same period and this application would have a new and distinct ARN.

Any amount of input tax credit/cash debited from electronic credit/ cash ledger would be re-credited automatically once the deficiency memo has been issued.

Once an application has been submitted afresh, pursuant to a deficiency memo, the proper officer will not serve another deficiency memo with respect to the application for the same period, unless the deficiencies pointed out in the original deficiency memo remain un‐rectified, either wholly or partly, or any other substantive deficiency is noticed subsequently.

Grant of Provisional refund

To ameliorate any short-term hardships to the exporters, the refunds are released on a provisional basis to the extent of 90% even before complete scrutiny of application and related records. Provisional refund is granted in terms of Section 54 (6) of the CGST Act.

Provisional refund is applicable only in respect of refund claims on account of zerorate supply of goods and services made by registered persons.

Zero-rated supplies include:

(a) Export of Goods or Services

(b) Supplies made to Special Economic Zone (SEZ) units and Developers

The proper officer, after scrutiny of the refund claim and the evidence submitted and on being satisfied that the amount claimed as a refund on zero-rated supplies is due to the applicant, is to make an order in FORM GST RFD 04, sanctioning the amount of refund due to the said applicant on a provisional basis within a period of seven days from the date of the  acknowledgment issued in Form GST RFD-02.

The proper officer issues a payment order in FORM GST RFD05 for the amount sanctioned as provisional refund and the same is electronically credited to any of the bank accounts of the applicant mentioned in his  registration particulars and as specified in the application for a refund based on the consolidated payment advice.

Where the refund has not been disbursed within the same financial year in which the said payment order was issued, the FORM GST RFD-05 shall be required to be revalidated. However, the order issued in FORM GST RFD-04 shall not be required to be revalidated by the proper officer.

No adjustment or withholding of refund is permitted in respect of the amount of refund which has been provisionally sanctioned. In cases where there is an outstanding recoverable amount due from the applicant, the proper officer, instead of granting a refund on a provisional basis, may process and sanction refund on the final basis at the earliest and recover the amount from the amount so sanctioned.

FAQs:-

Q‐1: Whether a provisional refund would be given even in those cases where the proper officer prim a‐facie has sufficient reasons to believe that there are irregularities in the refund application which would result in rejection of whole or part of the refund amount so claimed?

Reply: Where the proper officer prima-facie has sufficient reasons to believe that there are irregularities in the refund application which would result in rejection of whole or part of the refund amount so claimed, then in such cases, the proper officer shall refund on a provisional basis ninety percent of the refundable amount of the claim (amount of refund claim less the inadmissible portion of the refund.

Q.2 Is there a prohibition under the law preventing a proper officer from sanctioning the entire amount within 7 days of the issuance of acknowledgment through the issuance of FORM GST RFD‐06, instead of a grant of provisional refund of 90 percent of the amount claimed through FORM GSTRFD‐04?

Reply: If the proper officer is fully satisfied with the eligibility of a refund claim on account of zero-rated supplies, and believes that no further scrutiny is required, the proper officer may issue a final order in FORM GST RFD‐06 within 7 days of the issuance of acknowledgment. In such cases, the issuance of a provisional refund order in FORM GST RFD-04 will not be necessary.

Q.3 What is the procedure to be followed in situations where the final refund amount to be sanctioned in FORM GST RFD‐06 is less than the amount of refund sanctioned provisionally through FORM GST RFD‐04?

Reply: In such cases, the proper officer shall have to issue a show-cause notice to the applicant, in FORM GST RFD‐08, under section 54 of the CGST Act, read with section 73 or 74 of the CGST Act. For example, where an applicant files a refund claim of Rs.100/- on account of zero-rated supplies.

The proper officer, after prima-facie examination of the application, sanctions Rs. 90 as a provisional refund through FORM GST RFD-04 and the same is electronically credited to his bank account. However, on detailed examination, it appears to the proper officer that only an amount of Rs. 70 is admissible as a refund to the applicant, then an SCN is required to be issued requiring the applicant to show cause as to why:

  • The amount claimed of Rs. 30/- should not be rejected as per the relevant provisions of the law; and
  • The amount of Rs. 20/- erroneously refunded should not be recovered under section 73 or section 74 of the CGST Act, as the case may be, along with interest and penalty, if any.

Q.4 Who is the proper officer for adjudicating the SCN in the case above?

Reply: The proper officer for adjudicating the above case shall be the same as the proper officer for sanctioning refund under section 54 of the CGST Act. The above notice shall be adjudicated following the principles of natural justice and an order shall be issued, in FORM GST RFD-06, under section 54 of the CGST Act, read with section 73 or section 74 of the CGST Act, as the case may be.

Q.5 What is the procedure to be followed after an adjudication order is passed against the applicant?

Reply: If the adjudicating authority decides against the applicant in respect of both points (a) and (b) as per the above example, then an amount of Rs. 70/- will have to be sanctioned in FORM GST RFD-06, and an amount of Rs. 20/-, along with interest and penalty, if any, shall be entered by the officer in the electronic liability register of the applicant through the issuance of FORM GST DRC‐07.

Further, if the application pertains to a refund of unutilized/accumulated ITC, then Rs. 30/-, i.e. the amount rejected, shall have to be re-credited to the electronic credit ledger of the applicant through FORM GST PMT‐03. This re-credit shall be done only after the receipt of an undertaking from the applicant to the effect that he shall not file an appeal or in case he files an appeal, the same has been finally decided against the applicant.

Refund of unutilized ITC on account of zero‐rated supplies made without payment of tax

Applicants of refunds of unutilized ITC, i.e. refunds pertaining to:

(i) Refund of unutilized input tax credit (ITC) on account of exports without payment of tax;

(ii) Refund of unutilized ITC on account of supplies made to SEZ Unit/SEZ Developer without payment of tax

Must upload a copy of FORM GSTR-2A for the relevant period (or any prior or subsequent period(s) in which the relevant invoices have been auto-populated) for which the refund is claimed. The proper officer would rely upon FORM GSTR-2A as an evidence that the concerned suppliers have properly accounted for their corresponding supplies in relation to which the input tax credit has been availed of by the applicant.

Such applicants shall also upload the details of all the invoices on the basis of which input tax credit has been availed during the relevant period for which the refund is being claimed, in the format specified as Annexure-B in Circular No 125/2019 along with the application for refund claim. Such an availment of ITC will be subject to the restriction imposed under sub-rule (4) in rule 36 of the CGST rules inserted vide Notification No. 49/2019-CT dated 09.10.2019. Refund of accumulated ITC shall be restricted to the ITC as per those invoices, the details of which are uploaded by the supplier in Form GSTR-1 and are reflected in the Form GSTR-2A of the applicant.

Question:- Should the refund of accumulated ITC on import documents, ISD invoices and RCM invoices be rejected as they are not reflected in the Form GSTR‐2A of the applicant?

Ans: Before the issuance of Circular No. 135/05/2020-GST dated 31st March, 2020, refund was being granted even in respect of credit availed on the strength of missing invoices (not reflected in FORM GSTR-2A) which were uploaded by the applicant along with the refund application on the common portal. However, vide Circular No. 135/05/2020 – GST dated the 31st March, 2020, the refund related to these missing invoices has been restricted. Now, the refund of accumulated ITC shall be restricted to the ITC available on those invoices, the details of which are uploaded by the supplier in FORM GSTR-1 and are reflected in the FORM GSTR-2A of the applicant. The treatment of refund of such ITC relating to imports, ISD invoices and the inward supplies liable to Reverse Charge (RCM supplies) will continue to be same as it was before the issuance of Circular No. 135/05/2020-GST dated 31st March, 2020.

The applicant shall also declare the eligibility or otherwise of the input tax credit availed against the invoices related to the claim period in the said format for enabling the proper officer to determine the same. Self-certified copies of invoices in relation to which the refund of ITC is being claimed and which are declared as eligible for ITC in Annexure – B, but which are not populated in FORM GSTR-2A, shall be uploaded by the applicant along with the application in FORM GST RFD 01. The proper officer shall not insist on the submission of an invoice (either original or duplicate) the details of which are available in FORM GSTR-2A of the relevant period uploaded by the applicant.

Steps for filing the application on the GST Portal for a refund of unutilized ITC on account of zero‐rated supplies without payment of Tax

  • The applicant has to file a refund application in Form RFD-01 at GST Portal.
  • The applicant has to provide a turnover of Zero-Related supplies and Adjusted Total Turnover for the period refund is sought for.
  • The Net ITC auto-populated can be edited downwards. The Net ITC in the table “Computation of Refund to be claimed” is auto-populated by the system and can be edited downwards considering net ITC availed for the heads of CGST/SGST/IGST together and Cess in the return for the respective tax period for which refund is claimed excluding any ITC related to Capital Goods, transition ITC that may have been posted in the ledger on account of transition ITC claims in the said period as well as refund claimed under Rule 89(4A) (deemed export) and/ or (4B) (merchant exporter or export).
  • The system will auto calculate the eligible refund amount and post in the last column of the table “Maximum refund amount to be claimed. The system also indicates balances in each head of the taxpayer’s Electronic Credit ledger on the day of filing of the return of the tax period and the balance when he is filing the refund application The taxpayer has to enter the amount of refund claimed in such a manner that the amount in each head is equal to or lower than the lowest balance in each head of Electronic credit ledger indicated above and the total refund should not exceed the “Maximum Refund that can be claimed”.
  • The applicant has to be careful while furnishing values in Form RFD-01, as no rectification in the application is allowed after its filling. The applicant has to ensure that he has filed the return GSTR-1 and GSTR- 3B for the all the tax periods pertaining to which Refund is claimed.
  • Balance in ITC ledger should be sufficient in each head (IGST/CGST/SGST/UTGST/CESS).
  • He should have exported goods/services on account of which he is claiming an ITC refund. In the case of Export of Goods, the taxpayer shall provide Shipping Bill and EGM details.
  • In case of export of services, he should have obtained FIRC/BRC from the concerned bank for receipt of foreign exchange.
  • Once Application Reference Number (ARN) is generated, the refund application filed shall be assigned to Jurisdictional Refund Processing Officer for processing. A refund applicant can track the status of the refund application filed using the “Track Application status” functionality on the portal.

Note: Form RFD 01 for a period can be filed only after filing of valid Form GSTR‐1 and Form GSTR‐3B for that particular Return Period.

  • The Invoice details as given under Form GSTR – 1/ Table 6A of Form GSTR– 1 and that given under refund statement should be the same.

Scrutiny of Refund application in respect of zero‐rated supplies without payment of tax

In case of refund claim on account of export of goods without payment of tax, the Shipping bill details shall be checked by the proper officer through ICEGATE SITE (www.icegate.gov.in) wherein the officer would be able to check details of EGM and shipping bill by keying in port name, Shipping bill number, and date. It is advised that while processing refund claims, the information contained in Table 9 of FORM GSTR-1 of the relevant tax period, as well as that of the subsequent tax periods, should also be taken into cognizance, wherever applicable. In this regard, Circular No. 26/26/2017–GST dated 29.12.2017 may be referred, wherein the procedure for rectification of errors made while filing the returns in FORM GSTR-3B has been provided. Therefore, in case of discrepancies between the data furnished by the taxpayer in FORM GSTR-3B and Form GSTR-1, the proper officer shall refer to the said Circular and process the refund application accordingly.

The formula for a refund of unutilized ITC on exports and supplies to SEZ/Developer without payment of tax – Rule 89(4)

In case of refunds of unutilized ITC on account of zero-rated supplies, the refund is calculated as per the following formula:

Refund Amount = (Turnover of zerorated supply of goods + Turnover of zero rated supply of services) x Net ITC ÷Adjusted Total Turnover

Where, –

(A) “Refund amount” means the maximum refund that is admissible;

(B) “Net ITC” means input tax credit availed on inputs and input services during the relevant period other than the input tax credit availed for which refund is claimed under sub-rules (4A) or (4B) or both;

(C) ” Turnover of zero-rated supply of goods” means the value of zero-rated supply of goods made during the relevant period without payment of tax under bond or letter of undertaking or the value which is 1.5 times the value of like goods domestically supplied by the same or, similarly placed, supplier, as declared by the supplier, whichever is less, other than the turnover of supplies in respect of which refund is claimed under sub-rules (4A) or (4B) or both;

(D) “Turnover of zero-rated supply of services” means the value of zero-rated supply of services made without payment of tax under bond or letter of undertaking, calculated in the following manner, namely:-

Zero-rated supply of services is the aggregate of the payments received during the relevant period for zero-rated supply of services and zero-rated supply of services where supply has been completed for which payment had been received in advance in any period before the relevant period reduced by advances received for zero-rated supply of services for which the supply of services has not been completed during the relevant period;

(E) “Adjusted Total Turnover” means the sum total of the value of-

(a) the turnover in a State or a Union territory, as defined under clause (112) of section 2, excluding the turnover of services; and (b) the turnover of zero-rated supply of services determined in terms of clause (D) above and non-zero-rated supply of services, excluding- (i) the value of exempt supplies other than zero-rated supplies; and (ii) the turnover of supplies in respect of which refund is claimed under sub-rule (4A) or sub-rule (4B) or both, if any, during the relevant period.

(F) “Relevant period” means the period for which the claim has been filed.

Calculation of the refundable amount on the GST Portal

The common portal calculates the refundable amount as the least of the following amounts:

(i) The maximum refund amount as per the formula in rule 89(4) of the CGST Rules [formula is applied on the consolidated amount of ITC, i.e. Central tax + State tax/Union Territory tax +Integrated tax];

(ii) The balance in the electronic credit ledger of the applicant at the end of the tax period for which the refund claim is being filed after the return in FORM GSTR-3B for the said period has been filed; and

(iii)   The balance in the electronic credit ledger of the applicant at the time of
filing the refund application.

After calculating the least of the three amounts, as detailed above, the equivalent amount is to be debited from the electronic credit ledger of the applicant in the following order:

a) Integrated tax, to the extent of balance available;

b) Central tax and State tax/Union Territory tax, equally to the extent of balance available and in the event of a shortfall in the balance available in a particular electronic credit ledger (say, Central tax), the differential amount is to be debited from the other electronic credit ledger (i.e., State tax/Union Territory tax, in this case).

The order of debit described above, however, is not presently available on the common portal. Till the time such a facility is made available on the common portal, the taxpayers are to follow the order as explained above for all refund applications. However, for applications where this order is not adhered to by the applicant, no adverse view may be taken by the tax authorities.

For all refund applications where a refund of unutilized ITC of compensation cess is being claimed, the calculation of the refundable amount of compensation cess shall be done separately and the amount so calculated will be entirely debited from the balance of compensation cess available in the electronic credit ledger.

The third proviso to sub-section (3) of section 54 of the CGST Act states that no refund of the input tax credit shall be allowed in cases where the supplier of goods or services or both avails of drawback in respect of Central tax. However, if a supplier avails of drawback in respect of duties rebated under the Customs and Central Excise Duties Drawback Rules, 2017, he shall be eligible for a refund of unutilized input tax credit of Central tax/ State tax/ Union Territory tax / Integrated tax/ Compensation cess. It is also clarified that refund of eligible credit on account of State tax shall be available if the supplier of goods or services or both has availed of drawback in respect of Central tax.

⇒ No refund of unutilized input tax credit shall be allowed in cases where the goods exported out of India are subjected to export duty.

Recovery of refund of unutilised input tax credit or of integrated tax paid on export of goods where export proceeds not realized

Rule 96B of the CGST Rules (inserted with effect from 23.03.2020 vide Notification No 16/2020 CT dt 23.03.2020) provides that where any refund of unutilised input tax credit on account of export of goods or of integrated tax paid on export of goods has been paid to an applicant but the sale proceeds in respect of such export goods have not been realised, in full or in part, in India within the period allowed under the Foreign Exchange Management Act, 1999 (42 of 1999), including any extension of such period, the person to whom the refund has been made shall deposit the amount so refunded, to the extent of non-realisation of sale proceeds, along with applicable interest within thirty days of the expiry of the said period or, as the case may be, the extended period, failing which the amount refunded shall be recovered in accordance with the provisions of section 73 or 74 of the Act, as the case may be, as is applicable for recovery of erroneous refund, along with interest under section 50.

However, where sale proceeds, or any part thereof, in respect of such export goods are not realised by the applicant within the period allowed under the Foreign Exchange Management Act, 1999 (42 of 1999), but the Reserve Bank of India writes off the requirement of realisation of sale proceeds on merits, the refund paid to the applicant shall not be recovered.

Where the sale proceeds are realised by the applicant, in full or part, after the amount of refund has been recovered from him under sub-rule (1) and the applicant produces evidence about such realisation within a period of three months from the date of realisation of sale proceeds, the amount so recovered shall be refunded by the proper officer, to the applicant to the extent of realisation of sale proceeds, provided the sale proceeds have been realised within such extended period as permitted by the Reserve Bank of India.

An undertaking to the above effect has been inserted in the Form GST RFD-01.

Letter of Undertaking (LUT)

Export of goods or services can be made without payment of Integrated tax under the provisions of rule 96A of the CGST Rules. Under the said provisions, an exporter is required to furnish a bond or Letter of Undertaking (LUT) to the jurisdictional Commissioner before effecting zero-rated supplies. Notification No 37/2017 CT dated 04.10.2017 requires a LUT to be furnished for a financial year.

The LUT is filed electronically in Form RFD-11 on the GST Portal A detailed procedure for filing of LUT was specified vide Circular No. 8/8/2017 –GST dated 4.10.2017. In some cases, such zero-rated supplies were made before filing the LUT, and refund claims for unutilized input tax credit got filed. In this regard, it is emphasized that the substantive benefits of zero-rating may not be denied where it has been established that exports in terms of the relevant provisions have been made. The delay in furnishing of LUT in such cases may be condoned and the facility for export under LUT may be allowed on ex post facto basis considering the facts and circumstances of each case.

Rule 96A (1) of the CGST Rules provides that any registered person may export goods or services without payment of Integrated tax after furnishing a LUT / bond and that he would be liable to pay the tax due along with the interest as applicable within a period of fifteen days after the expiry of three months or such further period as may be allowed by the Commissioner from the date of issue of the invoice for export if the goods are not exported out of India. The time period in case of services is – fifteen days after the expiry of one year or such further period as may be allowed by the Commissioner from the date of issue of the invoice for export, if the payment of such services is not received by the exporter in convertible foreign exchange.

It is emphasized that exports have been zero rated under the IGST Act and as long as goods have actually been exported even after a period of three months, payment of Integrated tax first and claiming refund at a subsequent date should not be insisted upon. In such cases, the jurisdictional Commissioner may consider granting extension of time limit for export as provided in the said sub-rule on post facto basis keeping in view the facts and circumstances of each case. The same principle should be followed in case of export of services.

The facility of export under LUT is available to all exporters in terms of notification No. 37/2017- Central Tax dated 04.10.2017, except to those who have been prosecuted for any offence under the CGST Act or the IGST Act or any of the existing laws in force in a case where the amount of tax evaded exceeds two hundred and fifty lakh rupees. Para 2(d) of the Circular No. 8/8/2017-GST dated 04.10.2017, mentions that a person intending to export under LUT is required to give a self-declaration at the time of submission of LUT that he has not been prosecuted. Persons who are not eligible to export under LUT are required to export under bond. It is clarified that this requirement is already satisfied in case of exports under LUT and asking for self–declaration with every refund claim where the exports have been made under LUT is not warranted.

Relaxations during COVID‐19

In terms of Notification No 35/2020 CT dated 03.04.2020, where LUTs have expired on 31.03.2020, the time limit for filing the LUT for the year 2020-2 1 shall stand extended up to 30.06.2020 and the taxpayer can continue to make the supply without payment of tax under LUT provided that the Form RFD-11 for 2020-21 is furnished on or before 30.06.2020. Taxpayers may quote the reference number of the LUT for the year 2019-20 in the relevant documents.

In wake of COVID pandemic, date further extended till 3 1.08.2020 for certain compliance under GST laws and till 30.09.2020 for certain compliance Customs, Central Excise and Service Tax Laws – https://www.cbic.gov.in/htdocs-cbec/homejinks/tickers as of 30.6.2020 at 19:30 hours

Clarifications on issues related to refund of unutilised ITC on account of zero‐rated supplies

While filing the return in FORM GSTR-3B for a given tax period, certain registered persons committed errors in declaring the export of services on payment of integrated tax or zero-rated supplies made to a Special Economic Zone developer or a Special Economic Zone unit on payment of integrated tax. They have shown such supplies in the Table under column 3.1(a) instead of showing them in column 3.1(b) of FORM GSTR-3B whilst they have shown the correct details in Table 6A or 6B of FORM GSTR-1 for the relevant tax period and duly discharged their tax liabilities. Such registered persons were earlier unable to file the refund application in FORM GST RFD-01A for refund of integrated tax paid on the export of services or on supplies made to a SEZ developer or a SEZ unit on the GST common portal because of an in-built validation check in the system which restricted the refund amount claimed (integrated tax/cess) to the amount of integrated tax/cess mentioned under column 3.1(b) of FORM GSTR3B (zero-rated supplies) filed for the corresponding tax period.

For the tax periods commencing from 01.07.2017 to 30.06.2019, such registered persons shall be allowed to file the refund application in FORM GST RFD-01 on the common portal subject to the condition that the amount of refund of integrated tax/cess claimed shall not be more than the aggregate amount of integrated tax/cess mentioned in the Table under columns 3.1(a), 3.1(b) and 3.1(c) of FORM GSTR-3B filed for the corresponding tax period.

In certain cases, the refund of unutilized input tax credit on account of export of goods is claimed and the value declared in the tax invoice is different from the export value declared in the corresponding shipping bill under the Customs Act. The value recorded in the GST invoice should normally be the transaction value as determined under section 15 of the CGST Act read with the rules made thereunder. The same transaction value should normally be recorded in the corresponding shipping bill/bill of export. During the processing of the refund claim, the value of the goods declared in the GST invoice and the value in the corresponding shipping bill/bill of export should be examined and the lower of the two values should be taken into account while calculating the eligible amount of refund.

The realization of consideration in convertible foreign exchange, or in Indian rupees wherever permitted by Reserve Bank of India, is one of the conditions for export of services. In case of export of goods, realization of consideration is not a pre-condition. In rule 89 (2) of the CGST Rules, a statement containing the number and date of invoices and the relevant Bank Realization Certificates (BRC) or Foreign Inward Remittance Certificates (FIRC) is required in case of export of services whereas, in case of export of goods, a statement containing the number and date of shipping bills or bills of export and the number and the date of the relevant export invoices is required to be submitted along with the claim for refund. It is therefore clarified that insistence on proof of realization of export proceeds for processing of refund claims related to the export of goods has not been envisaged in the law and should not be insisted upon.

As per section 16(2) of the IGST Act, credit of input tax may be availed for making zero-rated supplies; notwithstanding that such supply is an exempt supply. In terms of section 2 (47) of the CGST Act, exempt supply includes the non-taxable supply. Further, as per section 16(3) of the IGST Act, a registered person making zero rated supply shall be eligible to claim a refund when he either makes a supply of goods or services or both under bond or letter of undertaking (LUT) or makes such supply on payment of Integrated tax. However, in case of a zero-rated supply of exempted or non-GST goods, the requirement for furnishing a bond or LUT cannot be insisted upon. It is thus, clarified that in respect of refund claims on account of export of non-GST and exempted goods without payment of Integrated tax; LUT/bond is not required. Such registered persons exporting non-GST goods shall comply with the requirements prescribed under the existing law (i.e. Central Excise Act, 1944 or the VAT law of the respective State) or under the Customs Act, 1962, if any. Further, the exporter would be eligible for a refund of unutilized input tax credit of Central tax, State tax, Union Territory tax, Integrated tax and compensation cess in such cases.

Refund of IGST on the export of Service on payment of Tax

The taxpayer will file the refund application in Form RFD-01 on the GST portal. The taxpayer shall choose ground of refund as “Exports of services with payment of tax” for claiming the refund.

The following conditions must be met, for being eligible to file Form RFD-01, to claim refund on account of Export of Services (with payment of tax):

  • The taxpayer is registered with GST Portal and holds an active GSTIN during the period for which refund is being applied for.
  • Form GSTR-1 and a valid GSTR-3B Return must have been filed for the relevant tax period.
  • Taxpayer has paid taxes on the services exported, for which tax payer wants to claim refund.
  • Tax payer has BRC/FIRC number details for the export invoice, which is to be mentioned while claiming refund.
  • Any other criteria as prescribed

The taxpayer has to upload documents as are required to be filed along with Form RFD-01, as notified under CGST Rules or Circulars issued in the matter and other such documents as the refund sanctioning authority may require. Statement 2 shall be uploaded mandatorily with the invoice details of export of services with Integrated Tax. Taxpayers have an option to upload 10 documents with the refund application, of size up to 5MB each. The statement uploaded by taxpayer would be validated with the data already declared by the taxpayer while filing return Form GSTR-1. Only after this data is validated, the taxpayer would be able to file the refund application.

A single invoice can have multiple BRC/ FIRC numbers. While providing the details in the refund statement, taxpayer can add multiple BRC/FIRC against a single invoice. Taxpayer needs to select the number (count) of BRC/FIRC from the drop-down available in the statement. On selecting the number, rows would be added in the statement to provide BRC/FIRC details. In this way, the taxpayer can provide multiple BRC/FIRC details for a single invoice.

He Taxpayer can file refund applications for those period for which they have incorrectly mentioned the tax amount in Table 3.1(a or c) instead of Table 3.1(b) of Form GSTR-3B, till March, 2018 period. The taxpayer is advised to mention the tax amount on zero-rated supplies correctly in Form GSTR-3B, else they would face issues while filing refund application.

Refund on account of supplies made to SEZ Unit/Developer on payment of Tax

The taxpayer must choose ground of refund as “Refund on account of Supplies to SEZ unit/ SEZ Developer (with payment of tax)” for claiming a refund.

The following conditions must be met for being eligible to file form RFD-01 to claim a refund on account of supplies made to SEZ unit / SEZ developer (with payment of tax):

1. The taxpayer is registered with GST Portal and holds an active GSTIN during the period for which a refund is being applied for.

2. Form GSTR-1 and a Valid Form GSTR-3B must have been filed for the relevant tax period.

3. In Table 6B of the Form GSTR-1 filed for the relevant period, the details of supplies made to SEZ units or the SEZ developer must have been mentioned by the taxpayer.

4. The taxpayer has paid taxes at the time of supply to SEZ unit/developer, for which the taxpayer wants to claim a refund.

5. It is to be declared by the refund claimant that the SEZ Unit /Developer has not availed input tax credit of the tax paid, which has been claimed as refund.

6. It is to be declared by refund claimant that such goods have been admitted in full in the SEZ for authorized operations/services have been received by SEZ for authorized operations.

7. The Taxpayer has to upload documents as are required to be filed along with Form RFD-01, as notified under CGST Rules or Circulars issued in the matter and other such documents the refund sanctioning authority may require. Statement 4 need to be uploaded mandatorily, to give details of supplies made to SEZ unit/ SEZ Developer with Integrated Tax. The statement can be uploaded as many times until the refund is filed on the GST Portal. Taxpayers have an option to upload upto 10 documents with the refund application, of size up to 5MB each.

Procedure to track the status of refund for IGST and/or Cess paid on account of Export of Goods after logging in to the GST Portal

To track the status of refund for IGST and/ or Cess paid on account of Export of Goods after logging in to the GST Portal, perform following steps.

> Navigate to Services > Refunds > Track status of invoice data to be
shared with ICEGATE command.

> Select the Financial Year and Month from the drop-down list.

Note: For taxpayers filing Form GSTR-1 quarterly, they need to select last month of the respective quarter for which status is to be tracked and the result displayed would be for the whole quarter

  • Click the SEARCH button.
  • The search results are displayed.
  • You can click the hyperlink in the Count column to view the invoice level details.
  • On clicking the hyperlink, you will get the details of validation error against each invoice, to enable you to take necessary corrective action against those invoices details of which are not transmitted to ICEGATE. Click the DOWNLOAD FAILED INVOICES button.
  • Failed invoices details are displayed.

Accessing the Export Ledger on the GST Portal

The GST Portal uses ledger based approach to cumulate the IGST/CESS from export/SEZ invoices (Table 6A/9A/6B of GSTR 1), and compare with IGST/CESS paid under Table 3.1(b) of GSTR 3B across all periods.

The eligible invoices are transmitted by GST Portal to ICEGATE only if the IGST/CESS paid under Table 3.1(b) >= IGST/CESS from invoices of Tables 6A/6B/9A. The difference between IGST/CESS from Table 3.1(b) and Tables 6A/6B/9A is recorded as export ledger balance in the GST Portal. In case of negative balance, GST Portal will not transmit any eligible invoice to ICEGATE.

To view and download the Export Ledger for return period wise transactional breakup of R1 and R3B as has been accounted in the export ledger in CSV format, perform following steps:

1. Login to the GST Portal using valid credentials.

2. Navigate to Services > Refunds > Track status of invoice data to be shared with ICEGATE command.

3. The Track status of invoice data shared/to be shared with ICE GATE page is Click the View Export Ledger link

4. A pop-up is displayed showing the Export Ledger details.

5. The Taxpayer can click the DOWNLOAD AS CSV button to download the Export Ledger in CSV format.

Note: When you click DOWNLOAD AS CSV button, only the export ledger will be downloaded with R1 and R3 entries. However, when you click DOWNLOAD TRANSACTION AS CSV button, each transaction wise breakup of export ledger entries will be downloaded, which means that the different table amounts considered while posting entries to Export ledger from R1 and R3B will also be shown.

Refund of tax paid on deemed exports

Certain supplies of goods have been notified as deemed exports vide notification No. 48/2017-Central Tax dated 18.10.2017 under section 147 of the CGST Act. Further, the third proviso to rule 89(1) of the CGST Rules allows either the recipient or the supplier to apply for refund of tax paid on such deemed export supplies.

In case such refund is sought by the supplier of deemed export supplies, the documentary evidences as specified in notification No. 49/2017-Central Tax dated 18.10.2017 are also required to be furnished which includes the following:

a) Acknowledgment by the jurisdictional Tax officer of the Advance Authorisation holder or Export Promotion Capital Goods Authorisation holder, as the case may be, that the said deemed export supplies have been received by the said Advance Authorisation or Export Promotion Capital Goods Authorisation holder, or a copy of the tax invoice under which such supplies have been made by the supplier, duly signed by the recipient Export Oriented Unit that said deemed export supplies have been received by it.

b) An undertaking that the recipient of deemed export supplies shall not claim the refund in respect of such supplies and

c) An undertaking that the recipient of deemed export shall not avail any input tax credit on such supplies.

Similarly, in case the refund is filed by the recipient of deemed export supplies, an undertaking shall have to be furnished by him stating that refund has been claimed only for those invoices which have been detailed in statement 5B for the tax period for which refund is being claimed and that he has not availed input tax credit on such invoices. The recipient shall also be required to declare that the supplier has not claimed a refund with respect to the said supplies.

Refund - Deemed Exports

Refund of Compensation Cess

A registered person is eligible to claim refund of unutilized input tax credit of compensation cess paid on inputs, where the zero-rated final product is not leviable to compensation cess. For instance, cess is levied on coal, which is an input for the manufacture of aluminium products, whereas cess is not levied on aluminium products. However, a registered person making zero rated supply of aluminium products under bond or LUT may claim refund of unutilized credit including that of compensation cess paid on coal. Such registered persons may also make zero-rated supply of aluminium products on payment of Integrated tax but they cannot utilize the credit of the compensation cess paid on coal for payment of Integrated tax in view of the proviso to section 11(2) of the Cess Act, which allows the utilization of the input tax credit of cess, only for the payment of cess on the outward supplies.

FAQs:-

Q‐1: A registered person uses inputs on which compensation cess is leviable (e.g. coal) to export goods on which there is no levy of compensation cess (e.g. aluminium). For the period July, 2017 to May, 2018, no ITC is availed of the compensation cess paid on the inputs received during this period. ITC is only availed of the Central tax, State tax/Union Territory tax or Integrated tax charged on the invoices for these inputs. This ITC is utilized for payment of Integrated tax on export of goods. Vide Circular No. 45/19/2018‐GST dated 30.05.2018, it was clarified that refund of accumulated ITC of compensation cess on account of zero‐rated supplies made under Bond/Letter of Undertaking is available even if the exported product is not subject to levy of cess. After the issuance of this Circular, the registered person decides to start exporting under bond/LUT without payment of tax. He also decides to avail (through the return in FORM GSTR‐3B) the ITC of compensation cess, paid on the inputs used in the months of July, 2017 to May, 2018, in the month of July, 2018. The registered person then goes on to file a refund claim for ITC accumulated on account of exports for the month of July, 2018 and includes the said accumulated ITC for the month of July, 2018. How should the amount of compensation cess to be refunded be calculated?

Reply: In the instant case, refund on account of compensation cess is to be recomputed as if the same was available in the respective months in which the refund of unutilized credit of Central tax/State tax/Union Territory tax/Integrated tax was claimed on account of exports made under LUT/Bond. If the aggregate of these recomputed amounts of refund of compensation cess is less than or equal to the eligible refund of compensation cess calculated in respect of the month in which the same has actually been claimed, then the aggregate of the recomputed refund of compensation cess of the respective months would be admissible. However, the recomputed amount of eligible refund (of compensation cess) in respect of past periods, as aforesaid, would not be admissible in respect of consignments exported on payment of Integrated tax. This process would be applicable for application(s) for a refund of compensation cess (not claimed earlier) in respect of the past period.

Q‐2: A registered person uses coal for the captive generation of electricity which is further us ed for the manufacture of goods (say aluminium) which are exported under Bond/Letter of Undertaking without payment of duty. A refund claim is filed for accumulated Input Tax Credit of compensation cess paid on coal. Can the said refund claim be rejected on the ground that coal is used for the generation of electricity which is an intermediate product and not the final product which is exported and since electricity is exempt from GST, the ITC of the tax paid on coal for the generation of electricity is not available?

Reply: There is no distinction between intermediate goods or services and final goods or services under GST. Inputs have been clearly defined to include any goods other than capital goods used or intended to be used by a supplier in the course or furtherance of business. Since coal is an input used in the production of aluminium, albeit indirectly through the captive generation of electricity, which is directly connected with the business of the registered person, input tax credit in relation to the same cannot be denied.

Q‐3: A registered person avails ITC of compensation cess (say, of Rs. 100/-) paid on purchases of coal every month. At the same time, he reverses a certain proportion (say, half i.e. Rs. 50/-) of the ITC of compensation cess so availed on purchases of coal which are used in making zero rated outward supplies. Both these details are entered in the FORM GSTR-3B filed for the month as a result of which an amount of Rs. 50/- only is credited in the electronic credit ledger. The reversed amount (Rs. 50/-) is then shown as a ‘cost’ in the books of accounts of the registered person. However, the registered person declares Rs. 100/- as ‘Net ITC’ and uses the same in calculating the maximum refund amount which works out to be Rs. 50/- (assuming that export turnover is half of total turnover). Since both the balance in the electronic credit ledger at the end of the tax period for which the claim of refund is being filed and the balance in the electronic credit ledger at the time of filing the refund claim is Rs. 50/- (assuming that no other debits/credits have happened), the common portal will proceed to debit Rs. 50/- from the ledger as the claimed refund amount. The question is whether the proper officer should sanction Rs. 50/- as the refund amount or Rs. 25/- (i.e. half of the ITC availed after adjusting for reversals)?

Reply: ITC which is reversed cannot be held to have been ‘availed’ in the relevant period. Therefore, the same cannot be part of refund of unutilized ITC on account of zero-rated supplies. Moreover, the reversed ITC has been accounted as a cost which would have reduced the income tax liability of the applicant. Therefore, the same amount cannot, at the same time, be refunded to him/her in the ratio of export turnover to total turnover. However, if the said reversed amount is again availed in a later tax period, subject to the restriction under section 16(4) of the CGST Act, it can be refunded in the ratio of export turnover to total turnover in that tax period in the same manner as detailed in the section on refunds of unutilized ITC above. This is subject to the restriction that the accounting entry showing the said ITC as cost is also reversed.

Refund of transitional credit

Refund of unutilized input tax credit is allowed in two scenarios mentioned in sub-section (3) of section 54 of the CGST Act. These two scenarios are zero rated supplies made without payment of tax and inverted tax structure. In sub-rule (4) and (5) of rule 89 of the CGST Rules, the amount of refund under these scenarios is to be calculated using the formulae given in the said sub-rules. The formulae use the phrase ‘Net ITC’ and defines the same as “input tax credit availed on inputs and input services during the relevant period other than the input tax credit availed for which refund is claimed under sub-rules (4A) or (4B) or both”. It is clarified that as the transitional credit pertains to duties and taxes paid under the existing laws viz., under Central Excise Act, 1944 and Chapter V of the Finance Act, 1994, the same cannot be said to have been availed during the relevant period and thus, cannot be treated as part of ‘Net ITC’ and thus no refund of such unutilized transitional credit is admissible.

Refund of accumulated ITC on account of inverted tax structure

Sub-section (3) of section 54 of the CGST Act provides that refund of any unutilized ITC may be claimed 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). Further, subsection (59) of section 2 of the CGST Act defines inputs as any goods other than capital goods used or intended to be used by a supplier in the course or furtherance of business. Thus, on a conjoint reading of the above provisions of the Act, it is clear that refund of unutilised input tax credit due to inverted duty structure is allowed only where such accumulation takes place on account of rate of tax on inputs (excluding input services or capital goods) being higher than the rate of tax on output supplies. Therefore, clearly, the intent of the law is not to allow refund of tax paid on input services or capital goods as part of refund of unutilized input tax credit.

Formula for refund of unutilized ITC on account of inverted duty structure – Rule 89(5)

Rule 89(5) prescribes a formula to calculate “maximum refund amount” in cases of refund on account of inverted duty structure. The said Rule 89(5) was amended vide Notification No 21/2018 CT dated 18.04.2018 so as to align the rule with the Act by specifically excluding input services from the definition of Net ITC.

In case of refund of unutilized ITC on account of inverted duty structure, the refund is calculated as per the following formula:

Maximum Refund Amount = {(Turnover of inverted rated supply of goods and services) x Net ITC ÷ Adjusted Total Turnover} tax payable on such inverted rated supply ofgoods and services.

Explanation: – For the purposes of this sub-rule, the expressions –

(a) “Net ITC” shall mean input tax credit availed on inputs during the relevant period other than the input tax credit availed for which refund is claimed under sub-rules (4A) or (4B) or both; and

(b) “Adjusted Total Turnover” means the sum total of the value of-

(a) the turnover in a State or a Union territory, as defined under clause (112) of section 2, excluding the turnover of services; and (b) the turnover of zero-rated supply of services determined in terms of clause (D) above and non-zero-rated supply of services, excluding- (i) the value of exempt supplies other than zero-rated supplies; and (ii) the turnover of supplies in respect of which refund is claimed under sub-rule (4A) or sub-rule (4B) or both, if any, during the relevant period.

(F) “Relevant period” means the period for which the claim has been filed.

Calculation of the refundable amount on the GST Portal

The common portal calculates the refundable amount as the least of the following amounts:

(i) The maximum refund amount as per the formula in rule Rule 89(5) of the CGST Rules [formula is applied on the consolidated amount of ITC, i.e. Central tax + State tax/Union Territory tax +Integrated tax];

(ii) The balance in the electronic credit ledger of the applicant at the end of the tax period for which the refund claim is being filed after the return in FORM GSTR-3B for the said period has been filed; and

(iii) The balance in the electronic credit ledger of the applicant at the time of filing the refund application.

After calculating the least of the three amounts, as detailed above, the equivalent amount is to be debited from the electronic credit ledger of the applicant in the following order:

a) Integrated tax, to the extent of balance available;

b) Central tax and State tax/Union Territory tax, equally to the extent of balance available and in the event of a shortfall in the balance available in a particular electronic credit ledger (say, Central tax), the differential amount is to be debited from the other electronic credit ledger (i.e., State tax/Union Territory tax, in this case).

Scrutiny of refund application for unutilised ITC on account of inverted duty structure

There have been instances where, while processing the refund of unutilized ITC on account of inverted tax structure, some of the tax authorities denied the refund of ITC of GST paid on those inputs which are procured at equal or lower rate of GST than the rate of GST on outward supply, by not including the amount of such ITC while calculating the maximum refund amount as specified in rule 89(5) of the CGST Rules. The following issues are clarified:

a) Refund of unutilized ITC in case of inverted tax structure, as provided in section 54(3) of the CGST is available where ITC remains unutilized even after setting off of available ITC for the payment of output tax liability. Where there are multiple inputs attracting different rates of tax, in the formula provided in rule 89(5) of the CGST Rules, the term “Net ITC covers the ITC availed on all inputs in the relevant period, irrespective of their rate of tax.

b) The calculation of refund of accumulated ITC on account of inverted tax structure, in cases where several inputs are used in supplying the final product/output, can be clearly understood with the help of following example:

Suppose a manufacturing process involves the use of an input A (attracting 5 per cent GST) and input B (attracting 18 per cent GST) to manufacture output Y (attracting 12 per cent GST). The refund of accumulated ITC in the situation above, will be available under section 54(3) of the CGST Act read with rule 89(5) of the CGST Rules, which prescribes the formula for the maximum refund amount permissible in such situations.

Further assume that the applicant supplies the output Y having value of Rs. 3,000/- during the relevant period for which the refund is being claimed. Therefore, the turnover of inverted rated supply of goods and services will be Rs. 3,000/-. Since the applicant has no other outward supplies, his adjusted total turnover will also be Rs. 3,000/-.

If we assume that Input A, having value of Rs. 500/- and Input B, having value of Rs. 2,000/-, have been purchased in the relevant period for the manufacture of Y, then Net ITC shall be equal to Rs. 385/- (Rs. 25/- and Rs. 3 60/- on Input A and Input B respectively).

Therefore, multiplying Net ITC by the ratio of turnover of inverted rated supply of goods and services to the adjusted total turnover will give the figure of Rs. 385/-.

From this, if we deduct the tax payable on such an inverted rated supply of goods or services, which is Rs. 360/-, we get the maximum refund amount, as per rule 89(5) of the CGST Rules which is Rs. 2 5/-.

Important:- The refund of unutilized ITC on account of inverted duty structure is not applicable in cases where the inversion is due to change in the GST rate on the same goods. A refund of accumulated ITC under clause (ii) of sub-section (3) of section 54 of the CGST Act would not be applicable in cases where the input and the output supplies are the same.

Re-crediting of electronic credit ledger on account of rejection of refund claim

In case of rejection of refund claim of unutilized/accumulated ITC due to ineligibility of the input tax credit under any provisions of the CGST Act and rules made thereunder, the proper officer shall have to issue a show cause notice in FORM GST RFD-08, under section 54 of the CGST Act, read with section 73 or 74 of the CGST Act, requiring the applicant to show cause as to why: (a) the refund amount corresponding to the ineligible ITC should not be rejected as per the relevant provisions of the law; and (b) the amount of ineligible ITC should not be recovered as wrongly availed ITC under section 73 or section 74 of the CGST Act, as the case may be, along with interest and penalty, if any.

The above notice shall be adjudicated following the principles of natural justice and an order shall be issued, in FORM GST RFD-06, under section 54 of the CGST Act, read with section 73 or section 74 of the CGST Act, as the case may be. If the adjudicating authority decides against the applicant in respect of both points (a) and (b) above, then FORM GST RFD-06 shall have to be issued accordingly, and the amount of ineligible ITC, along with interest and penalty, if any, shall be entered by the officer in the electronic liability register of the applicant through issuance of FORM GST DRC-07. Alternatively, the applicant can voluntarily pay this amount, along with interest and penalty, as applicable, before service of the demand notice, and intimate the same to the proper officer in FORM GST DRC-03 in accordance with sub-section (5) of section 73 or sub-section (5) of section 74 of the CGST Act, as the case may be, read with sub rule (2) of rule 142 of the CGST Rules. In such cases, the need for serving a demand notice for recovery of ineligible ITC will be obviated. In any case, the proper officer shall order for the rejected amount to be re-credited to the electronic credit ledger of the applicant using FORM GST PMT-03, only after the receipt of an undertaking from the applicant to the effect that he shall not file an appeal or in case he files an appeal, the same is finally decided against the applicant.

In case of rejection of a claim for refund, on account of any reason other than the ineligibility of credit, the process described above shall be followed with the only difference that there shall be no proceedings for recovery of ineligible ITC under section 73 or section 74, as the case may be.

Example: Against a refund claim of unutilized/accumulated ITC of Rs.100/-, only Rs.80/- is sanctioned (Rs.15/- is rejected on account of ineligible ITC and Rs.5/- is rejected on account of any other reason). As stated above, a show cause notice, in FORM GST RFD-08 shall have to be issued to the applicant, requiring him to show cause as to why the refund claim amounting to Rs.20/- should not be rejected under the relevant provisions of the law and why the ineligible ITC of Rs. 15/- should not be recovered under section 73 or section 74, as the case may be, with interest and penalty, if any. If the said notice is decided against the applicant, Rs. 15/-, along with interest and penalty, if any, shall be entered by the officer in the electronic liability register of the applicant through issuance of FORM GST DRC-07. Further, Rs. 20/- would be re-credited through FORM GST PMT-03 only after the receipt of an undertaking from the applicant to the effect that he shall not file an appeal or in case he files an appeal, the same is finally decided against the applicant.

Debit of electronic credit ledger using FORM GST DRC‐03

Q‐1: Certain registered persons have reversed, through return in FORM GSTR3B filed for the month of August, 2018 or for a subsequent month, the accumulated input tax credit (ITC) required to be lapsed in terms of notification No. 20/2018‐Central Tax (Rate) dated 26.07.2018 read with circular No. 56/30/2018GST dated 24.08.2018 (hereinafter referred to as the “said notification”). Some of these registered persons, who have attempted to claim refund of accumulated ITC on account of inverted tax structure for the same period in which the ITC required to be lapsed in terms of the said notification has been reversed, are not able to claim refund of accumulated ITC to the extent to which they are so eligible. This is because of a validation check on the common portal which prevents the value of input tax credit in Statement 1A of FORM GST RFD‐01A from being higher than the amount of ITC availed in FORM GSTR‐3B of the relevant period minus the value of ITC reversed in the same period. This results in registered persons being unable to claim the full amount of refund of accumulated ITC on account of inverted tax structure to which they might be otherwise eligible. What is the solution to this problem?

Reply: As a one-time measure to resolve this issue, refund of accumulated ITC on account of inverted tax structure, for the period(s) in which there is reversal of the ITC required to be lapsed in terms of the said notification, is to be claimed under the category “any other” instead of under the category “refund of unutilized ITC on account of accumulation due to inverted tax structure” in FORM GST RFD-01A. This application for refund should relate to the same tax period in which such reversal has been made.

The application shall be accompanied by all statements, declarations, undertakings and other documents which are statutorily required to be submitted with a “refund claim of unutilized ITC on account of accumulation due to inverted tax structure”. On receiving the said application, the proper officer shall himself calculate the refund amount admissible as per rule 89(5) of Central Goods and Services Tax Rules, 2017 (hereinafter referred to as “CGST Rules”), in the manner prescribed. After calculating the admissible refund amount and scrutinizing the application for completeness and eligibility, if the proper officer is satisfied that the whole or any part of the amount claimed is payable as refund, he shall request the taxpayer, in writing, to debit the said amount from his electronic credit ledger through FORM GST DRC-03. Once the proof of such debit is received by the proper officer, he shall proceed to issue the refund order in FORM GST RFD 06 and the payment order in FORM GST RFD-05.

All refund applications for unutilized ITC on account of accumulation due to inverted tax structure for subsequent tax period(s) shall be filed in FORM GST RFD-01 under the category “refund of unutilized ITC on account of accumulation due to inverted tax structure”.

Q2: The clarification given for Q‐1 above applies to registered persons who have already reversed the ITC required to be lapsed in terms of the said notification through return in FORM GSTR-3B. What about those registered persons who are yet to perform this reversal?

Reply: All those registered persons required to make the reversal in terms of the said notification and who have not yet done so, may reverse the said amount through FORM GST DRC-03 instead of through FORM GSTR-3B.

Q.3 What shall be the consequence if any registered person reverses the amount of credit to be lapsed, in terms the said notification, through the return in FORM GSTR-3B for any month subsequent to August, 2018 or through FORM GST DRC-03 subsequent to the due date of filing of the return in FORM GSTR-3B for the month of August, 2018?

Reply: As the registered person has reversed the amount of credit to be lapsed in the return in FORM GSTR-3B for a month subsequent to the month of August, 2018 or through FORM GST DRC-03 subsequent to the due date of filing of the return in FORM GSTR-3B for the month of August, 2018, he shall be liable to pay interest under sub-section (1) of section 50 of the CGST Act on the amount which has been reversed belatedly. Such interest shall be calculated starting from the due date of filing of return in FORM GSTR-3B for the month of August, 2018 till the date of reversal of said amount through FORM GSTR-3B or through FORM GST DRC03, as the case may be.

The registered person who has reversed the amount of credit to be lapsed in the return in FORM GSTR-3B for any month subsequent to August, 2018 or through FORM GST DRC-03 subsequent to the due date of filing of the return in FORM GSTR-3B for the month of August, 2018 would remain eligible to claim refund of unutilized ITC on account of accumulation due to inverted tax structure w.e.f. 01.08.2018. However, such refund shall be granted only after the reversal of the amount of credit to be lapsed, either through FORM GSTR­3B or FORM GST DRC-03, along with payment of interest, as applicable.

Q.4 How should a merchant exporter claim refund of input tax credit availed on supplies received on which the supplier has availed the benefit of the Government of India, Ministry of Finance, notification No. 40/2017-Central Tax (Rate), dated the 23rd October, 2017, or notification No. 41/2017-Integrated Tax (Rate), dated the 23rd October, 2017 (hereinafter referred to as the “said notifications”)?

Reply: Rule 89(4B) of the CGST Rules provides that where the person claiming refund of unutilized input tax credit on account of zero-rated supplies without payment of tax has received supplies on which the supplier has availed the benefit of the said notifications, the refund of input tax credit, availed in respect of such inputs received under the said notifications for export of goods, shall be granted.

This refund of accumulated ITC under rule 89(4B) of the CGST Rules shall be applied under the category “any other” instead of under the category “refund of unutilized ITC on account of exports without payment of tax” in FORM GST RFD-01 and shall be accompanied by all supporting documents required for substantiating the refund claim under the category “refund of unutilized ITC on account of exports without payment of tax”. After scrutinizing the application for completeness and eligibility, if the proper officer is satisfied that the whole or any part of the amount claimed is payable as refund, he shall request the taxpayer, in writing, to debit the said amount from his electronic credit ledger through FORM GST DRC-03. Once the proof of such debit is received by the proper officer, he shall proceed to issue the refund order in FORM GST RFD-06 and the payment order in FORM GST RFD-05.

Disbursal of refunds

For a refund application assigned to a Central tax officer, both the sanction order (FORM GST RFD-04/06) and the corresponding payment order (FORM GST RFD-05) for the sanctioned refund amount, under all tax heads (CGST/SGST/IGST/Cess), shall be issued by the Central tax officer only. Similarly, for refund applications assigned to a State/UT tax officer, both the sanction order (FORM GST RFD04/06) and the corresponding payment order (FORM GST RFD-05) for the sanctioned refund amount, under all tax heads (CGST/SGST/IGST/Cess), shall be issued by the State/UT tax officer only.

The sanctioned refund amounts, as entered in the payment orders issued by the Central and State/UT tax officers, shall be disbursed through the Public Financial Management System (PFMS) of the Controller General of Accounts (CGA), Ministry of Finance, Government of India.

On filing of a refund application in FORM GST RFD-01, the common portal shall generate a master file for the applicant containing the relevant details like name, GSTIN, bank account details etc. This master file shall be shared with PFMS for validation of the bank account details provided by the applicant in the refund application. Once the bank account is validated, PFMS will create a unique assessee code (combination of GSTIN + validated bank account number) for the applicant. This unique assessee code will be used by PFMS for all refund payments made to the applicant in the said bank account. Therefore, in order to avoid repeat validations and generation of multiple unique assessee codes for the same GSTIN, it shall be advisable for the applicants to enter the same bank account details in successive refund applications submitted in FORM GST RFD-01.

In cases where an applicant wishes to avail the refund in a different bank account, which has not yet been validated, a new unique assessee code (comprising of GSTIN + new bank account) will be generated by PFMS after validation of the said bank account. If the bank account details mentioned by an applicant in the refund application submitted in FORM GST RFD-01 are invalidated, an error message shall be transmitted by PFMS to the common portal electronically and the common portal shall make the error message available to the applicant and the refund officers on their dashboards. On receiving such an error message, an applicant can:

(i) rectify the invalidated bank account details by filing a non-core amendment in FORM GST REG-14; or

(ii) add a new bank account by filing a non-core amendment in FORM GST REG-14

The updated bank account details will be reflected in a drop-down menu on the dashboard. From this drop-down menu, the applicant can choose any bank account, including the ones rectified (option (a)) or newly added (option (b)), from the list of bank accounts available in his registration database. The chosen bank account details will again be sent to PFMS for validation. The proper officer will be able to issue the payment order in FORM GST RFD-05 only after the selected bank account has been validated.

By following the above process, validation errors, if any, will generally be corrected before the issuance of payment order in FORM GST RFD-05. Therefore, there should generally not be any validation errors after issuance of a payment order in FORM GST RFD-05. However, in certain exceptional cases, it is possible that a validation error occurs after issuance of the payment order. In such cases, the said payment order will be invalidated by the common portal and a new payment order will have to be issued by the proper officer after following the rectification process described above. The re-issued payment order will have a new reference number and shall contain the newly selected bank account details. However, there will be no change in either the original ARN or the sanction order number or the amount for which the payment order was originally issued.

It may be noted that the applicant, at the time of filing of refund application in FORM GST RFD-01, can select a bank account only from the list of bank accounts provided by him at the time of registration in FORM GST REG-01, or subsequently through filing a non-core amendment in FORM GST REG-14. The same account details will be auto-populated in the payment order issued in FORM GST RFD-05. Any change in these auto-populated bank account details shall not be allowed unless there is a validation error in relation to the same.

The disbursement status of the refund amount would be communicated by PFMS to the common portal. The common portal shall notify the same to the taxpayer by email/SMS. Such details shall also be available on the status tracking facility on the dashboard.

Disbursal of refund when no debit is made in the Electronic Credit Ledger

For the refund of tax paid falling under the following categories, no separate debit of ITC from electronic credit ledger is required to be made by the applicant at the time of filing refund claim, being claim of tax already paid.

  • Refund of excess payment of tax;
  • Refund of tax paid on intra-State supply which is subsequently held to be inter-State supply and vice versa;
  • Refund on account of assessment/provisional assessment/appeal/any other order;
  • Refund on account of “any other” ground or reason

The total tax would have been normally paid by the applicant by debiting tax amount from both electronic credit ledger and electronic cash ledger. By default, in these cases, the amount of admissible refund, is paid in cash even when such payment of tax or any part thereof, has been made through ITC. In order to avoid unintended encashment of credit balances, Notification No.16/2020-Central Tax dated 23.03.2020, has inserted sub-rule (4A) in rule 86 of the CGST Rules, 2017 which reads as under:

“(4A) Where a registered person has claimed refund of any amount paid as tax wrongly paid or paid in excess for which debit has been made from the electronic credit ledger, the said amount, iffound admissible, shall be re‐credited to the electronic credit ledger by the proper officer by an order made in FORM GST PMT‐03.”

Further, vide the same notification, sub-rule (1A) has also been inserted in rule 92 of the CGST Rules, 2017 which reads as follows:

“(1A)Where, upon examination of the application of refund of any amount paid as tax other than the refund of tax paid on zero-rated supplies or deemed export, the proper officer is satisfied that a refund under sub-section (5) of section 54 of the Act is due and payable to the applicant, he shall make an order in FORM RFD-06 sanctioning the amount of refund to be paid, in cash, proportionate to the amount debited in cash against the total amount paid for discharging tax liability for the relevant period, mentioning therein the amount adjusted against any outstanding demand under the Act or under any existing law and the balance amount refundable and for the remaining amount which has been debited from the electronic credit ledger for making payment of such tax, the proper officer shall issue FORM GST PMT-03 re-crediting the said amount as Input Tax Credit in electronic credit ledger.”

The combined effect the abovementioned changes is that any such refund of tax paid on supplies other than zero rated supplies will now be admissible proportionately in the respective original mode of payment i.e. in cases of refund, where the tax to be refunded has been paid by debiting both electronic cash and credit ledgers (other than the refund of tax paid on zero-rated supplies or deemed export), the refund to be paid in cash and credit shall be calculated in the same proportion in which the cash and credit ledger has been debited for discharging the total tax liability for the relevant period for which application for refund has been filed. Such amount, shall be accordingly paid by issuance of order in FORM GST RFD-06 for amount refundable in cash and FORM GST PMT-03 to re-credit the amount attributable to credit as ITC in the electronic credit ledger.

Clarifications on other refund related issues

Merchant Exporter

Notification No. 40/2017 – Central Tax (Rate) and notification No. 41/2017 – Integrated Tax (Rate) both dated 23.10.2017 provide for supplies for exports at a concessional rate of 0.05% and 0.1% respectively, subject to certain conditions specified in the said notifications. It is clarified that the benefit of supplies at concessional rate is subject to certain conditions and the said benefit is optional. The option may or may not be availed by the supplier and / or the recipient and the goods may be procured at the normal applicable tax rate. It is also clarified that the exporter will be eligible to take credit of the tax @ 0.05% / 0.1% paid by him. The supplier who supplies goods at the concessional rate is also eligible for refund on account of inverted tax structure as per the provisions of clause (ii) of the first proviso to sub-section (3) of section 54 of the CGST Act. It may also be noted that the exporter of such goods can export the goods only under LUT / bond and cannot export on payment of Integrated tax.

Monetary Limit for Claiming Refund

Sub-section (14) of section 54 of the CGST Act provides that no refund under subsection (5) or sub-section (6) of section 54 of the CGST Act shall be paid to an applicant, if the amount is less than one thousand rupees. In this regard, it is clarified that the limit of rupees one thousand shall be applied for each tax head separately and not cumulatively.

Interpretation of “Net ITC”

Presently, ITC is reflected in the electronic credit ledger on the basis of the amount of the ITC availed on self-declaration basis in FORM GSTR-3B for a particular tax period. It may happen that the goods purchased against a particular tax invoice issued in a particular month, say August 2018, may be declared in the FORM GSTR-3B filed for a subsequent month, say September 2018. This is inevitable in cases where the supplier raises an invoice, say in August, 2018, and the goods reach the recipient’s premises in September, 2018. Since GST law mandates that ITC can be availed only after the goods have been received, the recipient can only avail the ITC on such goods in the FORM GSTR-3B filed for the month of September, 2018. In this regard, it is clarified that “Net ITC as defined in rule 89(4) of the CGST Rules means input tax credit availed on inputs and input services during the relevant period. Relevant period means the period for which the refund claim has been filed. Input tax credit can be said to have been “availed” when it is entered into the electronic credit ledger of the registered person. Under the current dispensation, this happens when the said taxable person files his/her monthly return in FORM GSTR-3B. Further, section 16(4) of the CGST Act stipulates that ITC may be claimed on or before the due date of filing of the return for the month of September following the financial year to which the invoice pertains or the date of filing of annual return, whichever is earlier. Therefore, the input tax credit of invoices issued in August, 2019, “availed” in September, 2019 cannot be excluded from the calculation of the refund amount for the month of September, 2019. 62.

Eligibility of ITC on stores, spares and packing material as Net ITC

It has been represented that on certain occasions, departmental officers do not consider ITC on stores and spares, packing materials, materials purchased for machinery repairs, printing and stationery items, as part of Net ITC on the grounds that these are not directly consumed in the manufacturing process and therefore, do not qualify as input. There are also instances where stores and spares charged to revenue are considered as capital goods and therefore the ITC availed on them is not included in Net ITC, even though the value of these goods has not been capitalized in his books of account by the applicant. It is clarified that the ITC of the GST paid on inputs, including inward supplies of stores and spares, packing materials etc., shall be available as ITC as long as these inputs are used for the purpose of the business and/or for effecting taxable supplies, including zero-rated supplies, and the ITC for such inputs is not restricted under section 17(5) of the CGST Act. Further, capital goods have been clearly defined in section 2(19) of the CGST Act as goods whose value has been capitalized in the books of account and which are used or intended to be used in the course or furtherance of business. Stores and spares, the expenditure on which has been charged as a revenue expense in the books of account, cannot be held to be capital goods.

Refund of Excess Amount from the Electronic Cash Ledger

The taxpayer shall file the refund application in Form GST RFD-01 on GST portal. Taxpayer shall choose ground of refund as “Refund of excess balance in Electronic Cash Ledger” for claiming refund.

Steps to claim refund of excess amount available in Electronic Cash ledger?

  • Login to GST portal for filing refund application under refunds section.
  • Navigate to Services > Refunds > Application for Refund option.
  • Select the reason of Refund as ‘Refund on account of excess balance in cash ledger’. File refund application in GST RFD-01.

Note: To view your saved application, navigate to Services > Refunds > My Saved/Filed Applications option.

  • The amount available in Electronic Cash Ledger would be auto-populated in the refund application in a matrix.
  • Enter the amount of Refund to be claimed for Integrated Tax, Central Tax, State/ UT Tax and Cess in table “Refund Claimed”.
  • However, the amount of refund to be claimed cannot be more than the balance amount available in Electronic Cash Ledger.
  • Mention the amount of refund to be claimed in GST RFD-01 in refund claimed table and file the form.

FAQs:- 

1. What is the amount limit for claim of refund in case of “Refund of excess amount from the cash ledger”?

There is no minimum limit restriction for refund of excess amount in Electronic Cash Ledger.

2. What are the relied upon documents which have to be uploaded with refund application on account of excess payment of tax?

You have to upload documents as are required to be filed along with Form RFD-01, as notified under CGST Rules or Circulars issued in the matter and other such documents the refund sanctioning authority may require.

Taxpayers have an option to upload 10 documents with the refund application, of size up to 5 MB each. Any supporting document can be uploaded by the taxpayer, if required.

3. What happens when refund application in case of “Refund of excess balance from Electronic Cash Ledger” is filed?

  • GST Portal generates an ARN and displays it in a confirmation message, indicating that the refund application has been successfully filed.
  • GST Portal sends the ARN to e-mail and SMS of the registered taxpayer.
  • GST Portal also makes a Debit entry in the Electronic Cash Ledger for the amount claimed as refund.

4. Whether there is any ledger entry on filing refund application?

Yes, there is a debit entry in Electronic Cash Ledger for the amount claimed as refund. The ledger entry would be posted to Electronic Cash Ledger only after filing of refund application.

Issues relating to refunds by taxpayers in the new UTs

1. I have received an intimation that a new GSTIN has been assigned to me for UT of Ladakh. I have already filed a refund application with my old GSTIN. What will happen to that refund application?

All refund applications filed under old GSTIN, will be processed by designated Tax officials of the old GSTIN and amounts will be credited to your Bank detail as provided in old GSTIN. You do not need to file a fresh refund application, in these cases, using your new GSTIN.

2. I have received an intimation that a new GSTIN has been assigned to me for UT of Ladakh. Where do I need to file my refund application?

You need to file all your refund applications, for the refund due under new GSTIN, in the new jurisdiction assigned to you, for the period effective from 1st January 2020.

Refund of TDS/TCS deposited in excess

Tax deducted in accordance with the provisions of section 51 of the CGST Act or tax collected in accordance with the provisions of section 52 of the CGST Act is required to be paid while discharging the liability in FORM GSTR 7 or FORM GSTR 8, as the case may be, by the deductor or the collector, as the case may be.

There are instances where taxes so deducted or collected is deposited under the wrong head (e.g. an amount deducted as Central tax is deposited as Integrated tax/State tax), thereby creating excess balance in the cash ledger of the deductor or the collector as the case may be.

Such excess balance may be claimed by the tax deductor or the collector as the excess balance in electronic cash ledger. In this case, the common portal would debit the amount so claimed as refund. However, in case where tax deducted or collected in excess is also paid while discharging the liability in FORM GSTR 7 or FORM GSTR 8, as the case may be, and the said amount has been credited to the electronic cash ledger of the deductee, the deductee can adjust the same while discharging his output liability or he can claim refund of the same under the category “refund of excess balance in the electronic cash ledger”.

Refund of Tax paid under the wrong head

The provisions of CGST/SGST Act, enables a taxpayer to claim for a refund of the tax paid for the intra-state supply which is consequently held to be inter­state supply and vice versa. Refund can be claimed on the GST Portal using refund option as “Refund on tax paid on an Intra state supply which is subsequently held to be inter-state supply and vice versa”, if an order is issued by the tax officer against which the refund is arising due to change in PoS (place of supply) of a particular transaction.

The applicant need not make any debit from the Electronic Credit Ledger at the time of filing refund claim since tax is already paid. However, the total tax would have been normally paid by the applicant by debiting tax amount from both electronic credit ledger and electronic cash ledger. In these cases, the amount of admissible refund, was paid in cash even when such payment of tax or any part thereof, has been made through ITC.

With the intention of preventing unintended encashment of credit balances, Notification No.16/2020-Central Tax dated 23.03.2020 inserted sub-rule (4A) in rule 86 of the CGST Rules, 2017 which reads as under:

“Where a registered person has claimed refund of any amount paid as tax wrongly paid or paid in excess for which debit has been made from the electronic credit ledger, the said amount, iffound admissible, shall be re‐credited to the electronic credit ledger by the proper officer by an order made in FORM GST PMT‐03.”

Further, vide the same notification, sub-rule (1A) has also been inserted in rule 92 of the CGST Rules, 2017.

As per GST Rule 92[1A] of the CGST Rules, 2017 – Where, upon examination of the application of refund of any amount paid as tax other than the refund of tax paid on zero-rated supplies or deemed export, the proper officer is satisfied that a refund under sub-section (5) of section 54 of the Act is due and payable to the applicant, he shall make an order in FORM RFD-06 sanctioning the amount of refund to be paid, in cash, proportionate to the amount debited in cash against the total amount paid for discharging tax liability for the relevant period, mentioning therein the amount adjusted against any outstanding demand under the Act or under any existing law and the balance amount refundable and for the remaining amount which has been debited from the electronic credit ledger for making payment of such tax, the proper officer shall issue FORM GST PMT-03 re-crediting the said amount as Input Tax Credit in electronic credit ledger.

The combined effect of the Rule 86 (4A) and 92 (1A) is that refund of tax paid on supplies (other than zero rated supplies ) will now be admissible proportionately in the respective original mode of payment.

Where the tax to be refunded has been paid by debiting both electronic cash and credit ledgers (other than the refund of tax paid on zero-rated supplies or deemed export), the refund shall be calculated in the same proportion in which the cash and credit ledger has been debited for discharging the total tax.

Refund amount shall be accordingly paid by issuance of order in FORM GST PMT-03 for re-crediting the said amount as Input Tax Credit in electronic credit ledger and ”Form GST RFD -06 for amount refundable in Cash .

Refund under the “Others” category

A refund application under the category of “Others” can be filed on the GST Portal in the following circumstances:

A: Certain registered persons have reversed, through return in FORM GSTR-3B filed for the month of August, 2018 or for a subsequent month, the accumulated input tax credit (ITC) required to be lapsed in terms of notification No. 20/2018-Central Tax (Rate) dated 26.07.2018 read with circular No. 56/30/2018-GST dated 24.08.2018. Some of these registered persons, who have attempted to claim refund of accumulated ITC on account of inverted tax structure for the same period in which the ITC required to be lapsed in terms of the said notification has been reversed, are not able to claim refund of accumulated ITC to the extent to which they are so eligible. This is because of a validation check on the common portal which prevents the value of input tax credit in Statement 1A of FORM GST RFD-01A from being higher than the amount of ITC availed in FORM GSTR-3B of the relevant period minus the value of ITC reversed in the same period. This results in registered persons being unable to claim the full amount of refund of accumulated ITC on account of inverted tax structure to which they might be otherwise eligible.

As a one-time measure to resolve this issue, a refund of accumulated ITC on account of inverted tax structure, for the period (s) in which there is reversal of the ITC required to be lapsed in terms of the said notification, is to be claimed under the category “any other” instead of under the category “refund of unutilized ITC on account of accumulation due to inverted tax structure” in FORM GST RFD-01A. It is emphasized that this application for refund should relate to the same tax period in which such reversal has been made.

The application shall be accompanied by all statements, declarations, undertakings, and other documents that are statutorily required to be submitted with a “refund claim of unutilizedITC on account of accumulation due to inverted tax structure”. On receiving the said application, the proper officer shall himself calculate the refund amount admissible as per rule 89(5) of Central Goods and Services Tax Rules, 2017 (hereinafter referred to as “CGST Rules”), in the manner detailed in para 3 of Circular No. 59/33/2018-GST dated 04.09.2018. After calculating the admissible refund amount, as described above, and scrutinizing the application for completeness and eligibility, if the proper officer is satisfied that the whole or any part of the amount claimed is payable as a refund, he shall request the taxpayer, in writing, to debit the said amount from his electronic credit ledger through FORM GST DRC-03. Once the proof of such debit is received by the proper officer, he shall proceed to issue the refund order in FORM GST RFD­06and the payment advice in FORM GST RFD-05. c)All refund applications for unutilized ITC on account of accumulation due to inverted tax structure for subsequent tax period(s)shall be filed in FORM GST RFD-01A under the category “refund of unutilized ITC on account of accumulation due to inverted tax structure.

B: How should a merchant exporter claim refund of input tax credit availed on supplies received on which the supplier has availed the benefit of the Government of India, Ministry of Finance, notification No. 40/2017-Central Tax (Rate), dated the 23rd October, 2017, or notification No. 41/2017-Integrated Tax (Rate), dated the 23rd October, 2017?

a) Rule 89(4B) of the CGST Rules provides that where the person claiming refund of unutilized input tax credit on account of zero-rated supplies without payment of tax has received supplies on which the supplier has availed the benefit of the said notifications, the refund of input tax credit, availed in respect of such inputs received under the said notifications for export of goods, shall be granted.

b) This refund of accumulated ITC under rule 89(4B) of the CGST Rules shall be applied under the category “any other” instead of under the category “refund of unutilized ITC on account of exports without payment of tax” in FORM GST RFD-01 and shall be accompanied by all supporting documents required for substantiating the refund claim under the category “refund of unutilized ITC on account of exports without payment of tax”. After scrutinizing the application for completeness and eligibility, if the proper officer is satisfied that the whole or any part of the amount claimed is payable as refund, he shall request the taxpayer, in writing, to debit the said amount from his electronic credit ledger through FORM GST DRC-03. Once the proof of such debit is received by the proper officer, he shall proceed to issue the refund order in FORM GST RFD-06 and the payment order in FORM GST RFD-05.

Refunds claimed by UIN entities

Unique Identification Number (UIN) is a special class of GST registration for foreign diplomatic missions and embassies which are not liable to taxes in the Indian Territory. Any amount of tax (direct or indirect) collected from such bodies is refunded back to them. The following organizations can apply for a UIN:

(i) A specialized agency of the United Nations Organization

(ii) A Multilateral Financial Institution and Organization notified under the United Nations (Privileges and Immunities) Act, 1947,

(iii) Consulate or Embassy of foreign countries

(iv) Any other person or class of persons as notified by the Commissioner

All the entities mentioned above who have been issued UINs are notified under Section 55 of the CGST Act and will be eligible for a refund of inward supply of goods or services in terms of Notification No. 16/2017-Central Tax (Rate) dated 28th June 2017 as amended.

The time limit for filing refunds by the UIN entities is before the expiry of six months from the last day of the quarter in which such supply was received.

Every UIN holder must file returns in Form GST GSTR-11 by the 28th of next month in order to claim a refund of the taxes paid on his inward supplies. The Form GST GSTR-11 will contain details of such supplies of taxable goods and/or services. A UIN holder will not be allowed to add or modify any details in Form GST GSTR-11. The information will be auto-populated information from the seller’s GSTR-1. It may be noted that return in FORM GSTR-11 is required to be filed only for those tax periods for which refund is being claimed. In other words, if a UIN entity is not claiming a refund for a particular period, it need not file return in FORM GSTR-11 for that period.

The procedure for filing a refund application has been outlined under Rule 95 of the CGST Rules which provides for filing of refund on a quarterly basis in FORM GST RFD-10 along with a statement of inward invoices in FORM GSTR-11. It is hereby clarified that FORM GSTR-11 along with FORM GST RFD‐10 has to be filed separately for each of those quarters for which refund claim is being filed.

An acknowledgement for receipt of the application for refund shall be issued in Form GST RFD 02.

All the entities claiming refund shall submit the duly filled in the print out of FORM RFD‐10 to the jurisdictional Central Tax Commissionerate. All refund claims shall be processed and sanctioned by respective Central Tax offices. In order to facilitate the processing of refund claims of UIN entities, a nodal officer has been designated in each State. Application for refund claim may be submitted before the designated Central Tax nodal officers in the State in which the UIN has been obtained.

The facility of centralised UIN ensures that irrespective of the type of tax (CGST, SGST, IGST, or Cess) and the State where such an inward supply of goods or services have been procured, all refunds would be processed by Central authorities only.

Please Note:- Where an express provision in a treaty or other international agreement, to which the President or the Government of India is party, is inconsistent with the provisions of this Chapter, such treaty or international agreement shall prevail.

International Tourist Refunds

Refund of taxes to the retail outlets established in the departure area of an international Airport beyond immigration counters making tax free supply to an outgoing international tourist.

The Central Government vide Notification No. 11 /2019 – Integrated Tax (Rate) dated 29th June 2019 exempted the supply of goods by a retail outlet established in the departure area of an international airport, beyond the immigration counters, to an outgoing international tourist, from the whole of the integrated tax leviable thereon under Section 5 of the Integrated Goods and Services Tax Act, 2017. The broad idea of bringing this notification into the picture was to exempt the output tax liability of these Duty-Free Shops located at the departure area of an international airport.

However, the corresponding implications of this notification resulted in mandatory reversals of Input Tax Credit under Rule 42 & 43 of CGST Rules 2017, and accumulated taxes on inward supplies of ‘indigenous goods’.

Hence, a series of notifications were issued by Central Government to allow refund under Section 55 of the taxes paid on the inward supplies of ‘indigenous goods’ received by the Duty-Free shops for the purposes of subsequent supply to outgoing international tourists i.e. to a person not normally resident in India, who enters India for a stay of not more than six months for legitimate non-immigrant purposes against foreign exchange (hereinafter referred to as the “eligible passengers”).

The Central Government vide Notification No. 31 /2019 – Central Tax dated 28th June 2019 made amendment in Central Goods and Services Tax Rules, 2019 and inserted Rule 95A to allow refund of taxes to the retail outlets established in the departure area of an international Airport beyond immigration counters, making tax free supply to an outgoing international tourist.

The conditions, manner and procedure for filing and processing of such refund claims by the Duty-Free Shops established in the departure area of an international airport, beyond the immigration counters, is outlined in Circular No 106/25/2019 GST dated 29,06,2019 as follows:

(i) Registration under CGST Act: The retail outlets applying for refund shall be registered under the provisions of section 22 of the CGST Act read with the rules made thereunder and shall have a valid GSTIN.

(ii) Location of retail outlets: Such retail outlets shall be established at departure area of the international airport beyond immigration counters and shall be entitled to claim a refund of all applicable Central tax, State tax, Integrated tax, Union territory tax and Compensation cess paid by them on all inward supplies of indigenous goods received for the purposes of the subsequent supply of such goods to the eligible passengers.

(iii) Maintenance of Records: The records with respect to duty paid indigenous goods being brought to the retail outlets and their supplies to eligible passengers shall be maintained as per Annexure A in electronic form. The data shall be kept updated, accurate and complete at all times by such retail outlets and shall be available for inspection/verification of the proper officer of central tax at any time. The electronic records must incorporate the feature of an audit trail, which means a secure, computer-generated, time-stamped record that allows for the reconstruction of the course of events relating to the creation, modification or deletion of an electronic record and includes actions at the record or system level, such as, attempts to access the system or delete or modify a record.

(iv) Invoice‐based refund: The refund to be granted to retail outlets is not on account of the accumulated input tax credit but is refund based on the invoices of the inward supplies of indigenous goods received by them. The supply made by such retail outlets to eligible passengers has been exempted vide notification No. 11/2019-Integrated Tax (Rate) and 01/2019- Compensation Cess (Rate) both dated 29.06.2019 and therefore such retail outlets will not be eligible for input tax credit of taxes paid on such inward supplies and the same will have to be reversed in accordance the provisions of the CGST Act read with the rules made thereunder. It is also clarified that no refund of tax paid on input services, if any, will be granted to the retail outlets.

(v) Documents required for supply to eligible passenger: Any supply made to an eligible passenger by the retail outlets without payment of taxes by such retail outlets shall require the following documents / declarations:

(a) Details of the Passport (via Passport Reading Machine);

(b) Details of the Boarding Pass (via a barcode scanning reading device);

(c) A passenger declaration as per Annexure B;

(d) A copy of the invoice clearly evidencing that no tax was charged from the eligible passenger by the retail outlet.

(vi) Display notice: The retail outlets will be required to prominently display a notice that international tourists are eligible for purchase of goods without payment of domestic taxes.

(vii) Manual filing of refund claims: In terms of rule 95A of the CGST Rules, the retail outlets are required to apply for refund on a monthly or quarterly basis depending upon the frequency of furnishing of return in FORM GSTR-3B. Till the time the online utility for filing the refund claim is made available on the common portal, these retail outlets shall apply for refund by filing an application in FORM GST RFD-10B, manually to the jurisdictional proper

(viii) Supporting documents with refund application: The refund application in Form GST RFD 10B shall be accompanied with the following documents:

a) An undertaking by the retail outlets stating that the indigenous goods on which refund is being claimed have been received by such retail outlets;

b) An undertaking by the retail outlets stating that the indigenous goods on which refund is being claimed have been sold to eligible passengers;

c) Copies of the valid return furnished in FORM GSTR – 3B by the retail outlets for the period covered in the refund claim;

d) Copies of FORM GSTR-2A for the period covered in the refund claim; and

e) Copies of the attested hard copies of the invoices on which refund is claimed but which are not reflected in FORM GSTR-2A

(ix) Processing and sanction of the refund claim: Upon receipt of the complete application in FORM GST RFD-10B, an acknowledgement shall be issued manually by the proper officer within 15 days of the receipt of application in FORM GST RFD-02. In case of any deficiencies or any additional information is required, the same shall be communicated to the retail outlets by issuing a deficiency memo manually in FORM GST RFD-03 by the proper officer within 15 days of the receipt of the refund application. Only one deficiency memo should be issued against one refund application which is complete in all respects. The proper officer shall validate the GSTIN details on the common portal to ascertain whether the return in FORM GSTR- 3B has been filed by the retail outlets. The proper officer may scrutinize the details contained in FORM RFD-10B, FORM GSTR-3B and FORM GSTR-2A. The proper officer may rely upon FORM GSTR-2A as an evidence to account for the supply received by them in relation to which the refund has been claimed by the retail outlets. The retail outlets would be required to submit hard copies of only those invoices of inward supplies that have not been reflected in FORM GSTR-2A. The proper officer shall issue the refund order manually in FORM GST RFD-06 along with the manual payment advice in FORM GST RFD-05 for each head i.e., Central tax/State tax/Union territory tax/Integrated tax/Compensation Cess. The amount of sanctioned refund along with the bank account details of the retail outlets shall be manually submitted in the PFMS system by the jurisdictional Division DDO and a signed copy of the sanction order shall be sent to the PAO for disbursal of the said amount. Where any refund has been made in respect of an invoice without the tax having been paid to the Government or where the supply of such goods was not made to an eligible passenger, such amount refunded shall be recovered along with interest as per the provisions contained in section 73 or section 74 of the CGST Act, as the case may be.

Annexure‐A

Form to be maintained by a Retail Outlet (Circular No. 106/25/2019- GST dated 29.06.2019 refers)

Airport:

GSTIN Number:

Annexure‐A

Annexure‐B

Annexure‐B

[Authority: C.B.I. & C. Circular No. 106/25/2019-GST, dated 29-6-2019 issued from F. No. CBEC-20/16/04/2018-GST]

To read Full Text- Download All about GST Refunds | A Reference Manual | Version 2.0 | 1st July 2020

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One Comment

  1. Kaushik says:

    I have gone through entire article on GST Refund and thanks for such knowledge sharing.

    My question is…..How to get refund of IGST paid on Export when Export details not reported in GSTR 1 and time to amend the same also has been lapsed. I haven’t get refund for F.Y. 2017-18 as my consultant by mistake not reported in GSTR 1 and time to amend/add has also been lapsed when we came to know about the error. We have paid tax of such export as voluntary payment after filling of GSTR 9 for F.Y. 2017-18..

    Please guide me in this regard.

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