Refund Under GST – Clarifications & Amendments

The Government vide notifications and circulars has clarified/ amended various issues related to refund process under GST. Further, in view of Covid-19 Pandemic, some relief measures for compliance requirement in this regard have also been taken by the Government. An attempt has been made to compile these notifications & circulars for better understanding. The details have been brought in succeeding Paragraphs.

1. Relief measures in view of the outbreak of the COVID-19 Pandemic :In view of the outbreak of the COVID-19 Pandemic, the Government has taken following relief measures for facilitating taxpayers in meeting the compliance requirements under various provisions of the Central Goods and Services Tax Act, 2017 .(Circular No. 137/7/2020 dated 13 April 2020)

(a) Refund of Tax paid on advance received : In case the supplier has paid GST on advances received for a future event which got cancelled subsequently and for which invoice is issued before supply of service. He is required to issue a “credit note” in terms of section 34 of the CGST Act. The tax liability shall be adjusted in the return subject to conditions of section 34 of the CGST Act. There is no need to file a separate refund claim

However, in cases where there is no output liability against which a credit note can be adjusted, registered persons may proceed to file a claim under “Excess payment of tax, if any” through FORM GST RFD-01

In case supplier has issued receipt voucher against advance received and no invoice has been issued in terms of section 31 (2) of the CGST Act, The taxpayer can apply for refund of GST paid on such advances by filing FORM GST RFD-01 under the category “Refund of excess payment of tax”

(b) Letter of Undertaking (LUT) : Letter of Undertaking (LUT) furnished for the purposes of zero-rated supplies without payment of tax expired on 31.03.2020. As per Notification No. 37/2017-Central Tax, dated 04.10.2017 LUT is required to be furnished for a financial year.

The time limit for filing of LUT for the year 2020-21 shall stand extended to 30.06.2020 and the taxpayer can continue to make the supply without payment of tax under LUT provided that the FORM GST RFD-11 for 2020-21 is furnished on or before 30.06.2020. Taxpayers may quote the reference no of the LUT for the year 2019-20 in the relevant documents.

(c) Extension of Relevant Date : As per section 54 (1), a person is required to make an application before expiry of two years from the relevant date. If in a particular case, date for making an application for refund expires on 31.03.2020, the same has been extended till 30.06.2020. Accordingly, the due date for filing an application for refund falling during the said period has also been extended till 30.06.2020.

2 Clarifications. CBI&C vide Circular No. 135/5/2020 dated 31.03.2020 has clarified following issues relating to GST refunds :-

(a) Bunching of refund claims across Financial Years : The restriction on clubbing of tax periods across different financial years was put in vide circular No. 37/11/2018-GST dated 15.03.2018 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 Circular No. 125/44/2019-GST dated 18.11.2019.

It was provided in the circular No. 37/11/2018-GST dated 15.03.2018 that refund claim cannot spread over different financial years. As per Para 11.2 of the said circular – ” It is possible that input tax credit may be received in a month while exports may be made in subsequent month. In some months, there will be exports but no input tax credit available. In such cases, the refund claim can be filed during ‘relevant period’ which is different from ‘tax period’. Hence, exporter may file refund claim per month or per quarter or by clubbing successive calendar months/quarters. However, such refund claim cannot spread over different financial years.

CBI&C vide Para 2 of circular No. 135/5/2020 dated 31.03.2020 decided to remove the restriction on clubbing of tax periods across Financial Years. Accordingly, circular No. 125/44/2019-GST dated 18.11.2019 stands modified to that extent i.e. the restriction on bunching of refund claims across financial years shall not apply.

(b) Refund of accumulated ITC As per Para 3 of circular No. 135/5/2020 dated 31.03.2020, the refund of accumulated ITC would not be admissible under section 54(3)(ii) where the input and the output supplies are the same and the inversion is due to change in the GST rate on the same goods

In terms of clause (ii) of sub-section (3) of section 54 of the CGST Act, refund is available where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies. However, Refund of unutilized ITC on account of inverted duty structure is not available where the inversion is due to change in the GST rate on the same goods.

For Example : An applicant trading in goods has purchased, say goods “X” attracting 18% GST. However, subsequently, the rate of GST on “X” has been reduced to, say 12%. It is being claimed that accumulation of ITC in such a case is also covered as accumulation on account of inverted duty structure and such applicants have sought refund of accumulated ITC under clause (ii) of sub-section (3) of section 54 of the CGST Act.

It is hereby clarified that refund of accumulated ITC under clause (ii) of sub-section (3) of section 54 of the CGST Act would not be applicable in cases where the input and the output supplies are the same.

(c) Change in manner of refund : CBEC vide Para 4 of circular No. 135/05/202 dated 31.03.2020 has clarified that refund of tax paid on supplies (other than zero rated supplies ) will now be admissible proportionately in the respective original mode of payment.

In the original mode of payment, while claiming for refund on tax paid for the intra-state supply which is consequently held to be inter-state supply and vice versa, the applicant need not to made debit of ITC from Electronic Credit Ledger at the time of filing refund claim, being claim of tax already paid. However, the total tax would have been normally paid by the applicant by debiting tax amount from both electronic credit ledger and electronic cash ledger.

Payment of admissible refund in cash even when such payment of tax or any part thereof, has been made through ITC lead to allowing unintended encashment of credit balances. In order to restrict this practice, Rule 86 (4A) and 92 (1A) has been inserted vide notification No.16/2020-Central Tax dated 23.03.2020. The combined effect of the Rule 86 (4A) and 92 (1A) is that refund of tax paid on supplies (other than zero rated supplies ) will now be admissible proportionately in the respective original mode of payment.

(d) Restriction of Refund (FORM GSTR-2A) In terms of para 36 of circular No. 125/44/2019-GST dated 18.11.2019, 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.

CBEC vide Para 5 of circular No. 135/05/202 dated 31.03.2020 has decided that the refund of accumulated ITC shall be restricted to the ITC as per those invoices, the details of which are uploaded by the supplier in FORM GSTR-1 and are reflected in the FORM GSTR-2A of the applicant. Accordingly, para 36 of the circular No. 125/44/2019-GST, dated 18.11.2019 stands modified to that extent.

(e) Requirement to mention HSN/SAC in Annexure ‘B’ : it becomes very difficult to distinguish ITC on capital goods and/or input services out of total ITC for a relevant tax period in the absence of HSN wise details of goods and services in FORM GSTR-2A

It has been decided vide Para 5 of CBIC circular No. 135/05/202 dated 31.03.2020 to amend the Annexure B. A column relating to HSN/SAC Code has been 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.

3 Amendments : CBI&C vide Notification No. 16/2020 dated 23.03.2020 has amended following provisions related to refund under GST :-

(a) Meaning of Turnover – Zero-Rated Supply of Goods : CBI&C vide Para 8 of notification No. 16/2020 dated 23.03.2020 has amended the meaning of Turnover of zero-rated supply of goods.

Accordingly – the following clause shall be substituted in the said rules, in rule 89, in sub-rule (4), for clause (C) :-

“Turnover of zero-rated supply of goods” means the value of zero-rated supply of goods made during the relevant period without payment of tax under bond or letter of undertaking or the value which is 1.5 times the value of like goods domestically supplied by the same or, similarly placed, supplier, as declared by the supplier, whichever is less, other than the turnover of supplies in respect of which refund is claimed under sub-rules (4A) or (4B) or both;‟

(b) Recovery of refund paid on Export of Goods ; CBI&C vide Para 11 of notification No. 16/2020 dated 23.03.2020 notified recovery of refund of unutilised input tax credit or integrated tax paid on export of goods where refund has been paid to an applicant but the sale proceeds in respect of such export goods have not been realised, in full or in part, in India within the period allowed (nine months from the date of export) under the Foreign Exchange Management Act, 1999.

In view of the outbreak of the COVID-19 pandemic, various governmental authorities have granted several relaxations from regulatory compliances. Accordingly, on April 1, 2020, RBI issued A. P. (DIR Series) Circular No. 27 pursuant to which the time period for realisation and repatriation of the export proceeds to India for the goods/ software/ services exported was increased from 9 (nine) months to 15 (fifteen) months from the date of export, for the exports made up to or on July 31, 2020.

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