Refund of Tax is most delightful provision of any Taxation Law which existed under Excise Duty-Service Tax-State VAT regime. Similarly, GST Act also contains provisions of Refund with concepts that existed earlier such as:

1. “Tax should not cross borders of a country”,

2. “No tax burden on International Organizations”

3. “Principle of Unjust Enrichment”

And newer concepts of

1. “Inverted Duty Structure”

2. “Ease of doing business

This article aims to throw light on above concepts.

“Tax should not cross borders of a country”

A. Refund of GST on Export or Supply to SEZ units:

Under GST regime, Exports, Supply to SEZ units are termed as “Zero-rated Supplies” which means Exports will not bare tax burden (except when Goods are subject to Export Duty). There are two modes to claim refund for Zero rated Supply – (i) Export under LUT or Bond AND (ii) Pay IGST on Export and then claim refund.

B. Refund for International Tourists:

“Tourist” is clearly defined under IGST Act. The intention of the Government is – take our goods, not tax.

“No tax burden on International Organizations”

A specialized agency of the United Nations Organization or any Multilateral Financial Institution and Organization notified under the United Nations (Privileges and Immunities) Act, 1947, Consulate or Embassy of foreign countries are entitled to a refund of tax paid by it on inward supplies of goods.

“Inverted Duty Structure”

This is the new concept introduced under GST. A taxable person can claim refund of unutilized credit of GST paid on inputs/input services. The similar concept existed in earlier VAT regime also. Then what is the difference? The catch is, refund will be allowed only if the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies (other than nil rated or fully exempt supplies).

The intention is to keep tax burden low on socially desirable finished product or necessary commodities (represented by low tax rates BUT NOT NIL tax rate) by refunding the excess tax credit of inputs having higher tax rates. However, Builders and Developers will never be able to claim refund under this provision because they are NOT ELIGIBLE TO CLAIM REFUND OF OVERFLOW OF INPUT TAX CREDIT.

“Principle of Unjust Enrichment”

This provision was very much popular under Excise Regime with number of Landmark Judgments on this issue. GST Act clearly states that the person claiming refund has to prove through documentary evidences that tax has been paid by him and at the same time tax burden has not been passed. Unless this is proved, refund of tax would be credited to Consumer Welfare Fund rather than being credited to bank account of person claiming refund.

Moreover, there is no refund of GST if exported has already claimed duty drawback.

“Ease of doing business”

A measure of ease of doing business has been incorporated in the GST Act by way of provisions such as

(1) Refund of any balance in electronic cash ledger – which means excess tax paid by error. Under earlier laws there was no clear provision to refund tax paid erroneously to Government treasury. This lead to several case drawn upto SC and HC.

(2) If a registered person pays CGST or SGST on supply which he considered to be intra- state supply but which is subsequently held to be an inter-State supply, the he shall be refunded the amount of taxes so paid.

(3) If a registered person pays IGST on supply which he considered to be inter-state supply but which is subsequently held to be an intra- State supply, the he shall not be liable for interest on CGST and SGST payable now.

(4) Mandatory issuance of order of refund within 60 days of receipt of application.

(5) Provision of self-declaration if refund amount is less than Rs. 2 Lakh.

(6) Provisional issue of 90% of refund amount so that exporter’s working capital is not blocked for long period.

(7) Interest @6% in case of delayed refund.

Conclusion

Thus refund can be claimed in multiple ways in GST regime and attempts have been made to benefit various organizations which government deems necessary. The proper selection of mode of refund will help the business in managing their working capital and cash flow.

For more queries, the author can be reached at ersteadvisory@gmail.com

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