Article analyses Changes in Refund Process vide Circular No. 135/05/2020 dated 31-03-2020 issued by CBIC-

1. Bunching of refund claims across Financial Years: –

The restriction on clubbing of tax periods across different financial years was put in vide para 11.2 of the Circular No. 37/11/2018-GST dated 15.03.2018. The said circular was rescinded being subsumed in the Master Circular on Refunds No. 125/44/2019-GST dated 18.11.2019 (Master Refund Circular) and the said restriction on the clubbing of tax periods across financial years for claiming refund thus has been continued vide Paragraph 8 of the Master Refund Circular. As per the said circular, the applicant, at his option, may file a refund claim for a tax period or by clubbing successive tax periods. The period for which refund claim has been filed, however, cannot spread across different financial years.

The Delhi High Court in the case of M/s Pitambra Books Pvt Ltd., has observed that the Circulars can supplant but not supplement the law. Circulars might mitigate rigours of law by granting administrative relief beyond relevant provisions of the statute, however, Central Government is not empowered to withdraw benefits or impose stricter conditions than postulated by the law. Sec 16(3) of IGST Act& Sec 54 (3) of CGST Act, impose no bar in claiming refund by clubbing different financial years as well.

Therefore, CBIC has removed the restriction on bunching of refund claims across financial years. Accordingly, circular No. 125/44/2019-GST dated 18.11.2019 stands modified to that extent.

As of now, there is no such facility available on GST portal under refund application tab to club successive tax periods across different financial years but through circular 135/05/2020, this facility would be given to the refund applicants in the coming days.

2. Refund of accumulated ITC on account of reduction in GST Rate: –

As per Sec 54 (3) (ii) of the CGST Act, 2017, refund is available on account of inverted duty structure i.e. where the credit has accumulated due to tax rate on inputs being higher than the rate of tax on output supplies.

It has been noticed by the Board that some applicants are seeking refund of unutilized ITC on account of inverted duty structure where the inversion is due to change in the GST rate on the same goods though attracting different tax rates at different points of time.

Let us understand through an illustration, suppose an applicant say Mr. A deals in trading of goods wherein the rate of tax at the time of purchase is higher say 18% which is being subsequently reduced to, say 12% at the point of sale and Mr. A claimed refund on account of inverted duty structure u/s 54 (3) (ii).

Now, CBIC through this circular 135/05/2020 has disallowed such cases for refund on account of inverted duty structure thereby Sec 54 (3) (ii) of the CGST Act, 2017 would not cover the cases where the input and the output supplies are the same through attracting different tax rates at different points of time.

3. Change in manner of refund of tax paid on supplies other than zero rated supplies: Master Refund Circular, in para 3, categorizes the refund applications to be filed in FORM GST RFD-01 as under:

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 structure

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.

The total tax would have been normally paid by the applicant by debiting tax amount from both electronic credit ledger and electronic cash ledger. At present, 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 by a proper officer through RFD-06.

It has been brought to the notice of the government that this could lead to unintended encashment of credit balances i.e. where the payment has been made by debiting electronic credit ledger instead of cash ledger. Accordingly, vide notification No.16/2020-Central Tax dated 23.03.2020, sub-rule (4A) has been inserted in rule 86 of the CGST Rules, 2017, 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, if found admissible, shall be re-credited to the electronic credit ledger by the proper officer by an order made in FORM GST PMT-03 and sub-rule (1A) has also been inserted in rule 92 of the CGST Rules, 2017, where any 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.

It is pertinent to note that the Govt has clarified through circular 135/05/2020, 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.

Zero Rated Supplies

4. Guidelines for refunds of ITC under Section 54(3) of the CGST Act:-

As per para 36 of Master Refund Circular 125/44/2019-GST, the refund of ITC availed in respect of invoices not reflected in FORM GSTR-2A was also admissible and copies of such invoices were required to be uploaded.

However, in wake of insertion of Rule 36 (4) of the CGST Rules, 2017 vide notification No. 49/2019-GST dated 09.10.2019, various references have been received from the field formations regarding admissibility of refund of the ITC availed on the invoices which are not reflecting in the FORM GSTR-2A of the applicant.

CBIC has decided that the refund of accumulated ITC shall be restricted to the ITC as per those invoices which are reflected in the FORM GSTR-2A of the applicant. Accordingly, para 36 of the said circular stands modified to that extent.

The circular does not specify the period from which such restriction on refund as per GSTR-2A would be applicable. The restriction of ITC as per Rule 36 (4) is applicable w.e.f.  09th Oct, 2019 thereby the effect of such circular should not affect the refund of earlier periods otherwise this would result in unnecessary denial of refund of genuine ITC which accrues in accordance of provisions.

ITC Restriction

5. New Requirement to mention HSN/SAC in Annexure ‘B’: –

HSN wise details of goods and services are not available in FORM GSTR-2A and therefore it becomes very difficult to distinguish ITC on capital goods and/or input services out of total ITC for a relevant tax period.

Such a distinction is important in view of the provisions relating to refund where refund of credit on Capital goods and/or services is not permissible in certain cases thereby it has been recommended that a column relating to HSN/SAC Code should be added in the statement of invoices relating to inward supply as provided in Annexure–B of the circular No. 125/44/2019- GST dated 18.11.2019 so as to easily identify between the supplies of goods and services.

The applicant is, in addition to details already prescribed in annexure B, now required to mention HSN/SAC code which is mentioned on the inward invoices. In cases where supplier is not mandated to mention HSN/SAC code on invoice, the applicant need not mention HSN/SAC code in respect of such an inward supply. However, it would be a challenge for refund applicant to satisfy the jurisdictional officer as to whether supplier was mandated to mention HSN/SAC or not.

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February 2021