Whether Refund of Excess Payment of GST Is Admissible Where GST Collected And Paid At Higher Rate

1. CGST and IGST acts provides that every registered person is liable to pay tax on all intra state and inter state supplies of good and services and he shall accordingly collect and pay tax on such supplies as per provisions of act and rules, at notified rates. Sometimes, due to confusion, ambiguity regarding correct rate of tax applicable on supplies, a registered person with abundant precaution collect tax on supplies at higher rate and pay it in Government tresury. However, after clarification issued by CBIC or pronouncement of court decision or Advance ruling issued by Advance Ruling Authority, registered person came to know that he has collected and paid taxes on such supplies at higher rate and consequently there was excess payment of tax. Thereafter, he starts to collect and pay tax at correct rate. However, question remain whether he is eligible for refund of excess payment made during previous period.

2. For the better understanding of issue involved, we will take one example. Supplier Registered Person ABC, has collected tax @ 12 % ( CGST 6 % and MGST 6 % ) on impugned supplies from the Recipient and filed returns and paid taxes accordingly during the period F.Y. 18-19 & 19-20. Now, he came to know that correct tax rate is applicable @ 5 ( CGST 2.5 % & SGST 2.5 % ) and there is excess payment of tax of 7 % during above referred period and entitled for refund of excess payment of taxes. Thereafter he has started to collect tax @ 5 % from 01-4-2020. He has neither issued credit notes nor refunded amount of excess tax collection (7 %) to the Recipient registered person. In this background it is necessary to examine, whether supplier registered person ABC is eligible to claim refund of excess payment of tax @ 7 % made during the FY 18-19 & 19-20.

3. In view of above, it is seen that the issue involved is, whether supplier ABC Registered person is eligible to claim refund of excess payment of taxes 7 %, made in 18-19 and 19-20, in respect of supplies made to the Registered recipient person.

4. It is seen that supplier registered person GST has collected @ 12%, during the period Fy 18-19 and 19-20, on the impugned supplies to the registered Recipient person and disclosed and discharged tax liablilty accordingly, while filing Return GSTR-1 and GSTR 3 B under GST act.

5. It is seen that Supplier Registered Person has not issued credit notes nor refunded excess amount of 7 % to the Recipient registered person, in respect of impugned supplies, related to the period FY 18-19 and 19-20. Thus, it is seen that, as on today total GST collected on imugned supplies is @ 12 % instead of @5 % which legally leviable. Consequently, there is excess payment of GST by @ 7 % to the Government.

6. On these facts, let us examine eligibilty of refund of excess payment of 7 % GST, in view of provision of section 54 of GST act and Rule 89 of GST rules and doctrine of Unjust Enrichment.

7. Section 54 (1) of the act provides that any person claiming refund of any tax and interest paid by him, may make an application in prescribed manner. Sub section 9 of section 54 of the act makes clear that notwithstanding anything to the contrary contained in any order, judgment or other provisions of a7ct or any law, no refund shall be made except in accordance with the provision of section 54 (8) of the act.

8. This section classifies refund into six categories ( a) to (h) and category applicable in present case is (e ). It is provided in sub section 54( 8 ) (e) that refundable amount shall be paid, if such amount is relatable to excess tax paid by applicant, and if he had not passed on the incidence of such tax to any other person. The refund of excess payment in question is covered in this category, however it is subject to the satisfaction of above referred prescribed condition. Therefore, it is necessary to examine whether this condition i.e.” he had not passed on the incidence of such tax to any other person“, has to be satisfied, to become eligible for refund. For this purpose we have to find out defintion of passing of incidence of tax to other person and apply to the facts of present case.

9. In view of above facts, refund of impugned excess payment of( 7 % )GST would be covered under category section 54 (8)(e) of the act. Procedure regarding filing of an application for refund and conditions are prescribed in rule 89 of MGST rules.

10. As per rule 89, claimant person is required to file an application for refund in form GST RFD – 1 alonwith prescibed documents, statements, declarations and certificate. It is provided in rule 89 (2) (l) and (m) that applicant claiming refund of excess payment of tax which covered under category U/S 54 (8) (e) shall submit self declaration where refund amount is less than two lakh and certificate in Annexure 2 issued by Chartered Accountant where amount of refund is above two lakh, regarding incidence of tax claimed as refund has not been passed on to any other person. This certificate applicable to only refund claimed under category 54 (8) (e). This certificate is mandatory and if not submitted application liable for rejection. Therefore, for compliance of this requirement, it is necessary to examine,whether incidence of tax claimed as refund has not been passed on to any other person i.e. Recipient. Definition of this term has been has been provided in, explaination (ii) to MGST rule 89( 2). This reads as under “ where the amount of tax has been recovered from the recipient, it shall be deemed that the incidence of tax been passed on to the ultimate consumer. “

11. It is seen ABC registered supplier has collected toal GST @ 12 %. It is further seen that excess tax (@ 7 % )collected had not been refunded to the Recipient, by issuing Credit notes u/s 34 ot the act. In view of above facts, it is seen that incidence of excess collection of tax @ 7 %, has been passed on to the Recipient by recovering tax @ 12 %. Section 54 (8) (e ) and relevant rule 89, mandate that to claim refund of tax paid, conditon that incidence of tax claimed as refund has not been passed on to any other person shall be satisfied. Thus, it clear that the Recipient has borne the incidence of such amount. Since, above eligibility condition could not satisfied, the ABC Registered Person is not eligible to claim refund of excess tax @ 7 % collected and paid to the Government. As per provision of section 73 (11) of the act, the person who has borne the incidence of such excess collected amount is eligible to claim refund u/s 54 of the act.

12. CBIC has explained doctrine of unjust enrichment and clarified this issue in Final FAQ Question no 95 and 96, which is reproduced here under.

Q 95. What is unjust enrichment. Does the concept apply in GST?

Ans. The Hon’ble Supreme Court in the case of Sahakari Khand Udyog Mandal Ltd. v/s Commissioner of Central Excise & Customs as reported in 2005 (181) ELT 328 S.C. has defined ‘unjust enrichment’ as under:

(a) ‘Unjust enrichment’ means retention of a benefit by a person that is unjust or inequitable. ‘Unjust enrichment’ occurs when a person retains money or benefits which in justice, equity and good conscience, belong to someone else.

(b) That no person can be allowed to enrich inequitably at the expense of another. A right of recovery under the doctrine of ‘unjust enrichment’ arises where retention of a benefit is considered contrary to justice or against equity

The concept is inbuilt in Section 54(5) read with 54(8) of the CGST Act, 2017. Every claim of refund sanctioned will be credited to the Consumer Welfare Fund in terms of setion 54(5) of CGST Act, 2017. It will, instead of being credited to the fund, be paid to the claimant in situations mentioned in Section 54(8). Thus, the principle will not apply to refund claims arising on account of zero rated supply, refund of accumulated ITC on account of zero rated supply and inverted rate structure, where wrong tax is paid (IGST instead of C+SGST & vice versa), where tax has been paid on advances but no supply is made and no invoice has been issued. These are cases where the principle of unjust enrichment is not applicable and the proper officer need not satisfy himself whether the incidence of tax has been passed on to any other person in such cases. In all other cases, refund will be sanctioned to the claimant only if the claimant demonstrates that the incidence of tax has not been passed on to any other person.

Q 96. What is the standard of proof required under GST to demonstrate non-passing of incidence of tax to any other person?

Ans. Rule 89(2) (l) & (m) deals with documentary evidence pertaining to passing of incidence of tax. In cases where the amount of refund claim does not exceed ₹2,00,000/- a declaration to the effect that the incidence of tax, interest or any other amount claimed as refund has not been passed on to any other person, Where the claim exceeds ₹2,00,000/- a Certificate in Annexure 2 of FORM GST RFD-01A issued by a chartered accountant or a cost accountant to the effect that the incidence of tax, interest or any other amount claimed as refund has not been passedto any other person

However, the aforesaid declaration/certificate is not required to be furnished in respect of cases covered under clause (a) or clause (b) or clause (c) or clause (d) or clause (f) of section 54 (8). That is for cases covered by clause a to d & f of Section 54, since by default the doctrine of unjust enrichment does not apply, there is no requirement of any declaration or certificate to prove non passing of the incidence of tax to any other person.

Explanation to Rule 89 expressly states that where the amount of tax has been recovered from the recipient, it shall be deemed that the incidence of tax has been passed on to the ultimate consumer. Thus, if Revenue has cogent evidence to show that the amount of tax has been recovered from the recipient, then it will be presumed that the incidence of tax has been passed on the consumer and the declaration/certificate given by the applicant will not suffice to cross the bar of unjust enrichment.

13 However, if this excess tax recovered, has been refunded to the Recipient by issuing credit notes, then refund may be claimed due as per returns. Section 34 provides that where Tax Invoice has been issued for supply of good or services and tax charged found to exceed payable then supplier registered person may issue credit note in prescribed manner and declare details in return for the month during which such credit notes issued before due date of filing return for September of next Financial year. Thereafter, Registered Person has to make necessary such correction and rectification in return GSTR 1 and GSTR 3 B and then tax liability shall be reduced accordingly. Thereafter, only can it be said that excess tax recovered is refunded to the recipient of supply. Consequently, the supplier ABC Registered person, may claim refund under section 54 (8) (e) or reduce output tax liability to that extent u/s 43 of the act. However, in both contingencies, he has to prove that incidence of tax incidence of tax on such supply has not been passed to the Recipient of such supplies. However, time limit which was 31-03-2019, to issue credit notes and amend returns GSTR 1 and GST 3B for the period 18-19 has been already expired. However, time limit for period 01-04-2019 to 31-03-2020 is up to 21-10-2020. However, considering end result of, refund @ 7% tax to the Recipient and to claim refund from Government of the same amount, is not beneficial and no financial gain.

14 It is pertinent to note that section 32 prohibit to Registered Person to excess collection of tax. It is mandatory to collect tax in accordance with provisions of act and rules. Nobody is allowed to collect tax than payable by law.

15 It is very clear that as per CBIC clarification, rate of total GST applicable on such supplies is 5 % instead of 12 %. It is true that Government has received 12% on impugned supplies and has no right to retain excess tax with it, which has collected illegitimately. In this background then, it is necessary to examine who is eligible to claim refund of such amount. Let us see what are provisions in the act which are applicable for excess collection of tax and its disposal.

16 Section 76 of the act speaks about tax collected but not paid to Government. It is provided that every person who has collected any amount representing the tax, and not paid to the Government, shall pay said amount immediately, irrespective of whether supply is taxable or not. Detailed procedure has been prescribed to pass order and to recover such amount. It is provided in subsection 10 and 11 that where any surplus ( excess collection of tax /illegal collection of tax ) is left after adjustment, amount of such surplus shall be credited to Consumer Welfare Fund established u/s 57 or refunded to the person who has born the incidence of such amount and such person may apply for the refund of the same under section 54 of the act. In the present case, considering the facts and circumstances of the case, it is seen that the Recipient registered person of supplies has borne the incidence of impugned excess tax (7 %) and therefore is eligible for refund subject satisfaction of prescribed condition.

17 In view of foregoing discussion and by careful consideration all fact and circumstances of above referred example and in view of relevant provision of act and rule, it appears that ABC Registered Person is not eligible to claim refund of excess collection tax of @ 7 %, as incidence of such tax has not born by him, in respect of impugned supplies made to the Recipient registered person.

M M Kanadje | Retired Joint Commissioner of State Tax | Pune

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