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Refund Under GST- Easy To Understand

Many changes have been made in the rules for granting refund within a very short span of time since the inception of GST, hence, it has become very difficult to keep track of the changes made. Also, the GSTN portal is still not fully automated for the process of granting refund. To help the officers to expedite the process of grant of refunds in a correct manner, taxable persons and GST practioners, I have prepared 21 FAQ’s (just as 21 likely question papers of our times) which are commonly asked by the refund processing officers and taxable persons. These FAQ’s are a small attempt on my part to explain the nuances in the application/ grant of refunds.

Q.1 Which provisions under the GST Act govern the grant of refund? In which forms could refund be granted? Can refund in the form of unutilized ITC be granted to all supplies?

Ans: Refund under GST is governed by section 54 and by rules from serial nos. 89 to 96A. Refund under GST is granted either in the form of tax paid by the taxable person or in the form of unutilized input tax credit. However, refund in the form of unutilized ITC could be granted only to the following categories of supplies-

i) Zero rated supplies -Defined under section 16(1) of the IGST Act. As per this section, zero rated supplies mean export of goods or services or both and supplies of goods/services/both to SEZ or SEZ developer.

ii) Inverted tax structure- This term is not defined under the GST Act. However, this term means that the rate of tax on inputs is higher than the tax on output supplies e.g. rate of tax on manmade fibre fabrics is lower than the rate of tax on yarn used in the manufacture for such fabrics.

Q.2 When could a taxable person in the case of zero rated supplies claim refund in the form of tax paid and when could he claim refund in the form of unutilized ITC?

Ans: The taxable person can levy IGST, disclose the tax liability in the returns and claim refund in the form of tax paid only in the case of zero rated supplies under either of the following three situations-

i) He has been prosecuted for an offence for value above Rs 2.5 crores under any of the existing Acts and has not submitted bond.

ii) He has not been prosecuted for an offence for value above Rs 2.5 crores under any of the existing Acts and has also not submitted LUT (Letter of undertaking) as per the provisions of Rule 96A.

iii) The person (from 23/10/2017) has not –

(a) received supplies on which the benefit of the Government of India, Ministry of Finance notification No. 48/2017-Central Tax, dated the 18th October, 2017 published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i),vide number G.S.R 1305 (E), dated the 18th October, 2017 or notification No. 40/2017-Central Tax (Rate), dated the 23rd October, 2017 published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i),vide number G.S.R 1320 (E), dated the 23rd October, 2017 or notification No. 41/2017-Integrated Tax (Rate), dated the 23rd October, 2017 published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i), vide number G.S.R 1321 (E), dated the 23rd October, 2017 has been availed; or

(b) availed the benefit under notification No. 78/2017-Customs, dated the 13th October, 2017 published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i), vide number G.S.R 1272(E), dated the 13th October, 2017 or notification No. 79/2017-Customs, dated the 13th October, 2017 published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i),vide number G.S.R 1299 (E), dated the 13th October, 2017.

In simple terms, the taxable person should not have availed benefits by purchasing goods under advance authorization license or from EOU or should not have purchased capital goods under EPCG (Export Promotion Capital Goods) Authorisation license.  Also, the taxable person should not have purchased goods against 0.1%IGST or 0.05% CGST and ass0.05% MGST from merchant exporter for further export of goods in the same form.

However, vide Trade Circular no.70/44/2018 issued by CBIC and Circular no 34/2018 issued by the Hon’ble Commissioner of State Tax, Maharashtra State, Mumbai some relief has been granted. It has been clarified that any exporter who himself imported any inputs/ capital goods in terms of notification No.78/2017-Customs and 79/ Customs both dated 13th October 2017 shall be eligible to claim refund of the IGST paid on exports till 9th October, 2018. Also, exporters who are receiving capital goods under the EPCG scheme, either through import in terms of notification No. 79/2017-Customs dated 13th October, 2017 or through domestic procurement in terms of notification No. 48/2017-Central Tax, dated 18th October, 2017, shall continue to be eligible to claim refund of IGST paid on exports and would not be hit by the restrictions provided in the said sub-rule.

Q.3 Could a taxable person claim refund in the form of IGST paid as well as in the form of unutilized ITC?

Ans: It is clear from the proviso to section 54(3) that refund of unutilized ITC cannot be granted to a taxable person who has claimed refund in the form of IGST paid. Vice versa it could be said that a taxable person who has not submitted LUT and collected IGST (paid IGST on supplies in the return GSTR3B) can claim refund only in the form of tax paid and not in the form of unutilized ITC. Thus, a taxable person cannot claim refund in the form of IGST paid as well as in the form of unutilized ITC.

 Q.4 Whether grant of refund equal to tax payment is on equal footing to grant of refund equal to accumulated ITC?

Ans: Let me answer this question by giving an example. There is an Exporter “Mr. Ram” who has exported goods of value Rs. 100000/-. For simplicity, rate of IGST is considered at 20%. During this month, ITC claim is of Rs. 10000/-.

If Mr. Ram has exported the goods without submitting LUT, he would have to disclose Rs.20000/- as IGST liability in GSTR3B. After considering the ITC claim of Rs.10000/-, he would have to pay tax of Rs.10000/- while filing the return. After applying for grant of refund, he would be granted refund of Rs.20000/-(equal to IGST liability). Therefore, after considering the payment of Rs 10000/- made by the taxable person along with return and grant of refund of Rs. 20000/- , the taxable person has received net refund of Rs. 10000/-.

Let us consider the second case.  As Mr. Ram has exported the goods by submitting LUT, he would have to disclose Rs.0/- as IGST liability in GSTR3B. After considering the ITC claim of Rs.10000/-, he would have to claim refund of Rs.10000/- while filing the return. After applying for grant of refund, he would be granted refund of Rs.10000/-(equal to ITC claim). Therefore, after considering the payment of Rs 0/- made by the taxable person along with return and grant of refund of Rs. 10000/- , the taxable person has received net refund of Rs. 10000/- which is the same as above. Therefore, it can be said that if the taxable person has not claimed ITC on capital goods during that period, the amount granted as refund for the exporter remains the same under both options.

Q.5 Whether state GST officers are empowered to grant refund under GST in all cases?

Ans: The answer to this question lies in Rule 89 where it is clearly mentioned that refund application in case of export of goods without LUT (i e. with levy of IGST). would not lie before GST officer but before custom officers. The taxable person does not have to make separate application for grant of refund. The shipping bill is itself treated as application. The details of the export invoices are to be correctly filled in the shipping bill and return in form GSTR1.State GST officers are empowered to grant refund in all other cases except the one as mentioned above.

Q.6 Who should make an application for grant of refund and whether application could be made for the grant of interest/penalty?

Ans: The answer lies in Rule 89(1) which reads as follows- “Any person, except the persons covered under notification issued under section 55, claiming refund of any tax, interest, penalty, fees or any other amount paid by him, other than refund of integrated tax paid on goods exported out of India, 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”.It is therefore clear that any person (except CSD) could file an application in form GST-RFD-01A for claiming refund of any tax/ interest/ penalty/ fees or any other amount paid by him.

Q.7 When could cess be granted as refund?

Ans: Regarding cess, the exporter will be eligible for refund of ITC of compensation cess   relating to the goods exported. In case, the goods have been exported on the payment of IGST and cess, the exporter would be eligible for refund of IGST as well as cess. In case, the cess has been paid by mistake (wrong head), the refund would be granted.

Q.8 Whether any conditions have been prescribed for claim of refund in form of unutilized credit?

Ans: Yes, two important conditions have been prescribed for claim of refund in form of unutilized credit. They are as follows-

1) The goods exported out of India should not be subject to export duty. Export duty is levied on some goods in order to discourage exports of such goods. It is more beneficial for India to export goods made out of iron, aluminium rather than export iron-ore, bauxite etc. The amount of export duty for exports is mentioned in the shipping bill.

2) The second condition is that the taxable person has not availed drawback in respect of central tax. Duty drawback is concept prevalent under the Central Excise regime. Drawback was claimed on excise duty and/or custom duty in case of exports (just like VAT refund) and hence there were 2 rates of drawback prior to October 2017. The higher rate is for claiming drawback in case of excise duty as well as custom duty while the lower rate is for claiming drawback in case of custom duty only. The rates for claiming drawback in case of various goods are decided by the Central Government from time to time. Only 1 rate (pertaining to custom duty only) is declared from October 2017. Therefore, in order that the taxable person does not avail double benefit, it is prescribed in section 54 that refund under CGST/ IGST should not be granted to such taxable persons who claim drawback as per higher rate (applicable for refund applications for the period from July 17 to September 17). As only one rate is prescribed from October 17 i.e. only for custom duty, this condition becomes redundant for refund applications for periods from October 17 onwards.

Q.9 Define “export of goods” and explain it.

Ans: “Export of goods” with its grammatical variations and cognate expressions, means taking goods out of India to a place outside India. Therefore, if foreign company “C” located in London asks person “A” in the state of Maharashtra to supply goods to another person “B” in the state of Punjab, it would not be treated as export of goods from “A” to “C” as the goods have not been taken to place outside India by “A”.

Also, the taxable person needs to export the goods within 90 days of the issue of invoice in order to escape the levy of IGST. The delay in the export of goods beyond 90 days could be condoned by the proper officer if the goods have actually been exported.

Q.10 Define “export of services” and explain the conditions pertaining to this definition.

Ans: “Export of services”means the supply of any service when––

(i) the supplier of service is located in India;

(ii) the recipient of service is located outside India;

(iii) the place of supply of service is outside India;

(iv) the payment for such service has been received by the supplier of service in convertible foreign exchange; and

(v) the supplier of service and the recipient of service are not merely establishments of a distinct person in accordance with Explanation 1 in section 8.

The place of supply for services is determined as per section 13 of the IGST Act as the recipient in this case is located outside India. The place of supply becomes important if the supplier is an intermediary and the place of supply is the place of supplier as per section 13(8) of the IGST Act. The third condition is violated in such cases and hence that supply is not export of services. The terms of the agreement between the supplier and recipient are therefore important to determine as to whether the supplier acts as an intermediary. e.g. In the case of Toshniwal Brothers Pvt. Ltd, Advance Ruling Authority(Karnataka) has decided after going through the terms of agreement between the applicant and that of overseas customer that the applicant has acted as intermediary as it would solicit orders for the goods of the overseas customer in India by marketing and promoting the goods in India.

Regarding the fourth condition, it would suffice to say that the amount of foreign exchange received needs to be reconciled with the amount mentioned in the export invoice.  The condition of receipt of foreign exchange receipt is mandatory in case of export of services while that is not the case in case of export of goods.

Regarding the fifth condition, Explanation-I to section 8(2) of the IGST Act provides that a person having establishment in India and establishment outside India shall be treated as “establishments of distinct person” meaning there by when the supplier of the services is located in India and the recipient is located outside India, however, such recipient being the establishment outside India, then due to breach of condition stipulated in Clause (v) of the definition of export of services the said supply is not treated as “export of services”. Instead such supply is treated as taxable supply and hence liable for Integrated Tax and is not liable for refund of the IGST paid or of accumulated ITC being. The refund is not available as the said supply of service as it is not treated as Zero-rated supply of services.

In other words, supply of services by an Indian Establishment to its foreign counterpart are not treated as “Export of Services”. Therefore, the said supply is chargeable to IGST.

With effect from 26th July 2018 (See Notification No. 15/2018 Integrated Tax (Rate) the Services supplied by an establishment of a person in India to any establishment of that person outside India, which are treated as establishments of distinct persons is exempted from the Integrated tax subject to the condition the place of supply of such service is outside India. The Place of Supply is to be determined in accordance with section 13 of Integrated Goods and Services Tax Act, 2017.

Thus the supply of services to the Indian entities/Head offices/branches/project offices/liaison offices etc. located outside India are now exempted from the payment of the IGST when the place of supply falls outside India. (Please see the Notification No. 15/2018 Integrated tax (Rate).

Eg. Google India is supplying services to its Head Office i.e. Google USA despite fulfilling all the conditions to treat this supply as “export of services” the said supply will not be treated as export of services as the supplier of the service (Google India) and the recipient of service (Google USA) due to the reason that services supplied by an establishment of a person in India to any establishment of that person outside India, which are treated as establishments of distinct person.

I would like to add that the constitution of the Indian entity as well as foreign entity needs to be the same in order that supply between the two is not treated as export of services. For example, head office of the company is in India and branch of the same company is in France.

Also, the taxable person needs to export the services within 1year of the issue of invoice in order to escape the levy of IGST. The delay in the export of services beyond 1 year could be condoned by the proper officer if the services have actually been exported.

Q.11 What are the situations in which the taxable person could make an application for the grant of refund?

Ans: Applications for grant of refund could be made to the proper officer in the following situations pertaining to zero rated supplies/deemed exports/inverted tax structure-

i) Refund of IGST paid on export of services without LUT.

ii) Refund of unutilized ITC on export of goods/services with LUT i.e. without levy of IGST.

iii) Refund of unutilized ITC as rate of tax on inputs is higher than rate of tax on outputs.

iv) Refund of IGST paid on supply of goods/services to SEZ unit or SEZ developer (with payment of IGST)

v) Refund of unutilized ITC on supply of goods/services to SEZ unit or SEZ developer without payment of IGST.

vi)Refund by the supplier or to the recipient of deemed exports (advance authorization/EOU/EPCG/supply of gold by bank/specified PSU).

Besides these, some other situations have also been mentioned such as excess balance in the cash ledger, refund of the excess tax paid during provisional assessment, amount paid under wrong head, refund of excess tax paid by casual taxable person etc.

Q.12 What are the documents required along with an application for grant of refund? Explain the process to be followed by the officers for the processing of such applications.

Ans: The following table explains in short the required documents and the process to be followed by the processing officer-

Types of GST Refund (Categories covered) Procedure for filing Document/ Statement to be attached with GST Refund Application Procedure to be followed by the GST officer for issue of GST Refund
Supply of goods on payment of IGST to SEZ 1) RFD01A to be filed manually 1) Declaration –rule 89(2)(f)(non availment of ITC by receiver)

2)Self Declaration –rule 89(2)(l) (unjust enrichment)

3) Declaration to the effect that no prosecution initiated for last 5 years

1) On ascertaining the completeness in all respects, the acknowledgement in Form RFD -02 shall be issued within 15 days from the date of filing the claim (Otherwise deficiency memo in Form RFD -03 shall be issued)

2)  Provisional refund (90%) order in RFD – 04 shall be passed within 7 days of acknowledgement if claim is found in accordance with the provisions of section 54(6) of the CGST Act. . Also, reconciliation of the figures of supply under the various heads in GSTR1, GSTR3B and GST-RFD-01A should be mandatorily carried out. Also, verify shipping bills, BRC/ FIRC and certificate from authorized officer of SEZ as per type of application.

3) Payment advice to be issued in Form RFD -05

4)Notice for rejection of entire or part  of refund claim is to be issued in Form RFD – 08 after recording reasons in writing.

5)Refund sanction / rejection order to be issued in Form RFD -06 within 60 days. Consider GSTR2A and provisions of section 16,17 while considering ITC claim. Rejection order to be passed after considering reply in form RFD-09.

6)Order for complete adjustment/withholding of sanctioned refund to be issued in Form RFD- 07.

7) Re-credit the amount of refund rejected by using GSTR-1B and PMT-03.Proceed for the recovery of in-eligible credit through the Demand and Recovery process by utilizing powers under section 73/74.

Export of  ervices on payment of IGST 1) RFD01A to be filed manually 1) Statement containing details of Invoices and relevant BRC/FIRC

2) Declaration to the effect that no prosecution initiated for last 5 years.

Supply of services on payment of IGST to SEZ 1) RFD01A to be filed manually 1) Declaration –rule 89(2)(f)(non availment of ITC by receiver)

2)Self Declaration –rule 89(2)(l) (unjust enrichment)

3) Declaration to the effect that no prosecution initiated for last 5 years.

GST Refund of unutilized ITC used in making zero rated supplies of goods/services for export and to SEZ 1) RFD01A to be filed in portal

2) ARN to be generated as proof for debit entry in credit ledger.

3) RFD01A to be filed manually along with ARN generated

1)Declaration under second proviso to sec. 54(3) –(goods not subjected to export duty, Non availment of drawback on goods/services)

2)Declaration under sec.54(3)(ii)

3) Statement 3A(rule 89(4)) –in case of exports

Statement 5A(rule 89(4) – in case of supplies to SEZ

4) Statement containing shipping bill wise details of goods exported

5) In case of services statement containing details of Invoices and relevant BRC/FIRC

6) Declaration to the effect that no refund is claimed against the invoices involved in the claim

7) Declaration to the effect that no prosecution initiated for last 5 years.

GST Refund claim arising due to inverted duty structure (accumulated ITC) 1) RFD01A to be filed in portal

2) ARN to be generated as proof for debit entry in credit ledger.

3) RFD01A to be filed manually along with ARN generated

1) Statement -1(rule 89(5))

2) Statement 1A(rule 89(2)(h))

3)Declaration to the effect that no other refund is claimed against the invoices involved in the claim

4) Declaration to the effect that no prosecution initiated for last 5 years

GST Refunds on accounts of deemed exports 1) RFD01A to be filed manually 1) Statement -5B(rule 89(2)(g))

2) Declaration (rule 89(2)(g)) by supplier or receiver as the case may be with “Undertaking”

3) Declaration to the effect that no prosecution initiated for last 5 years

GST Refunds on balance in electronic cash ledger 1) RFD01A to be filed in portal

2) ARN to be generated as proof for debit entry in credit ledger.

3) RFD01A to be filed manually along with ARN generated

1) Declaration to the effect that no prosecution initiated for last 5 years

Q. 13 When should the officer issue deficiency memo i.e. RFD03 and when should he issue notice in form RFD08?

Ans: As per rule 90(2), the application for refund, other than claim for refund from electronic cash ledger, shall be forwarded to the proper officer who shall, within a period of fifteen days of filing of the said application, scrutinize the application for its completeness and where the application is found to be complete in terms of sub-rule (2), (3) and (4) of rule 89, an acknowledgement in FORM GST RFD-02 shall be made available to the applicant. Rule 89(2) gives the details about the various documents which are to be attached with the application. Rule 89(3) mentions that an amount equal to the refund claimed should be debited by the applicant from his electronic credit ledger. Rule 89(4) gives the formula to calculate the maximum amount of refund in case of zero rated supply of goods/ services with LUT. Thus, if an application is found to be incomplete in regard to the documents, debit of the ledger and use of formula, then only the officer can issue deficiency memo.

However, as per rule 92(3), where the proper officer is satisfied, for reasons to be recorded in writing, that the whole or any part of the amount claimed as refund is not admissible or is not payable to the applicant, he shall issue a notice in FORM GST RFD-08to the applicant, requiring him to furnish a reply in FORM GST RFD-09 within a period of fifteen days of the receipt of such notice and after considering the reply, make an order in FORM GST RFD-06 sanctioning the amount of refund in whole or part, or rejecting the said refund claim and the said order shall be made available to the applicant. One issue which needs to be clarified is that the notice in form GST RFD-08 needs to be issued only after an acknowledgement in form GST RFD-02 is issued to the taxable person as opinion about admissibility about the refund can be formed after the taxable person has submitted the documents as stated in Rule 89(2).  

Q.14 Explain how should one calculate maximum refund amount in case of zero rated supply of goods/services or both.

Ans: The maximum amount which could be granted as refund needs to be calculated as per Rule 89(4).

Refund Amount = (Turnover of zero-rated supply of goods + Turnover of zero-rated supply of services) x Net ITC ÷Adjusted Total Turnover

Where,-

(A) “Refund amount” means the maximum refund that is admissible;

(B) “Net ITC” means input tax credit availed on inputs and input services during the relevant period other than the input tax credit availed for which refund is claimed under sub-rules (4A) or (4B) or both;

(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;

(D) “Turnover of zero-rated supply of services” means the value of zero-rated supply of services made without payment of tax under bond or letter of undertaking, calculated in the following manner, namely:-

Zero-rated supply of services is the aggregate of the payments received during the relevant period for zero-rated supply of services and zero-rated supply of services where supply has been completed for which payment had been received in advance in any period prior to the relevant period reduced by advances received for zero-rated supply of services for which the supply of services has not been completed during the relevant period;

(E) “Adjusted Total Turnover” means the sum total of the value of-

(a) the turnover in a State or a Union territory, as defined under clause (112) of section 2, excluding the turnover of services; and

(b) the turnover of zero-rated supply of services determined in terms of clause (D) and non-zero-rated supply of services,

excluding-

(i) the value of exempt supplies other than zero-rated supplies; and

(ii) the turnover of supplies in respect of which refund is claimed under sub-rule (4A) or sub-rule (4B) or both, if any, during the relevant period. 

(F) “Relevant period” means the period for which the claim has been filed

Q.15 What are the important points to be noted about the formula to calculate refund as given in Rule 89(4)?

Ans: The following points come to notice on careful analysis of the formula

i) It is presumed that no ITC is claimed for exempted supplies and hence goods/supplies on which ITC is claimed are utilized for exports and making taxable supplies. Hence, ITC proportionate to that utilized for zero rated supply of goods and/or services is granted as refund.

ii) Net ITC figure is ITC pertaining to inputs and input services. This figure may be lesser than or at the most equal to that of the figure disclosed in GSTR3B as ITC pertaining to capital goods is not included in the net ITC figure used in the formula. Hence, while using this formula, deduct ITC pertaining to capital goods from net ITC figure mentioned in GSTR3B.

Also, net ITC figure does not include ITC availed for which refund is claimed for deemed exports (Notification no. 48/2017-Central Tax) and merchant exports (Notification no. 40/2017-Central Tax(Rate)). Refund for deemed exports and merchant exports is granted under rules 89(4A) and 89(4B) respectively and not under rule 89(4).

iii) In some cases, some taxable persons have also included figure of transitional credit in net ITC figure. This is against the provisions of law.

iv) The definition of “adjusted total turnover” has been changed with effect from 4-09-18.

v) The figure of “adjusted total turnover” does not include the exempted supplies (if the goods exported are exempt, they would be included in the figure of adjusted total turnover).

This figure of “adjusted total turnover” also does not include the turn-over of supplies in respect of which refund is claimed for deemed exports (Notification no. 48/2017-Central Tax) and merchant exports (Notification no. 40/2017-Central Tax(Rate)).

vi)The formula calculates the maximum refund that is admissible as per law.

Q.16 How should one calculate the actual refund amount? Is the procedure different for applications made on or after 05-09-2018?

Ans: The actual refund amount is calculated as the least of the following amounts for applications made on or after 05-09-2018:

a) The maximum refund amount as per the formula in rule 89(4)  of the Central Goods and Services Tax Rules, 2017  [formula is applied on the consolidated amount of ITC, i.e. Central tax + State tax +Integrated tax + Cess (wherever applicable)].

b) The balance in the electronic credit ledger of the claimant at the end of the tax period for which the refund claim is being filed after the return for the said period has been filed; and

c) The balance in the electronic credit ledger of the claimant at the time of filing the refund application.

After calculating the least of the three amounts, as detailed above, the refund amount is to be granted under the different tax heads ( IGST, CGST and MGST ) in the following order:

a) Integrated tax, to the extent of balance available in the electronic credit ledger of the claimant at the time of filing the refund application;

b) Central tax and State tax, equally to the extent of balance available and in the event of a shortfall in the balance available in a particular electronic credit ledger (say, Central tax), the differential amount is to be considered from the other electronic credit ledger (i.e., State tax, in this case).

For applications made prior to 5th September,2018, the actual refund amount is calculated as the least of the following amounts under the individual tax heads separately ( IGST, CGST, SGST and Cess separately) :

a) The maximum refund amount was calculated by applying formula in rule 89(4) of CGST Rules on ITC amount mentioned under the individual tax head i.e. this formula is applied to ITC figure under IGST, CGST, SGST and Cess separately.

b) The balance in the electronic credit ledger of the claimant under IGST, CGST and SGST and Cess at the end of the tax period for which the refund claim is being filed after the return for the said period has been filed; and

c) The balance in the electronic credit ledger of the claimant under IGST, CGST and SGST and Cess at the time of filing the refund application.

After calculating the least of the three amounts under the different tax heads, as detailed above, the refund amount is to be granted.

 Q.17 Explain how should one calculate maximum refund amount and actual refund amount in the case of inverted tax structure?

Ans: Refund of input tax credit shall be granted as per the following formula (rule 89(5)–

Maximum Refund Amount = {(Turnover of inverted rated supply of goods and services) x Net ITC ÷ Adjusted Total Turnover} – tax payable on such inverted rated supply of goods and services

1. Net ITC shall mean input tax credit availed on inputs during the relevant period other than the input tax credit availed for which refund is claimed under sub-rules (4A) or (4B) or both. (Please note that Net ITC figure pertains to the net ITC availed on inputs only and not on input services)

i.e. ITC of inputs less ITC of inputs on which supplier has claimed benefit of Notification 48/2017 – MGST or Notification 40/2017 – MGST (Rate) or Notification 41/2017-IGST (Rate) or Notification 78/2017- Customs.

2. Adjusted Total Turnover means the sum total of the value of- (a) the turnover in a State or a Union territory, as defined under clause (112) of section 2, excluding the turnover of services; and (b) the turnover of zero rated supply of services determined in terms of clause as mentioned below and non-zero rated supply of services, excluding- (i) the value of exempt supplies other than zero rated supplies; and (ii) the turnover of supplies in respect of which refund is claimed under sub-rule (4A) or sub-rule (4B) or both, if any, during the relevant period.‘Turnover of zero rated supply of services is the aggregate of the payments received during the relevant period for zero rated supply of services and zero rated supply of services where supply has been completed for which payment had been received in advance in any period prior to the relevant period reduced by advances received for zero rated supply of services for which the supply of services has not been completed during the relevant period. (Please see Notification no 26/2018-CGST)

The method to calculate amount of actual refund is the same as given in the answer to question no 16.

Q.18 Explain the refund position in the case of supplies to and by merchant exporter. 

Ans: This could be explained easily with an example. Let Mr. Santosh be normal taxable person supplying goods under notification no. 40/2017-Central Tax (Rate) to a merchant exporter Mr. Vijay who exports the goods in the same form. Mr. Santosh has satisfied all the conditions in the notification. He has purchased the goods at the normal tax rates (5 or 12%) but has levied tax rate of 0.05% CGST and 0.05% SGST in the invoices to Mr. Vijay. In this case, Mr. Santosh needs to apply for grant of refund of ITC under inverted tax rate option as tax rate on his inputs is higher than the tax rate on his output. As per restrictions in Rule 96 (10), the merchant exporter Mr. Santosh needs to export goods under LUT only. He cannot claim refund of IGST paid on the export of goods but has to necessarily claim refund of accumulated ITC for supplies under LUT under rule 89(4B).

Q.19 What are deemed exports under the GST Act?

Ans: The following supplies of goods have been notified as deemed exports vide notification no. 48/2017-Central Tax-(no supplies of services)

a) Supply of goods by a registered person against Advance Authorisation.

b) Supply of capital goods by a registered person against Export Promotion Capital Goods Authorisation.

c) Supply of goods by a registered person to Export Oriented Unit

d) Supply of gold by a bank or Public Sector Undertaking specified in the notification No. 50/2017-Customs, dated the 30th June, 2017 (as amended) against Advance Authorisation.

The following definitions are also given in the notification-

1. “Advance Authorisation” means an authorisation issued by the Director General of Foreign Trade under Chapter 4 of the Foreign Trade Policy 2015-20 for import or domestic procurement of inputs on pre-import basis for physical exports.

2. Export Promotion Capital Goods Authorisation means an authorisation issued by the Director General of Foreign Trade under Chapter 5 of the Foreign Trade Policy 2015 for import of capital goods for physical exports.

3. “Export Oriented Unit” means an Export Oriented Unit or Electronic Hardware Technology Park Unit or Software Technology Park Unit or Bio-Technology Park Unit approved in accordance with the provisions of Chapter 6 of the Foreign Trade Policy 2015-20.

Q.20 Who can file an application in case of deemed export supplies? What are the documents required to be produced by the supplier of deemed export supplies for claiming refund?

Ans: In respect of supplies regarded as deemed exports, the application may be filed by, –

(a) the recipient of deemed export supplies; or

(b) the supplier of deemed export supplies in cases where the recipient does not avail of input tax credit on such supplies and furnishes an undertaking to the effect that the supplier may claim the refund.

The following documents are required to be produced by the supplier of deemed export supplies for claiming refund as per notification no. 49/2017-Central Tax-

1. Acknowledgment by the jurisdictional Tax officer of the Advance Authorisation holder or Export Promotion Capital Goods Authorisation holder, as the case may be, that the said deemed export supplies have been received by the said Advance Authorisation or Export Promotion Capital Goods Authorisation holder, or a copy of the tax invoice under which such supplies have been made by the supplier, duly signed by the recipient Export Oriented Unit that said deemed export supplies have been received by it.

2. An undertaking by the recipient of deemed export supplies that no input tax credit on such supplies has been availed of by him.

3. An undertaking by the recipient of deemed export supplies that he shall not claim the refund in respect of such supplies and the supplier may claim the refund.

Q.21 Who can file an application for the grant of refund in case of supplies to a SEZ or SEZ developer?

Ans: In respect of supplies to a Special Economic Zone unit or a Special Economic Zone developer, the application for refund shall be filed by the –

(a) supplier of goods after such goods have been admitted in full in the Special Economic Zone for authorised operations, as endorsed by the specified officer of the Zone.

(b) supplier of services along with such evidence regarding receipt of services for authorised operations as endorsed by the specified officer of the Zone.

From the above answer, it is clear that the taxable person has to submit the invoices carrying the certificate that the goods/services have been received by the SEZ for it’s authorized operations.

I sincerely hope that I have been able to shed some light on this complex issue of refund under the GST Act .

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