The process of refunding excess balance in the electronic cash ledger under the GST Law in India involves intricate statutory provisions and instructions. This article delves into the relevant legal sections, circulars, and challenges associated with the refund of surplus cash balances.
We may first take a look into the relevant statutory provisions and instructions related to the topic of ‘Refund of balance in the electronic cash ledger’, under the GST Law, which are as under-
The mechanism for refunding the balance in the electronic cash ledger is outlined in several key sections of the GST Act:
Section 49(6)– The said provision lays down that the balance in the electronic Cash Ledger may be refunded in accordance with the provisions of section 54 of the CGST Act.
Proviso to Section 54(1) -It lays down that a regd. person claiming refund of any balance in the electronic cash ledger in accordance with the provisions of sub-section (6) of section 49 may claim such refund [in the return furnished under section 39] and manner as may be prescribed.
W.e.f. 1.10.2022, in place of ‘in the return furnished under section 39’, the wordings- ‘in such form’ was inserted.
From the above changes, it could be seen that, initially, it was intended to provide for the refund through the filing of the return i.e. GSTR-3B itself. However, as no mechanism was laid down for facilitating refund through the return itself, the amendment to the Proviso clause wef 1.10.22 became necessary.
The form and manner for claiming refund has been prescribed in Chapter X of the CGST Rules [Rules 89 to 97A].
Rule 89(1) [effective from 1st Oct 2022] – It lays down that the person claiming refund of any balance in the electronic cash ledger in accordance with the provisions of Sec 49(6); any tax, interest, penalty, fees or any other amount paid by him, other than refund of IGST paid on goods exported out of India [in such cases, Shipping Bill is deemed to be the application of refund- Rule 96], may file an application electronically in Form GST RFD-01 through the common portal either directly or through a Facilitation Centre notified by the Commissioner.
Section 54(5) – In case, the refund becomes payable, either partly or fully, the default provision is that the same is to be credited to the Fund referred to in section 57.
Section 57 -CONSUMER WELFARE FUND
“57. The Government shall constitute a Fund, to be called the Consumer Welfare Fund and there shall be credited to the Fund,—
(a) the amount referred to in sub-section (5) of section 54;
(b) any income from investment of the amount credited to the Fund; and
(c) such other monies received by it, in such manner as may be prescribed.”
Section 54(8) – However, the refund amount may be paid to the applicant, if such amount is relatable to –
(1) refund of tax paid on export of goods or services or both or on inputs or input services used in making such export.
(b) refund of unutilised input tax credit under sub-section (3);
(c) refund of tax paid on a supply which is not provided, either wholly or partially, and for which invoice has not been issued, or where a refund voucher has been issued;
(d) refund of tax in pursuance of section 77;
(e) the tax and interest, if any, or any other amount paid by the applicant, if he had not passed on the incidence of such tax and interest to any other person; or
(f) the tax or interest borne by such other class of applicants as the Government may, on the recommendations of the Council, by notification, specify.
Explanation to Section 54 lays down as under-
Explanation.—For the purposes of this section,––
(2) “relevant date” means—
(a) in the case of goods exported out of India where a refund of tax paid is available in respect of goods themselves or, as the case may be, the inputs or input services used in such goods,––
(i) if the goods are exported by sea or air, the date on which the ship or the aircraft in which such goods are loaded, leaves India; or
(ii) if the goods are exported by land, the date on which such goods pass the frontier; or
(iii) if the goods are exported by post, the date of despatch of goods by the Post Office concerned to a place outside India;
(b) in the case of supply of goods regarded as deemed exports where are fund of tax paid is available in respect of the goods, the date on which the return relating to such deemed exports is furnished;
*[ (ba) in case of zero-rated supply of goods or services or both to a Special Economic Zone developer or a Special Economic Zone unit where a refund of tax paid is available in respect of such supplies themselves, or as the case may be, the inputs or input services used in such supplies, the due date for furnishing of return under section 39 in respect of such supplies;]
(c) in the case of services exported out of India where a refund of tax paid is available in respect of services themselves or, as the case may be, the inputs or input services used in such services, the date of––
(i) receipt of payment in convertible foreign exchange, or in Indian rupees wherever permitted by the Reserve Bank of India] where the supply of services had been completed prior to the receipt of such payment; or
(ii) issue of invoice, where payment for the services had been received in advance prior to the date of issue of the invoice;
(d) in case where the tax becomes refundable as a consequence of judgment, decree, order or direction of the Appellate Authority, Appellate Tribunal or any court, the date of communication of such judgment, decree, order or direction;
(e) in the case of refund unutilised input tax credit under clause (ii) of the first proviso to sub-section (3), the due date for furnishing of return under section 39 for the period in which such claim for refund arises;]
(f) in the case where tax is paid provisionally under this Act or the rules made there under, the date of adjustment of tax after the final assessment thereof;
(g) in the case of a person, other than the supplier, the date of receipt of goods or services or both by such person: and
(h) in any other case, the date of payment of tax.
Circular no. 166/22/2021-GST dated 17th Nov 2021– Sr no.1 of the clarification issued vide the said Circular, clarifies that the provisions of sub-section(1) of section 54 of the CGST Act regarding time period, within which an application for refund can be filed, would not be applicable in cases of refund of excess balance in electronic cash ledger. It has also been clarified that unjust enrichment clause is not applicable in such cases.
Vide sr. no.3 of the said circular, it has also been clarified that TDS/TCS credited to the electronic cash ledger under the provisions of section 51/52 of the CGST Act and lying in balance, can be refunded as excess balance in cash ledger as the same is equivalent to cash deposited in electronic cash ledger.
If such TDS/TCS is deposited under the wrong head, thereby creating excess balance in cash ledger, then the same can also be claimed as refund under the category of “refund of excess balance in the electronic cash ledger”, as clarified vide para 56 of Circular no. 125/44/2019 dated 18.11.2019.
1. Definition of Refund – Though the proviso clause to Sec 54(1) caters to refund of balance in the electronic cash ledger, as per the definition of the term ‘refund’ (used in the said section) as laid down in the Explanation to Sec 54, ‘Refund’ has been defined to include taxes paid on zero rated supplies or on inputs or input services used in making such zero rated supplies / deemed exports or refund of unutilised ITC as provided in Section 54(3). It does not mention- “Refund of balance in electronic cash ledger in accordance with Section 49(6)”.
Thus, the definition of Refund needs to be amended to incorporate the refund claim authorised under Sec 49(6) to bring more clarity as otherwise, the same would lead to further uncalled for inferences.
It could be argued that the definition of ‘Refund’ is an inclusive definition and could mean to include similar refunds as ‘refund of excess cash balance in electronic cash ledger’. The other argument could be that the provisions of Section 54 have been prescribed for disbursing the refund claim of taxes and interest paid or unutilised ITC as laid down in sub-sections (1) to (3) and that provision of Sec 54 is to be applied only for the manner in which the refund claim under Sec 49(6) is to be disbursed. So, it is to be assumed that the term ‘Refund’ used in Sec 54 includes refund claim in terms of Sec 49(6), which, further brings me to the next query-
2. Consumer Welfare Fund – As per the default Section 54(5), if the amount claimed as refund is refundable, then the amount so determined shall be credited to the Fund. However, if it falls in any of the category of refund as prescribed under Section 54(8), then the same is to be paid to the applicant.
Since, the case of ‘refund of balance in cash ledger’ does not fit into any of the categories mentioned in Sec 54(8), does it mean that the refund in such cases is to be credited to the Consumer welfare fund, which will be apparently, illogical and not desired [Cases of refund of excess balance in cash ledger arising due to TDS/TCS credited to electronic cash ledger and lying in balance, may fit into the one of the category laid down in Section 54(8)].
Or, is it just to be assumed that sub-section Sec 54(5) and 54(8) is not to be applied in cases of refund claim arising out of Sec 49(6), inspite of the fact that said section 49(6) itself specifies that the refund claim is to be disbursed in accordance with the provisions of Sec 54. Or, is it to be inferred that only the provision of Sec 54(1) r/w Rule 89(1) is to be applied in cases of refund claim filed under Sec 49(6) entailing the filing of refund claim in RFD-01 and the rest provisions of the said Section 54 and Rule 89 are to be ignored, which will be a wrong and restrictive interpretation of the provision of Sec 49(6).
Suitable amendments, therefore, need to be made in Section 54(8) or in Sec 54(5) to cater to the category of ‘refund of cash balance’ too, so that the amount could rightly and without any legal hindrance be paid to the applicant, in terms of the law laid down.
3. Relevant date – Section 54(1) lays down the time limit for the purpose of filing refund claim as two years from the relevant date and as per the definition of relevant date, none of the situations mentioned therein relates to the situation of Refund claim arising due to balance lying in the electronic cash ledger. Section 49(6) lays down that the refund is to be dealt with in accordance to the provisions of Section 54. Thus, to say that the time limit as prescribed under the provision of an Act, is not applicable by way of issuance of a Circular [166/22/2021 dt 17.11.2021] may not appear to be legally tenable, as Circular cannot go beyond the grains of Statutory provisions.
However, the strong argument in this case would be that the amount lying in the electronic cash ledger is only a deposit, as also clarified vide the above circular and hence the time limit should not be applicable in such cases. In other words, the time limit prescribed under Sec 54(1) is not at all applicable. A recent Cestat decision in the case of Pramukh Poly Products vs. CCE, Daman decided on 26.4.2022 is worth discussing. In the said case, an amount was deposited on 4.7.2017 in PLA for making payment of Central Excise duty payable for the month of June 2017. Since, from 1.7.2017, GST became applicable, they could not use the PLA balance and they filed a refund claim on 3.12.2018, which was rejected on the grounds of time bar as the refund claim was not filed within the prescribed one year period. It was held that ‘the amount lying balance in PLA in any case cannot take a colour of excise duty. Therefore, for refund of any unspent PLA balance Section 11B is not applicable for the simple reason that the Section 11B provides refund in respect of duty.’[(2023) 4 Centax 5 (Tri.-Ahmd)].
The same ratio could be applied in the instant case of limitation period of two years prescribed under Section 54 (1). However, the difference between the provision of Sec 11B of C.Excise Act, 1944 and Sec 54(1)of CGST Act, is that the former provision speaks of refund of ‘duty of excise and interest, if any, paid on such duty’ and the provision of Section 54 (1) speaks of refund of ‘any tax and interest, if any, paid on such tax or any other amount paid by him’.
It could be further argued that the reference is to the ‘amount paid’ and not ‘amount deposited’, as is in the instant case, wherein ‘cash is deposited’ and hence the provision of Section 54(1) as regards the time limit period prescribed should not be applicable to refund arising out of ‘excess balance in electronic cash ledger’.
The above argument appears strong enough justifying the clarification issued vide the said Circular regarding time period in such cases. But the point I am trying to make here is that when the provisions of Sec 49(6) prescribes that refund is to be sanctioned in terms of Section 54, all the provisions of the said section should be equally applicable to such refunds. In the instant case, there is confusion in interpreting each and every of the relevant provisions of Section 54(1), 54(5) and 54(8) of the CGST Act with reference to refund of excess cash balance matter. It would have been ideal if the provision of Section 54(1) had carved out an exception to such refunds in terms of the time limit in such cases.
Sometimes, I wonder, why can’t the law makers visualise such scenarios while framing the law and incorporate necessary explanations clarifying all such situations instead of coming out with Circulars later on to clarify the implications thereof, of the provision in such scenarios or let litigations take place and then wait for the Courts to clarify the correct interpretation of the provisions.
Anyways, if the Departmental officers take a stand that the refund amount in such cases is to be credited to the Consumer Welfare Fund, he cannot be faulted for taking a legally correct stand, though logically wrong and may lead to unnecessary litigation. Therefore, it is desirable that suitable changes as mentioned hereinabove need to be incorporated in the relevant referred provisions to bring in more clarity, as regards disbursal of refund claim of excess cash balance lying in electronic cash ledger.