Some issues in Refund of unutilized ITC under GST

Advocate Deepak Bapat 

Introduction: Navigating the complexities of Goods and Services Tax (GST) refund procedures can be daunting for taxpayers. Section 54 of the CGST Act delineates various refund categories and eligibility criteria. However, recent cases highlight challenges in filing refund applications and legal ambiguities.

1 GST Authorities are not granting any refund unless an application is uploaded on the Portal. Section 54 specifies various types of refunds and the category of persons eligible to claim. It is mentioned below in nutshell.

(a) Refund to any person, of any tax, and interest paid on such tax, or any other amount paid. [Section 54(1)]

(b) Refund to Foreign Consulates, of tax paid on inward supplies of goods or services. [Section 54(2)]

(c) Refund to registered persons, of any unutilised input tax credit at the end of any tax period, who have made (i) zero rated supply without payment of tax and (ii) where tax rate on input is higher than output supply (which is commonly known as ‘Inverted tax Structure’). [Section 54(3)]

(d) Refund to registered persons, of tax paid on Export. [Section 54(8)].

2   In case of refund mentioned in (d) above, there is no need to make application. It shall be granted if such supply is shown properly in the Return Form GSTR-3B and GSTR-1.

3 In case of refund mentioned in (a) and (b) above, refund cannot be granted unless the application is filed within the time limit specified respectively under sub-section (2) and (3) of Section 54.

4 The purpose of this article is only to point out some issues pertaining to refund of unutilized ITC and probable submissions to be made before appropriate authority, Tribunal, High Court and Supreme Court.

5 The issues in case of refund of unutilized ITC in nut shell are listed below.

(a) Whether time limit provided under Section 54(1) is applicable to refund of unutilized ITC provided under Section 54(3)?

(b) Assuming that any time limit is provided, where common application is filed containing two or more tax periods, whether time limit applicable to the last tax period is to be applied or separately for each tax period contained in the said common application?

(c) Whether application FORM-GST-RFD-01 is applicable for claiming this refund and whether it shall be filed electronically? If the answer of this is in the negative, then, whether application on the letterhead can be filed in physical manner?

(d) Assuming that application FORM-GST-RFD-01 is applicable and also assuming that it shall be filed electronically through the Portal, whether the Portal is legally entitled to invalidate the Application Form and prohibit filing thereof for not matching any details such as the invoices shown in GSTR-3B or GSTR-1?

(e) Where the application is not filed for previous period and is being filed for subsequent period, whether a Portal is legally entitled to invalidate the Application Form and prohibit filing thereof by showing the error and stating that firstly, file the application for previous period?

(f) Whether common application can be filed for different categories of refund?

(g) When the amount of ITC eligible for refund is more than credited to ITC Ledger through the return Form GSTR-3B, whether refund of such additional amount can be denied on the ground that it was reversed by showing in Row (B) of Part 4 of return FORM-GSTR-3B?

5 In order to find out the answer to these issues, I have noted hereinbelow, the facts involved and submissions made by me in few Writ Petitions filed to Bombay High Court.

6 Facts in the first case [Snipp Interactive India Pvt.Ltd. WP No.2797 of 2021-Bombay HC]:- Returns in Form GSTR-3B and GSTR-1 of the period 2017-­18 were filed without mentioning the export turnover, invoice number, date and value of export of services without payment of tax. Having realised the mistake, Annual return was correctly filed by showing the said turnover of export, but in it, there is no space to show invoice number, date and export value. The attempt to file application for refund of unutilised ITC failed because of the error shown in the words “Download Invalid Invoice” and “Invoice is not available in the system i.e. invoice was not filed in returns”.  Petitioner sent email to Principal Chief Commissioner of Central Tax and to Commissioner of State Tax, requesting them to instruct the Proper Officer to accept physical refund application, on the basis of various legal issues mentioned therein. There was no response and the application became time barred. For the period 2018-19, the return Form GSTR-3B and GSTR-1 were filed correctly. However, the attempt to file application for refund of unutilised ITC failed because of the error shown in the words “Kindly file refund  application for July, August, September, October, November, December,  January, February, March 2017-18 before filing refund for April 2018-19”.

Then the petitioner realised that he cannot file the application for the period 2018-19 onwards and therefore writ petition was filed. The High Court after hearing the petitioner on the ground that the time limit and FORM-GST-RFD-01 provided for the purpose of Section 54(1), cannot be applied to refund of unutilised ITC claimed u/s 54(3), admitted the petition vide order dated 25/10/2023 in the words “The contentions as urged on behalf of the petitioner involve interpretation of sub-section (1) read with sub-section (3) of Section 54 of the Central Goods and Service Tax Act and Rule 89. These are issues of law which may have larger ramifications. Accordingly, Rule. Learned counsel for the respondents waives service. Let the petition be placed for ‘final hearing’ immediately after Diwali Vacation on 15th December 2023 at 2.30 p.m.”

7 Facts in the second case [Mukesh Incense Enterprises Pvt. Ltd. WP No.3238 of 2022-Bombay HC]:- Petitioner is entitled for refund of unutilized ITC for export without payment of tax as well as for inverted duty structure. One common refund application was filed for the period July 2017 to March 2018 on 19/05/2018 (first application). The officer granted the refund only for March 2018 for inverted tax structure and rejected the refund for other category (Export without payment of tax) and advised the Petitioner to file separate application in respect of aforesaid category and other tax periods. Therefore on 29/01/2019 petitioner filed separate application (second application) for claiming the refund for each category and for each such tax period. In one of such second application, inadvertently the amount of refund was shown as NIL. To rectify the aforesaid mistake, Petitioner filed one more application on 30/11/2019 (third application) showing appropriate amount of refund. In response to third application, deficiency memo was issued pointing out some discrepancies and it was advised to file fresh refund application after rectification of the said deficiencies. Therefore, the Petitioner filed fresh application on 10/01/2020 (fourth application) which was rejected on the ground that it was filed beyond the period of two years. Aggrieved by the said rejection order, petitioner filed appeal to appellate authority which was rejected. Hence the writ petition has been filed to Bombay High Court. The main contention before the High Court is that Section 54(3) of the CGST Act does not provide a time limit for filing the application for claiming refund of unutilised ITC at the end of any tax period and there is no provision for filing separate applications for different categories and in view thereof dismissal of refund application on the ground that it was filed beyond the period of two years, was without the authority of law.

8 Common submissions in aforesaid two cases are given below in nutshell.

(a) There are separate provisions for claiming refund under sub-section (1), sub­section (2) and sub-section (3) of Section 54, regarding (i) time limit (ii) Form to be used and (iii) manner in which the refund application is to be furnished.

(b) Time limit is provided only for refund application under sub-section (1) and (2) of Section 54.

(c) Sub-section (1) provides the time limit of two years for claiming “refund of any tax and interest, if any, paid on such tax or any other amount paid by him”.

(d) Sub-section (2) provides a time limit of six months (now two years) for claiming “refund of tax paid on inward supplies by Foreign Consulates”.

(e) Sub-section (3) does not provide a time limit for claiming “refund of unutilised ITC at the end of any tax period”. According to me, the object behind not providing a time limit in this case is that, where there is a possibility that after some time, there will be more turnover liable to tax, the tax payer may not claim the refund and pay the output tax from the accumulated ITC. Therefore, when to apply is an option given to a registered person. If any tax period becomes time barred for the purpose of assessment, the amount of ITC credited to ITC Ledger reaches to finality according to Law. Therefore, unless a provision is made under the Act to specify that, “where any tax period becomes time barred for the purpose of assessment, the refund of accumulated ITC at the end of such period shall lapse”, such claim cannot be denied. Moreover, in my opinion, in such case, if the tax payer applies for refund of unutilised ITC after such period becomes time barred, the eligibility of such transactions cannot be verified by the refund officer while granting the said refund.

(f) Section 54(3) neither prescribe a Form for making Refund Application nor any manner is prescribed for claiming the refund of unutilised ITC. Therefore, for claiming the refund of unutilized ITC, the application can be filed on letterhead of the applicant, physically or by email. Petitioner, for his convenience, used Form-GST-RFD-01 and made the attempt to file electronically. As uploading of FORM-GST-RFD-01 on the Portal is not obligatory, Para 3(a) of Circular No.125/44/2019-GST dated 18/11/2019 issued by CBEC is liable to be struck down. Aforesaid Para provides that, with effect from 26/09/2019 the application for refund of unutilised ITC on account of exports without payment of tax shall be filed in Form-GST-RFD-01 on the common portal and the same shall be processed electronically.

(g) Para 8 of the Circular No.125/44/2019-GST dated 18/11/2019 issued by CBIC allows filing of refund application by clubbing successive tax periods. Even under assumption, that the time period of two years provided under Section 54(1) is applicable to this case, the said Circular does not clarify that where the refund application is filed by clubbing successive tax periods, the last date shall be separately computed for each tax period and wherever the last date for any tax period is over, the refund for that period shall be rejected and the refund for other tax periods shall be allowed. In spite of the above, the Proper Officers while scrutinising such applications are computing the time period of two years separately for each tax period and are accordingly allowing or disallowing the refund for each tax period clubbed in such application. Petitioner submits that in case of refund application filed by clubbing successive tax periods, the last date shall be the one applicable to last tax period clubbed in such application.

(h) Even it is assumed that electronic filing of refund application is mandatory in case of application u/s 54(3), it is submitted that, once the applicant mentions all the necessary details in the refund application Form, Portal shall allow the filing thereof, even though, said invoices are not mentioned in GSTR-1. Similarly, filing of refund application for subsequent period shall be allowed by the Portal, even if the application for previous period is not filed. Whether the applicant is entitled for the refund of the said amount or not, can be verified by the Proper Officer after the refund application is filed and therefore pre-validation of the Application Form by the Portal on any ground and to prohibit the filing thereof is bad in law, draconian, unreasonable and arbitrary.

9 Facts in the third case [Kogta Import Export Pvt. Ltd. WP No.5714 of 2022- Bombay HC]:– Petitioner is dealing in taxable as well as exempted goods and selling the goods locally as well as by way of export. While filing the returns in Form GSTR-3B, he worked out the ITC on proportional basis and reversed the ITC [as per Section 17(2)], corresponding to local supply of exempted goods by showing in Row (B) of Part 4 of GSTR-3B. At the time of appearing before the proper officer, petitioner worked out the eligible amount of unutilized ITC on actual basis i.e. by identifying the input invoices with the said export, which was more than claimed through GSTR-3B. The proper officer denied to grant the additional refund calculated on actual basis, by stating a reason that it was already reversed by showing in Row (B) of Part 4 of GSTR-3B (means was not claimed to that extent). As such refund of unutilized ITC was granted only to the extent claimed through GSTR-3B. Therefore, the petitioner filed one more application for claiming the said additional refund, which was rejected on the ground that it was subjected to reversal as per Section 17(2). On appeal, the first appellate authority confirmed the order pertaining to rejection of additional refund. As GST Tribunal was not constituted, writ petition was filed. Now the High Court may not entertain the said writ petition by directing the petitioner to file second appeal to GST Tribunal.

10 Submissions made in the aforesaid case are given below in nutshell.

(a) Part 4 of GSTR-3B is reproduced below for ready reference.

(b) The Proper Officer took undue advantage of the error committed by the petitioner in working out more amount of “ITC reversal” while filing return in Form GSTR-3B and passed the refund rejection order by stating that the additional refund claimed is subject to reversal u/s 17(2) of the Act.

(c) The Proper Officer has failed to take into account that the amount of ITC wrongly reversed in excess, was originally claimed as Eligible ITC by showing in Row A of Part 4 of GSTR-3B.

(d) Petitioner submits that to err is human and therefore in absence of the provision under the GST Act to revise the return in FORM-GSTR-3B after noticing any such mistake, the said Act should have granted a power to Proper Officer, to credit to ITC Ledger, any such amount which he has verified and found that it was erroneously reversed by showing in Row (B) of Part 4 of GSTR-3B. Had it been so granted, the Proper Officer should not have rejected, the said application.

11 Summing up:- There may be more such issues in case of refund of accumulated ITC. The submissions made for getting the issues resolved are not yet approved by any order or judgment. In some cases, the Courts have granted relief by relying on the Supreme Court judgment in case of Lockdown delay or the refund was granted by the Department after filing of the writ petition and the petitions have been withdrawn. However, the Courts while disposing such petitions have kept the issues open to be decided in any other case. Therefore, we should keep on challenging the orders or inaction of the authorities which according to us are bad in law. Readers are requested to inform any issues pertaining to this subject or any other part of GST Act. It will give me an opportunity to study and investigate more and more.