Issues faced in filing of refund under GST Law

Issues faced by registered dealers while filing refund applications are endless from limitation period, interest on delayed refund etc. which find their place in Tribunals and Courts. Here we have tried to list few of the common issues faced while filing refund applications under Goods and Services Tax Law (GST Law).

Refund for tax paid under wrong head:

Query: What will be the relevant date for calculation of 2 years? Whether the date of tax paid under wrong head or correct head?

Resolution: According to GST law,

Section 54 of Central Goods and Services Tax Act, 2017 (“CGST Act”), Para 2 the explanation clearly provides the relevant date for calculation of 2 years period for filing of refund. Where, in case not specifically specified, relevant date shall be date of payment of tax.

Also, Section 77 of CGST Act which provides for allowing refund in case of tax paid under wrong head-

Provides for relief from payment of interest where IGST is paid instead of CGST/SGST.

Let us take an example to understand the above issue: –

M/s ABC Ltd. paid tax under CGST/SGST head on 25^th September, 2017 and later while filing annual/audit under GST law realised tax should have been paid under IGST head on 20^th February, 2020. The Company wants to file refund for tax paid under wrong head i.e., for CGST/SGST head and it pays correct tax under IGST head on 20^th February, 2020.

Now, as per GST law calculation of relevant date to file refund would be date of payment of tax which in the above case would be 25^th September, 2017. The refund would be sought for CGST/SGST which is wrongly paid and not for the correct payment of tax. Accordingly, when an amount becomes time barred no refund can be claimed.

Conclusion

Relevant Date: Date of payment of tax under wrong head

Refund of input tax credit (“ITC”) where exports of goods and services made without payment of tax under Letter of Undertaking (“LUT”)

Query: Refund of ITC where the registered person exported goods without payment of tax and received foreign remittance but forgot to file LUT. Also, the time period of filing LUT i.e., 31st March of the respective year has been crossed and no option is available online to file the LUT for previous year. Whether refund of ITC would be available? Any alternative to get refund.

Resolution: Exports can be done without payment of tax where LUT is filed as per rule 96A of CGST Rules, 2017. Now, where a person delays in filing of LUT for a particular year, still refund will be available as per Circular 125/44/19-GST dated 18^th November, 2019.

But the issues stands still where the online portal does not allow filing of LUT after 31^st March of a particular year.

For example: M/s ABC Ltd had been exporting services since 01^st August, 2017 i.e. its registration date without payment of tax under the cover of LUT. It applies for refund of ITC for FY 2017-18, 2018-19 and after fulfilment of all export conditions, the proper officer (“PO”) credits the refund in the bank details shared by the registered person.

Now, for FY 2019-20, the registered person plans to file for refund on 15^th April, 2020. While uploading the documents they realised LUT had not been filed for FY 2019-20, whereas exports had been done without payment of tax. When they try to file LUT the portal does not show option for filing LUT of previous year as the year has ended (i.e., after 31^st March)

There are two approaches in case refund under GST law when LUT has not been filed: –

1. Conservative Approach

Amend export invoices and categorize them under ‘Export with Payment of Tax’ i.e., amend invoices in GSTR-1 and make payment of tax along with interest in the GSTR-3B of April (as per above example). Post which the registered person may file to claim refund of tax paid under export with payment of tax.

2. Liberal Approach

As per the Circular, delay (which has not been defined) in filing of LUT cannot be held as a reason of non-sanctioning of refund. The point here being when the GST portal does not allow filing of LUT beyond the financial year, the assesses should apply for LUT via the offline mode.

Accordingly, the refund can then be applied for ITC instead of making cash outflow and then claiming refund of tax paid.

Conclusion

Approach 1: Pay IGST with interest and claim refund of tax paid on exports

Approach 2: File LUT manually and file refund of ITC where exports made without payment of tax

Foreign remittance not received (condition necessary to claim ITC where exports made without payment of tax)

Query: M/s ABC Ltd (India) provided certain services to M/s XYZ Inc. (Russia) during FY 2019-20. Now, the time period to file refund application is about to expire (i.e. 2 years from relevant date) but the recipient of service i.e. M/s XYZ Inc. is not able to remit money due to on-going war situation. Also, the time to amend GSTR-1 has expired (with payment of tax) by which applicant could claim tax paid on exports services under export with payment of tax. How should the registered person proceed to file GST refund in such a situation?

Resolution: The government is trying to communicate with countries to operate banking system which would enable importers to remit money on timely basis. Further, the SC extension order dated 23 March 2020 which provides for extended timeline for appeals can be preferred to justify the reason of delay in filing/genuineness of claiming refund.

Conclusion

Resort to relief issued by SC to file appeal for refund

Implication on limitation period in case of deficiency memo issued

Query: Department has issued deficiency memo which would lead partial refund to become time barred. How to deal with such situation, where initially refund was filed within the period of 2 years from relevant date?

Resolution: As per Section 54 refund shall be granted within 2 years from relevant date and Rule 90 (3) requires fresh filing of refund application where deficiency memo is issued.

The department after scrutinizing the refund application issues deficiency memo within 15days of filing refund application. Deficiency memo reflects that document are not in place, to be seen as irregularities in filing of refund application.

Now, the fresh application leads to late filing of refund application in certain cases which ultimately leads to limiting part of the refund due to non-filing within 2 years from relevant date.

Example: M/s ABC Limited filed refund application for the period 1^st April, 2020 to 31^st March, 2021 on 15^th March, 2022. Now, deficiency memo is issued on 31^st March, 2022 and refund is time barred if fresh application is filed on 15^th April, 2022 for the part 1^st April, 2022 to 15^th April, 2022 as beyond 2 years from relevant date.

There are numerous rulings on the issue filed with High Court, Jian International Vs CGST, 2020-VIL-328-Del where Delhi HC rejected departments request and held that allowing department to issue deficiency memo will lead to rejection of application, leading to impact on limitation period and interest.

Conclusion

Accordingly, registered persons should approach the Courts with ready documentation to substantiate refund becoming time barred due to deficiency memo.

Time limitation in case refund is under appeal

Query: What will be the date for calculation of last date of filing of refund: –

Where the applicant gets favourable Order, which is again challenged, and a favourable Order is received in further appeal against department?

Resolution: As per Section 54 of the CGST Act, 2017 and identical provisions in Customs Section 27 and Central Excise in Section 11B to file refund within 1 or 2 years from the date of Order.

The issue of calculation of date of final Order, whether the same is to be calculated from the first favourable Order or the Final Order is litigated since long and there are plethora of cases to answer the above issue.

Example: M/s ABC Ltd (“Taxpayer”) filed for refund appeal (period FY 2018-19) and received a favourable Order on 25 September, 2020 which was challenged by Revenue. Therefore, Taxpayer waited for the final Order to file the refund application. The final Order was received on 10^th June 2021 in favour of Taxpayer.

Now, the Taxpayer did not file refund application on 25^th September, 2020 when the first Order was issued but on 20^th September, 2022 which becomes time barred according to department.

Refer the below judgement allowing refund application filed on 20^th September, 2022: –

The issue had been taken up by Gujarat High Court which placed reliance on case of Dena Snuff (P) Ltd. Vs CCE [2003 (157) ELT 500 SC] held that matter attained finality only upon Final Order and allowed filing of refund application directing Revenue to issue refund.

Conclusion

Accordingly, date for filing of refund application is to be considered from the date where Final Order is issued by the Revenue.

The above summarizes few of the common recurrent issues faced by registered person under refund filing of GST. Although, the process of filing has become taken over by digital world still there are issues that remain unresolved and need to be addressed to avoid blockage of refund.