Section 54(3) of the CGST Act, 2017 has allowed certain Category of Persons to claim Refund of Accumulated Input Tax Credits subject to certain conditions and restrictions. Rule 89 of the CGST Rules, 2017 has prescribed that such Refund application shall be filed in Form GST RFD-01A. Circular No. 79/53/2018-GST dated 31.12.2018 has made it a compulsion on taxpayers to file the Refund Application along with supporting documents to be filed through the GST Common Portal. However, post submission of the Refund Application, the stages of processing the application remained manual.

On 18th November, 2019, Circular No. 125/44/2019 – GST was issued by the CBIC wherein the Processing of Refund Application in Form GST RFD-01A was made fully electronic with effect from 26.09.2019. In that circular it was prescribed that all stages of submissions and processing shall be done electronically. Para 3 of the said Circular has mentioned that the Form RFD-01A shall be submitted in respect of following types of refund:

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;

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

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

Para 36 of the aforesaid circular has mentioned that if the refund is in relation to clause (a), (c) or € as mentioned para 3 (specified above), then the applicant shall have to upload Form GSTR 2A for the tax period for which the refund is claimed. The said GSTR 2A shall contain all such invoices for which the refund of Input Tax Credit is claimed. The said para 36 has also prescribed that if the GSTR 2A for the tax period does not auto populate some invoices for which the credits were taken in GST Return then the tax payer shall upload the copy of all such invoices. Therefore, the said para 36 has restricted the uploading of invoices only to the extent of invoices which are not auto populated in GSTR 2A. So, till the issuance of the Circular No. 125/44/2019 – GST there was no direction to the department to disallow refund due to the reason of mismatch with GSTR 2A.

With effect from 09.10.2019, sub-rule (4) to Rule 36 of the CGST Rules, has been inserted which restricted the availment of Input Tax Credit. As per the said rule the Tax Payer is entitled to take 10% [initially 20%] of Matched Credit[ Matched with GSTR 2A] from the Unmatched portion. To give an effect of the aforesaid sub-rule 36(4), Para 36 of the Circular No. 125/44/2019 – GST dated 18.11.2019 got amended by Circular No. 135/05/2020 – GST dated 31st March, 2020 wherein it has been clearly mentioned that Refund of Accumulated ITC shall only be granted if the said credits are uploaded in the GSTR-1 of the Suppliers and thereby appearing in GSTR 2A of the Refund Applicant. Para 36 of the Circular No. 125/44/2019 – GST dated 18.11.2019 was modified to the extent.

In this respect it is pertinent to mention here that there are certain ITCs which never appears in the GSTR-2A i.e ITC from Input Service Distributers, ITC on IGST Paid on Import of Goods and ITC taken on payments made under Reverse Charge Mechanism. Rule 36(4) also has given relaxation in respect of those ITCs and taxpayers are allowed avail those ITCs on the basis of their Books of Accounts. However, the Circular No. 135/05/2020 – GST dated 31st March, 2020 does not specify anything about those three types credits thereby has created confusion in the mind of departmental officers as well as the Tax Payers. The recent Circular No. 139/09/2020-GST dated 10th June, 2020 has been issued to provide a directive to the departmental officers that ITC from ISD Invoices, ITC on payments made under reverse charge mechanism and ITC on IGST Paid on Imports shall be allowed even though the same is not appearing in the GSTR-2A. Therefore, a legitimate relief has been granted to the tax payers by ensuring that at least some portion of accumulated credits shall be allowed as refund.

However, after giving effect of the Circular dated 10th June, 2020, a question may come in the mind of tax payer that whether, a circular can restrict the refund of ITC of a taxpayer which are otherwise eligible to be availed. The wordings of a circular cannot override the provisions of the Acts and Rules thereunder. Matching with GSTR-2A is only a tool in the hands of the revenue to ensure about the authenticity of credits, and nothing more than that. Section 16(2) of the CGST Act,2017 starts with a Non Obstantie clause which prescribes only four conditions to avail Input Tax Credit namely:

1. Possession of Tax Invoice/Debit Notes/Supplementary Invoice etc.

2. Receipt of Goods and/or Services

3. The Tax Charged by the supplier has actually been paid and

4. The Tax Payer has filed the return specified in Section 39.

Therefore, none of the provisions in Section 16 has restricted ITC only due to reason that the same is not uploaded in the GSTR-1 of the Supplier. Further, filing of GSTR-1 does not ensure that the tax in respect of which ITC is claimed, has actually been paid or not. The new section 43A [inserted by CGST Amendment Act, 2018] which will be effective from 1st October, 2020 under the New Return Scheme, will however provide some restriction on availment of Input Tax Credit. However, till Section 43A is not effective, the ITC of the tax payer cannot be denied.

If all the above four conditions are satisfied, a tax payer is very well eligible to avail the ITC. If the ITC is available, then refund of accumulated ITC under section 54 is also eligible and the same cannot be denied by the revenue.

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  1. Vishal says:

    Sir, Thanks for the above article, I have a query :
    We have paid RCM about 2.30 lacs and also paid output tax Rs. 2.40 lacks of the same item through cash payment of GST and availed input of the RCM in next month, our item (seasonal) is covered under RCM and we have to pay it in cash, Can we claim Refund of excess balance of ITC availed through RCM. if yes which form to be file to claim Refund.

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