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Vaibhav Aggarwal

Vaibhav Aggarwal

Article explains Situations leading to GST refund claims, Time Limit for claiming GST refund, GST Refund in case of exports without payment of tax,  GST Refund in case of Inverted Duty Structure, Documents Required for Filing GST Refund and Grant of provisional refund for zero rated supply.

GST was introduced with an aim to achieve smooth flow of funds and to boost the Indian economy. In order to facilitate such a smooth flow, it is essential for the legislature to provide a hassle free refund process. Refund mechanism under the GST law will allow registered taxpayers to claim refund of the excess GST paid or any input tax credit which has not been utilized.

Earlier, the tax structure was cumbersome and it involved a lot of time to get refund from the department. Now, the legislature has framed convenient and uncomplicated steps to ensure that excess GST paid does not remain parked with them. The process of claiming refund has been standardized to avoid confusion. It is completely online and time bound. Thus, a standardized form has been issued by the legislature for applying for refunds.

Situations leading to GST refund claims

As per Section 54(3) of the Central Goods and Services Act (hereinafter referred as the “CGST Act”), a registered person can claim refund of unutilized ITC under following situations: –

(i) Zero Rated Supply without the payment of Tax: –It includes supply of goods or services or both to SEZ units/developers and export of goods or service or both goods and services under bond or Letter of undertaking (LUT) without payment of IGST.

(ii) Inverted Duty Structure: – It is a situation where the rate of tax on inputs purchased is more than the rate of tax on outward supplies (i.e. GST paid on inputs received is more than GST Payable on outward supplies).

Products Import Duty on
Finished Goods Raw Material Finished Goods Raw Material
Solar Modules Components for Solar Modules Nil 5%-10%
Fabric Bag Non-Woven Fabric 5% 12%
Railway locomotives Components 5% 18%-28%

With addition to above situations, there can be other events also where the registered taxpayer can claim refund. Certain events amongst them inter-alia include: –

(i) Export of goods or services

(ii) Supplies to SEZs units and developers

(iii) Deemed exports

(iv) Refund of accumulated Input Tax Credit on account of inverted duty structure

(v) Finalization of provisional assessment

(vi) Refund of pre-deposit

(vii) Excess payment due to mistake

(viii) Refund of CGST & SGST paid by treating the supply as intrastate supply which is subsequently held as inter-State supply and vice versa

Furthermore, Section 54(3) of the CGST Act specifies some cases where refund of ITC shall not be allowed: –

(i) Refund of unutilized ITC shall not be allowed if goods exported out of India are subjected to export duty.

(ii) Refund of ITC shall not be allowed if the supplier of goods or services or both has availed drawback in respect of CGST or claims refund of IGST paid on such supply.

Recently, Government of India has issued circular for clarification on export related issues: –

Supplier availing of drawback only with respect to basic customs duty (BCD) shll be eligible for refund of unutilized input tax credit of central tax / State tax / Union territory tax / integrated tax / compensation cess. It was further clarified that refund of eligible credit on account of State tax shall be available even if the supplier of goods or services or both has availed of drawback in respect of central tax.

                                                                     Circular No. 37/11/2018-GST dated 15th March, 2018

Time Limit for claiming GST refund

A registered taxpayer can claim refund within two years from relevant date. Refund should be sanctioned within a period of 60 days from the date of receipt of the claim. The following dates are recommended as relevant dates for different type of refund cases:

In case of Relevant Date
Goods are exported by sea or air Date on which the ship or the aircraft in which such goods are loaded, leaves India
Goods are exported by land Date on which such goods pass the frontier
Goods are exported by post Date of dispatch of goods by the Post Office concerned to a place outside India
Deemed Export The date on which the return relating to such deemed exports is furnished
Excess payment of GST Date of payment
Export of Service- supply of services completed prior to the receipt of payment Date of receipt of payment in convertible foreign exchange
Export of Service- payment for the services received in advance prior to the date of issue of invoice Date on which Invoice was issued

Example 1:-Mr. A GST liability for month of March is Rs 30000. But due to mistake, Mr. A made a GST payment of Rs. 300000. Mr. A can claim refund of excess GST payment of Rs.270000 within two years from relevant date i.e. date of payment of GST.

Example 2:-ABC Limited has exported goods worth Rs.10 Lakhs to Nepal by road after payment of GST. ABC Limited can claim refund of GST within two years from relevant date i.e date on which goods moved out of the boundary of India.

GST Refund in case of exports without payment of tax

Sub-rule 4 of Rule 89 contains provisions regarding the amount that can be claimed as refund in case of exports of goods or services or both without the payment of tax. The refund of input tax credit shall be granted as per the following formula –

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

Where, –

1. “Net ITC”means input tax credit availed on inputs and input services during the relevant period;

2. “Adjusted Total turnover” means the turnover in a State or a Union territory excluding the value of exempt supplies other than zero-rated supplies, during the relevant period;

3. “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, other than the turnover of supplies in respect of which refund is claimed under sub-rules (4A) or (4B) or both;

4. “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: –

Payments received during the relevant period for zero-rated supply of services + 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 – Advances received for zero-rated supply of services for which the supply of services has not been completed during the relevant period.

The aforesaid formula can be understood by the following example: –

ABC Limited, a manufacturing company made export as well as domestic sales. Percentage for export sales exceed that of the domestic sales and all the raw materials are procured from India. This results in accumulation of the ITC. The details relating to sale & purchase for the month of December-18 are as follows (excluding applicable taxes):

Export of goods for the month of December Rs.3,00,000
Export of services for the month of December Rs.2,00,000
Domestic supply of goods in month of December Rs. 60,000
Domestic supply of services in month of December Rs. 60,000
Domestic supply of goods and services include exempted item Rs. 20,000
Accumulated Input Tax Credit till December end Rs. 15,000
Total Payment received during December for export of services Rs. 1,50,000
Advances received in December but supply of services has not been completed Rs. 20,000
Payment received during December for export of goods Rs. 2,00,000
Advances received in December but supply of goods has not been made Rs. 10,000

Solution: –

Adjusted Total Turnover = Rs.6,00,000 (3,00,000+2,00,000+60,000+60,000-20,000)

Turnover of zero-rated Supply of goods =Rs. 3,00,000

Turnover of zero-rated Supply of services=Rs. 1,30,000 (1,50,000-20,000)

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

= (3,00,000+1,30,000) *15,000

6,00,000

=Rs.10,750

Therefore, ABC Limited can claim maximum refund of Rs.10750 within 2 years from relevant date.

 GST Refund in case of Inverted Duty Structure

Sub-rule 5 of Rule 89 contains provisions regarding the amount of refund on account of inverted duty structure. The refund of input tax credit shall be granted as per the following formula –

 Maximum Refund Amount = (Turnover of inverted rated supply of goods and services X Net input tax credit / Adjusted total turnover) – Tax payable on such inverted rated supply of goods and services

Where, –

1.“Turnover of inverted rated supply of goods” means the value of inverted supply of goods made during the relevant period;

2.“Tax payable on such inverted rated supply of goods” means tax payable on such inverted rated supply of goods    under the same head i.e. IGST, CGST, SGST;

3.“Adjusted Total turnover” means the turnover in a State or a Union territory, as defined under clause (112) of section 2 of CGST Act, excluding the value of exempt supplies other than inverted-rated supplies, during the relevant period;

The aforesaid formula can be understood by the following example: –

XYZ Limited, a manufacturing company deals in production of fabric bag. It procures raw materials after payment of GST at a rate of 12% while GST is collected at a rate of 5% on the sale of final products. Since, input tax is greater than output tax a large amount has been accumulated as ITC. Details regarding the transactions has been defined below: –

Turnover of inverted rated supply Rs. 4,00,000
Input Tax Credit Rs. 1,50,000
Adjusted Total Turnover Rs. 8,00,000

Solution: –

Tax payable on Inverted rated supply: – Rs. 48,000 (4,00,000*12%)

Maximum Refund Amount = (Turnover of inverted rated supply of goods and services X Net input tax credit / Adjusted total turnover) – Tax payable on such inverted rated supply of goods and services

= (4,00,000*1,50,000)/8,00,000-48,000

=Rs. 27,000

Documents Required for Filing GST Refund

 Rule 89(2) read with Section 54 (4) of CGST Act, refund application shall be accompanied by documentary evidence in Annexure I in FORM RFD-01. Documentary evidences may vary from following cases: –

(i) Export of goods: – A statement containing the number and date of shipping bills or bills of export and the number and the date of the relevant export invoices.

(ii) Export of services: – A statement containing the number and date of invoices and the relevant bank realization certificates or foreign inward remittance certificates.

(iii) Deemed Exports: – A statement containing the number and date of invoices along with such other evidence as may be notified in this behalf.

(iv) Inverted Duty: A statement containing the number and the date of the invoices received and issued during a tax period in a case where the claim pertains to refund of any unutilized input tax credit and credit has accumulated on account of the rate of tax on the inputs being higher than the rate of tax on output supplies, other than nil-rated or fully exempt supplies.

(v) Difference in Supply Nature: A statement showing the details of transactions considered as intra-State supply but which is subsequently held to be inter-State supply.

(vi) Excess Payment of tax: A statement showing the details of the amount of claim on account               of excess payment of tax.

Grant of provisional refund for zero rated supply

As per Rule 91 of CGST Act read with section 54(6) of CGST Act, proper officer is required to sanction provisional refund of ninety percent of the amount of GST Refund within 7 days of application if prima facie refund is accordance with provision of section 54 of CGST Act. Proper officer shall issue FORM RFD 04 for the grant of provisional refund. The aforesaid provision is applicable subject to the following conditions: –

1. The person claiming refund has, during any period of five years immediately preceding the tax period to which the claim for refund relates, not been prosecuted for any offence under the Act or under an existing law where the amount of tax evaded exceeds two hundred and fifty lakh rupees;

2. The GST compliance rating, where available, of the applicant is not less than five on a scale of ten;

3. No proceedings of any appeal, review or revision are pending on any of the issues which form the basis of the refund and if pending, the same has not been stayed by the appropriate authority or court.

Author Bio

Qualification: CA in Job / Business
Company: N/A
Location: New Delhi, New Delhi, IN
Member Since: 02 Apr 2019 | Total Posts: 2

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3 Comments

  1. GOVIND PANDIT says:

    Sir,
    I want to know that when we want file RFD-01, for refund in Excess balance in electronic cash ledger, due to TDS Deducted by debtors
    what documents have to submit in this case

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