Office of the
Commissioner of State Tax,
(GST), 8th floor, GST Bhavan,
Mazgaon, Mumbai-400010.

INTERNAL CIRCULAR

(RESTRICTED CIRCULAR FOR OFFICE USE ONLY)

No. JC/HQ-I/GST/ Refund/Internal Cir/02/2017-18
Internal Circular No. 35A of 2018.

Mumbai, Date: 01/12/2018

To,

………………………………

………………………………

Subject : Processing of final refund under the GST-Revised instructions regarding initiation of Audit.

Ref. : (1) Trade Circular No. 49T of 2017 dated 28th Nov. 2017.

(2) Internal Circular No. 24A of 2017 dated 11th 2017.

(3) Internal Circular No. 27A of 2017 dated 30th 2017.

(4) Trade Circular 1T of 2018 dated 1st 2018.

(5) Trade Circular No. 8T of 2018 dated 21st 2018.

(6) Trade Circular No. 17T of 2018 dated 2nd June 2018.

(7) Internal Circular No. 19A of 2018 dated 18th July 2018

(8) Trade Circular No. 22T of 2018 dated  1st September 2018.

(9) Trade Circular No. 33T of 2018 dated 14th November 2018

(10) Trade Circular No. 22T of 2018 dated 15th November 2018

(11) Trade Circular No. 33T of 2018 dated the 14th November 2018.

(12) Trade Circular No. 34T of 2018 dated the 15th November 2018.

Sir/Gentlemen/Madam,

1. Various Trade and Internal Circular(s) cited at Ref. above, were issued to explain the procedure for manual processing of Refund claims under GST law. Central Board of Indirect Taxes and Customs (CBIC) had also issued various Circulars with regards to the processing of refund under GST.

2. After issuance of Trade Circular 22T of 2018 dated 1st September 2018, queries have been received from the Departmental Authorities regarding initiation of Audit proceedings under section 65 of the MGST Act vis-à-vis processing of balance 10% refund i.e. the final refunds.

3. In view of the queries received from Departmental Authorities, the issue of initiation of Audit proceedings or demand and recovery proceeding under the GST Act were deliberated, accordingly, it was decided to delete Para 1.5 and 4 of PART-B of the Trade Circular 22T of 2018 dated 1st September 2018. In view of the said decision the Para-1.5 and 4 of the PART-B of the said Trade Circular (No. 22T of 2018) are deleted and revised instructions are given hereinbelow:

4. The instruction vide Para-1.5 of the Trade Circular 22T of 2018 dated 1st September 2018 were given on the background of delayed availability of the GSTR-2A on the SAP system i.e. earlier after raising the request on the SAP portal, the fetching of GSTR-2A data was taking 24 to 48 hours or even more. However, now, this data of GSTR-2A qua request gets available in less than two hours. On this background, it is decided that the EIU shall not make the data available as stated in that Circular. The instructions in this behalf stands modified as above.

5. In exercise of the powers conferred under section 168(1) of the Maharashtra Goods and Services Tax Act, 2018 (hereinafter referred to as “MGST Act”) and for ensuing uniformity, the following conditions and procedure are laid down for the purpose of processing of refund.

6. Audit as per section 65 of the MGST Act:

6.1. Designation of State tax authorities as “proper officer” and Delegation of power to initiate Audit as per section 65 of the MGST Act:

(1) The Commissioner of State tax, Maharashtra State, has vide Order dated 10th October 2017 designated Deputy Commissioner of State Tax, Assistant Commissioner of State Tax and State Tax Officer as “proper officer” and has alongwith other sections also delegated the powers under section 65 of the MGST Act to the aforesaid Authorities.

(2) Accordingly, section 65 of the MGST Act empowers the tax authorities to undertake the Audit.

6.2. General procedure to be followed for Audit:

(1) In case the Nodal Officer decides to undertake the Audit, then he/she shall issue a notice in FORM-GST-ADT-01. Depending upon the record to be verified he/she may decide whether the Audit is to be carried out at the business premises of the tax payer or at the office concerned. The place at which the Audit is to be carried out shall be expressly stated in the said Notice.

(2) The Nodal Officer while fixing the date on which the Audit is to be carried out shall give clear 15 days’ time period. The Audit Notice shall also mention the record to be verified. Notice for Audit shall be given for a financial year.

(3) The Audit findings shall be communicated to the Tax payer in FORM-GST-ADT-02.

(4) In case the Tax payer accepts the Audit findings and make the payment of tax, interest and penalty as determined, through FORM-GST-DRC-03 then the Audit proceeding shall be closed and the closure of the Audit proceeding shall be communicated to the said tax payer.

(5) However, in the cases where the tax payer disputes the Audit findings and refuses to make the default good or fails to pay the amount as determined then, in all such cases, as provided under section 65(7) of the MGST Act, the proceeding for demand and recovery shall be initiated as per the provisions of the section 73 or 74 of the MGST Act.

6.3. No Audit in case of refund on account of Excess Balance in Cash  Ledger:

(1) It may be noted that the Audit procedure discussed in this Internal Circular shall not be applicable to the processing of claim of refund on account of Excess Balance in Cash Ledger.

(2) In other words, the refund on account of Excess Balance in Cash Ledger, shall be given without Audit.

6.4. Initiation of Audit under certain Circumstances: The Audit as per provisions of section 65 of the MGST is to be initiated in the following circumstances:

6.4.1. Where the,-

(a) provisional refund of 90% or, as the case may be, balance (Final) refund of 10% is granted i.e. the order in FORM-GST-RFD-04 or, as the case may be, FORM-GST-RFD-06, respectively, before the date of issuance of Internal Circular 19A of 2018 dated the 18th July 2018; or

(b) final refund of 10% is pending as on the date of issuance of this Circular or same is granted on or after the date of issuance of Internal Circular 19A of 2018 dated the 18th July 2018; or

(c) final refund of 10% is to be given at any time on or after the issuance of this Circular,

then the decision about Audit in all aforesaid contingencies shall be undertaken as per the guidelines given hereinbelow:

6.4.2. Where on scrutiny and verification, it is noticed that there is,-

(a) no mis-match of ITC;

(b) no un-match of ITC;

(c) no in-admissible/in-eligible ITC

(d) no discrepancy in the refund claimed and eligible refund;

(c) no discrepancy related to the outward supply or output tax liability,

then in such cases there is no necessity to initiate Audit proceedings as per section 65 of the MGST Act. In all such cases the Nodal Officer shall process the refund and issue refund order in FORM-GST-RFD-06, subject to the fulfillment of requirements as provided in the Trade/Internal Circular(s) issued in this behalf.

6.4.3. Where on scrutiny and verification, it is noticed that there is a,-

(a) mis-match (supplier has passed on less ITC but buyer has claimed more ITC or vice versa);

(b) un-match [buyer has claimed ITC however, supplier (in GSTR-1 of that month or subsequent month) has not disclosed any supply to said buyer] of ITC;

(c) in-admissible/in-eligible ITC

(d) discrepancy in the refund claimed and eligible refund ;

(e) any other discrepancy related to the outward supply or output tax liability,

on noticing one or more of the aforesaid discrepancies then a show-cause notice in FORM-GST-RFD-08 shall be issued asking the tax payer to show-cause as to why the refund on account of one or more discrepancies listed above shall not be rejected. The tax payer may be advised to make the payment with the use of FORM-GST-DRC-03 equal to the amount of refund proposed to be rejected with interest and penalty, as may be applicable.

6.4.4. In response to the show-cause notice issued in FORM-GST-RFD-08 the tax payer is required to file reply in FORM-GST-RFD-09 within 15 days from the date of receipt of the notice in FORM-GST-RFD-08. The tax payer may accept the contention given therein or may object to the proposed rejection of refund. In the former case, the tax payer will prefer to make the payment equal to the amount of refund rejected with the interest and penalty, as may be applicable; with the use of FORM-GST-DRC-03. Whereas, in the latter case the Nodal Officer needs to examine the evidences available on the record and if in his/her opinion, the evidences available on the record are sufficient, then the demand and recovery proceedings as given in section 73 or 74 of the GST Act shall be initiated with the issuance of Show-cause notice in FORM-GST-DRC-01.

6.4.5. However, in case the evidences are in-sufficient for issuance of show-cause notice or to build a proper case so as to sustain the demand under section 73 or 74, the Nodal Officer may initiate the Audit proceedings as per section 65 of the MGST Act.

6.4.6. In case the tax payer accepts the rejection of refund and pays the amount equal to the refund so rejected with applicable interest and penalty, if any, through FORM-GST-DRC-03 then there is no necessity to initiate Audit proceedings.

6.4.7. Where the tax payer does not agree to the contentions stated in notice in FORM-GST-RFD-08, then the initiation of Audit proceedings shall be decided as explained in the succeeding paragraphs and subject to the remarks given in the column (f) of the Table-1 below:

6.4.8. The cases involving aforesaid contingencies are explained with the examples that are given in the Table-1, Table-2 and Table-3 below:

Table-1

(Figures in Rs.)

Sr.
No.
Refund
claimed
Provisional
refund
granted
under order
in Form-
RFD-04
(90%)
Balance
refund
to be
granted
(10%)
Difference between refund claimed and refund to be granted (Due to mis-match or un-match in ITC or due to any other

reason)

Whether
Audit
need to
be
initiated
Yes/No
(a) (b) (c) (d) (e) (f)
(1) 6,00,000 5,40,000 60,000 Nil No
(2) 6,00,000 5,40,000 60,000 Upto 60,000 Yes
(3) 6,00,000 5,40,000 60,000 More than 60,000 Yes

(1) The cases falling under Serial No. (1) above i.e. the scenarios given in Para- 6.4.2, then in such cases there is no need to initiate Audit as per section 65 of the MGST Act. In all such cases Nodal Officer shall process the refund and issue the order in FORM-GST-RFD-06. Needless to say that such grant of refund should be in accordance with the requirements given in the Trade/Internal Circular(s) issued in this behalf from time to time.

(2) The refund cases falling under Sr. No. (2) and (3) above, i.e. the scenarios given in Para-6.4.3, where balance refund which is found in-admissible/in-eligible or mis-match or un-match is upto 10% or more than 10%, then, under aforesaid circumstances, the refund order in FORM-GST-RFD-06, shall be issued after following the procedure given in Para 6.4 above. In case the tax payer does not accept the contention given in the notice in FORM-GST-RFD-08, then the order in FORM-GST-RFD-06 shall be issued showing the total refund claim, amount allowed as provisional refund, or the final refund, as the case may be, and the amount of refund rejected.

(3) After issuance of FORM-GST-RFD-06, the Nodal Officer need to examine the evidences available on the record and if in his opinion, the evidences available on the record are sufficient, then the demand and recovery proceedings as given in section 73 or 74 of the MGST Act shall be initiated with the issuance of show-cause notice in FORM-GST-DRC-01.

(4) However, in case the evidences are in-sufficient for issuance of show-cause notice or to build a proper case so as to sustain the demand under section 73 or 74, the Nodal Officer shall initiate the Audit proceedings as per section 65 of the MGST Act.

6.5. Rejection of refund on certain grounds and re-credit procedure to be followed:

6.5.1. Cases falling at Sr. No. (2) of the Table-1 above:

(1) In this scenario say the applicant is an exporter of goods without payment of Integrated tax (IGST) and seeks the refund of the accumulated input tax credit. Further, presume that the said tax payer has claimed refund of ITC on account of capital goods for which he is not eligible to claim refund. [Please see section 54(3)] and in this case the difference between refund claimed and refund sanctioned is upto Rs. 60,000/- (i.e. upto 10%) then in all such cases the following procedure shall be followed:

(2) In this example say out of balance refund of Rs. 60,000/- refund of Rs. 40,000 is eligible to be sanctioned as it fulfills all the legal requirements. Therefore, refund of Rs. 20,000/- is disallowed.

(a) Out of this Rs. 20,000/- in-eligibility/in-admissibility etc. of ITC is given in the Table-2 below:

Table-2

Sr. No. Reason for in-eligibility/
in-admissibility of ITC
Amount
(a) (b) (c)
(1) Capital Assets 5,000
(2) Mis-match, Un-match etc. 9,000
(3) Due to contingencies given in section 16, 17, 18, 19 etc. 6,000
TOTAL 20,000

(b) As presented in Table-2:

(i) Sr. No. (1) above:

♦ As shown at Sr. No. (1) of the Table above, Rs. 5,000/- ITC is eligible on account of Capital Assets of which the tax payer is not entitled to claim refund but may utilize the same for payment of output liability. However, such refund need to be rejected. Therefore, rejection of claim for refund of input tax credit of Rs. 5,000/- on account of non-entitlement of refund of accumulated credit pertaining to the Capital Assets, as discussed above, the Nodal Officer shall re-credit the rejected amount to the electronic credit ledger of the claimant using FORM GST RFD-01B.

♦ It may also be noted that there is no need to initiate the action for recovery of the amount of Rs. 5,000/- which may remain in the Credit Ledger or may be utilized towards the payment of output tax. Further, re-credit of this amount of Rs. 5,000/- can only be done on submission of an undertaking to the effect that said tax payer shall not file an appeal or in case appeal is filed, then the re-credit will depend on the outcome of the appeal.

(ii) Sr. No. (2) and (3) of the Table-2 above:

♦ As shown at Sr. No. (2) and (3) of the Table-2 above, ITC of Rs. 9,000/- and Rs. 6,000/- i.e. total ITC of Rs. 15,000/- is in-admissible due to the reasons given in column (b) of the said Table.

♦ The facts as aforesaid i.e. in-admissibility of the ITC and thereby non-entitlement of refund shall be brought to the notice of the tax payer by issuing notice in FORM-GST-RFD-08 pointing out the aforesaid discrepancies and asking the applicant to show cause as to why the refund of Rs. 15,000/- shall not be rejected. It may be noted that the show-cause notice shall expressly mention the reasons i.e. the in­admissibility of the ITC on account of mis­match or un-match or other reasons etc.

♦ If evidences available on record are in­sufficient, then the proceedings of Audit as per section 65 of the MGST Act shall be initiated. However, as discussed above, in case necessary supporting documents and evidences available on the record are sufficient, then the Nodal Officer shall issue a show-cause notice to initiate the Demand and Recovery as per section 73 or 74 of the MGST Act.

♦ In case of rejection of claim for refund of Rs. 15,000/-, the rejected amount shall be re-credited to the electronic credit ledger of the claimant using FORM GST RFD-01B only after  the receipt of an undertaking from the claimant  to the effect that he/she shall not file an appeal  against the said rejection or in case he/she files  an appeal, the same is finally decided against  the claimant, as has been laid down in rule 93  of the MGST Rules.

♦ It may be kept in mind that re-credit of rejected refund and recovery of the same i.e. of Rs. 15,000/-, a demand notice i.e. the adjudication order shall have to be simultaneously issued to the claimant under section 73 or 74 of the MGST Act, as the case may be.

♦ In case order is passed due to the facts discussed above, as per sub-section (9) of section 73, or sub-section (9) of section 74 of the MGST Act, as the case may be, the said amount shall be added to the electronic liability register of the claimant through FORM GST DRC-07.

(c) Alternatively, in case the claimant desires voluntarily to pay this amount of Rs. 15,000/- along with interest and penalty, as applicable, on communication of the discrepancies in FORM-GST-RFD-08 or before service of notice in FORM-GST-DRC-01 under section 73 or 74, and intimate the same to the Nodal Officer in FORM GST DRC-03 about the payment of the amount determined in accordance with sub-section (5) of section 73 or sub­section (5) of section 74 of the MGST Act, as the case may be, read with sub-rule (2) of rule 142 of the MGST Rules. In such cases, the need for passing Order under section 73 or 74 of the MGST Act and serving a demand notice will be obviated. Once the tax payer makes the payment as aforesaid through FORM-GST-DRC-03 to the extent of refund wrongly paid or ITC found in-eligible with the applicable interest and penalty, if any, then such cases shall  not be taken for Audit.

(d) However, in case the tax payer disagree to make payment as above, then under such circumstances, initiation of proceedings for Audit u/s 65 or for demand and recovery as per section 73 or 74 of the GST Act shall be initiated as discussed in the preceding Paragraphs.

6.5.2. Cases falling at Sr. No. (3) of Table-1 above:

(1) In order to better explain the case following at Sr. (3) of the Table-1 above, an example is given in Table-3 below:

Table-3

Sr.
No.
Act
Name
Amount of
refund
(provisional-
90%)
(In Rs.)
Balance
refund
amount
(10%)
Final
refund
allowable
Amount
of
refund
rejected
(In Rs.)
(1) IGST 1,80,000 20,000 1,55,000 45,000
(2) CGST 1,80,000 20,000 1,55,000 45,000
(3) SGST 1,80,000 20,000 1,55,000 45,000

(2) In this case the provisional refund of 90% has already been processed and refund of Rs. 1,80,000/- is given accordingly. However, on scrutiny of the record i.e. GSTR-1, GSTR-2A, GST-RFD-01A, Statement of invoices and other documents including the documents related to outward supply, it is seen that the said tax payer is entitled to claim the refund of Rs. 1,55,000/-. As result, it is noticed that the tax payer is not entitled the refund of Rs. 45,000/-. This fact about the excess claim/wrong claim of refund may be brought to the notice of the applicant and a show-cause in FORM-GST-RFD-08 may be issued and applicant may be asked as to why this refund should not be rejected and recovered.

(3) In effect, in this case, the tax payer has claimed excess refund of Rs. 45,000/-, the amount which is already debited from the credit ledger at the time of uploading the refund application in FORM-GST-RFD-01A. This excess claim of refund need to be rejected after giving the said tax payer a reasonable opportunity of being heard.

(4) However, as discussed above, it may be kept in mind that the refund of Rs. 25,000/- has been wrongly granted and recovery of the said amount need to be undertaken. These facts i.e. the re-credit of the rejected refund of in-eligible ITC and the recovery of the amount so re-credited i.e. Rs. 45,000/-+ refund of Rs. 25,000/-=Rs.70,000/- shall be followed simultaneously as discussed in the succeeding paragraphs.

(5) Recovery of refund of Rs. 25,000/- wrongly paid and ITC of Rs, 45,000/- found in-admissible:

(a) In above example it is seen that the tax payer has been wrongly granted the refund of Rs. 25,000/-. Further the ITC Rs, 45,000/- is also found in­admissible. Therefore, recovery of Rs. 25,000/- of the refund wrongly paid in cash (from Electronic Cash Ledger)+ and rejected amount of refund f Rs. 45,000/- (ITC found in-admissible) becomes essential.

(b) The re-credit of the rejected refund of in-eligible ITC and the recovery of the amount so re-credited i.e. Rs. 45,000/-+ refund of Rs. 25,000/-=Rs.70,000/- shall be followed simultaneously. These facts shall be brought to the notice of the tax payer. In case the claimant tax payer desires voluntarily to pay this amount of Rs. 70,000/- ( Rs. 45,000/-+ wrong refund of Rs. 25,000/-) along with interest and penalty, as applicable, on communication of the discrepancies or before service of notice under section 73 or 74, and intimate the same to the Nodal Officer that he has made the payment of Rs. 70,000/- and applicable interest and penalty, as above, in FORM GST DRC-03 in accordance with sub-section (5) of section 73 or sub-section (5) of section 74 of the MGST Act, as the case may be, read with sub-rule (2) of rule 142 of the MGST Rules. It shall also be kept in mind that tax payer need to make the payment of Rs. 25,000/- in cash only. In other words, the tax payer is not entitled to adjust refund wrongly paid against the available credit in the Electronic Credit Ledger.

(c) In such cases i.e. where the tax payer debits (pays) Electronic Cash Ledger for Rs. 25,000/-, and Electronic Credit Ledger for Rs. 45,000/- with interest and penalty, as applicable, voluntarily, then the need for passing an order under section 73 or 74 and serving a demand notice will be obviated. Once the tax payer makes the payment as discussed above through FORM-GST-DRC-03 to the extent of refund wrongly paid and ITC found in-admissible with applicable interest/penalty, then to this extent such case shall not be taken for Audit.

(d) However, in case the tax payer disagrees for voluntary payment of refund wrongly paid (Rs. 25,000/-) and refund rejected (Rs. 45,000/-) alongwith applicable interest and penalty then it becomes necessary to examine as to whether sufficient evidences are available on the record.

(e) In case sufficient evidences are available, then action as per provisions of section 73 or 74 of the MGST Act shall be initiated and a show-cause notice in FORM-GST-DRC-01 shall be issued and the demand and recovery proceedings as per section 73 or 74 of the MGST Act shall be initiated without resorting to the Audit.

(f) In case order is passed under sub-section (9) of section 73, or sub-section (9) of section 74 of the MGST Act, as the case may be, the said amount shall be added to the electronic liability register of the claimant through FORM GST DRC-07.

(6) However, in case evidences in this behalf are not sufficient then Audit as per section 65 of the MGST Act becomes imperative. After completion of Audit, a Show-cause notice in FORM-GST-DRC-01 shall be issued for recovery of Rs. 45,000/-+Rs.25,000/- as per provisions of section 73 or 74 of the MGST Act. The re-credit and the recovery of the said amount shall be followed simultaneously as discussed in the preceding Paragraphs. The steps discussed in the preceding Paragraphs shall be followed.

6.5.3. The refund relating to the inverted tax structure, or refund on account of deemed export, similar procedure as explained above be followed for grant or rejection of the refund. It may also be kept in mind that there is no provision to grant 90% refund as provisional within the 15 days from the receipt of the refund application in FORM-GST-RFD-01A. 6.6. Audit or demand and recovery proceedings in the cases which are re-assigned permanently of for processing of refund:

(1) Re-assignment of the cases due to permanent transfer of the case from one officer to another:

(a) In case of transfer or re-assignment of cases from one officer to the other (Eg. Nodal to LTU) then, in all such cases the Audit or the proceedings for Demand and Recovery shall be undertaken by the officer to whom the case is transferred.

(b) The record of refund pertaining to such cases available shall be transferred accordingly.

(2) Re-assignment of the cases for processing of refund due to monetary limit:

(a) As per the instructions given in the Internal Circular 14A of 2018 dated 2nd June 2018, the cases are re-assigned by the concerned Joint Commissioner to the Nodal Officer who is empowered to process that refund. Where the provisional or final refund of a case is processed by any of the officer as per the monetary limit (State Tax Officer or Assistant Commissioner of State Tax or Deputy Commissioner of State Tax) and if it is found that Audit under section 65 or the Demand and recovery then it shall be undertaken by the Officer who has processed the refund of the higher amount in that case at any time during the financial year.

(b) The methodology given hereinabove shall be followed. The concerned Joint Commissioner shall personally monitor the amount of refund sanctioned, rejected and re-credited.

7. The reference of Audit appearing in Trade Circular 22T of 2018 dated 1st September 2018 shall stand modified as above and rest of the Trade Circular remains unchanged. Audit as per provisions under section 65, or the procedure for demand and recovery under section 73 or 74 of the MGST Act, and as laid down under this Internal Circular shall be applicable for the period 1st July-2017 to 31st March 2018. It may be noted that in case the tax payer has filed the refund application for one or more periods and there are circumstances as discussed above, then the Demand and recovery proceedings under section 73 or 74 of the MGST Act, shall be undertaken for the entire period of 1st July 2017 to 31st March 2018.

8. The instructions in respect of the Audit or the demand and recovery provisions for period starting on or after 1st April 2018 shall be given subsequently. However, in exceptional circumstances, in case the refund processing officer, find it necessary, to initiate the Demand and Recovery proceedings, in the interest of the revenue, then in all such cases appropriate action may be initiated.

9. This Internal Circular is clarificatory in nature and hence cannot be made use of for interpretation of provisions of the law. Difficulty if any, in the implementation of this Circular may be brought to the notice of the office of the Commissioner of State Tax, Maharashtra.

Yours faithfully,

(Rajiv Jalota)
Commissioner of State Tax (GST)
Maharashtra State, Mumbai.

No. JC/HQ-I/GST/ Refund /Internal Cir/02/ 2017-18
Internal Circular No. 35A of 2018.

Mumbai, Date 01/12/2018

Copy forwarded for information and necessary action to,-

(1) The Joint Commissioner of State Tax, (MAHAVIKAS) with a request to upload this Internal Circular on MGSTD web-site.

(2) Deputy Secretary, Finance Department, Mantralaya, Mumbai.

(3) Accounts Officer, Sales Tax Revenue Audit, Mumbai and Nagpur.

(Shriram H. Umale)
Joint Coinmissioner of State Tax
(HQ)-01, Maharashtra State,
Mazgaon, Mumbai.

Download Internal Circular No. 35A of 2018 dated 01.12.2018

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