The tax systems in India have been rapidly changing and evolving over the last few years with the implementation of the Goods and Services Tax. A timely refund mechanism is essential in any tax administration, as it facilitates trade through the release of blocked funds for working capital, expansion, and modernisation of existing business. The provisions pertaining to refund contained in the GST law aim to streamline and standardise the refund procedures under the GST regime. Thus, under the GST regime, there will be a standardised form for making any claim for refunds. The claim and sanctioning procedure will be completely online and time-bound, which is a marked departure from the existing time consuming and cumbersome procedure.

Tax refund icon on virtual screen

1. Situations Leading to GST Refund Claims

The relevant date provision embodied in Section 54 of the CGST Act, 2017, provision contained in Section 77 of the CGST Act, 2017 and the requirement of submission of relevant documents as listed in Rule 1(2) of Refund Rules is an indicator of the various situations that may necessitate a refund claim. A claim for refund may arise on account of:

1. Export of goods or services

2. Supplies to SEZs units and developers

3. Deemed exports

4. Refund of taxes on purchase made by UN or embassies etc.

5. Refund arising on account of judgment, decree, order or direction of the Appellate Authority, Appellate Tribunal or any court

6. Refund of accumulated Input Tax Credit on account of inverted duty structure

7. Finalisation of provisional assessment

8. Refund of pre-deposit

9. Excess payment due to mistake

10. Refunds to International tourists of GST paid on goods in India and carried abroad at the time of their departure from India

11. Refund on account of issuance of refund vouchers for taxes paid on advances against which, goods or services have not been supplied

12. Refund of CGST & SGST paid by treating the supply as intra- State supply which is subsequently held as inter-State supply and vice versa

2. Filing Claim for GST Refund

Once you have identified that you have a valid GST claim for a refund then you need to file your claim through GST Refund Form RFD-01. This form preferably should be prepared and verified by a certified Chartered Accountant and this GST claim need to be made within 2 years of “relevant date” of the GST refunds application.

The ‘relevant date’ in each scenario, along with the conditions of refund is given below:

  • Goods exported by sea or air: Date on which the ship or aircraft in which the goods are loaded, leaves India.
  • Goods exported by land: Date on which the goods pass the frontier.
  • Goods exported by post: Date of dispatch of goods by the concerned post office.
  • Services exported, where the supply of service has been completed before the receipt of payment: Date of receipt of payment.
  • Services exported, where the payment has been received in advance, before the date of issue of invoice: Date of issue of the invoice.
  • Unutilized input tax credit: End of the financial year in which the claim for tax refund arises.

In case you fail to file your GST claim within the mentioned deadlines, then you may never get your GST refunds and your credits may be blocked forever.

When the assessee submits his GST Refund form he gets an acknowledgment form GST RFD-02 which is auto-generated. This GST Refund form RFD-02 helps the assessee for any future reference for his GST claim and is sent to the taxpayer’s email or phone number as an SMS. Once the GST claim by the assessee is found to have any deficiencies then a Form RFD-03 is generated and sent to the taxpayer asking him to correct his application. While filing GST refunds, the taxpayer must submit a declaration that the GST refund amount will not be utilized or transferred to any third person or entity. In case the GST refunds are of more than five lakhs then the taxpayers filing for the GST refunds must provide an additional document as evidence that the said amount is paid by the taxpayer.

The duration of filing for GST refunds by United Nations, consulate, or foreign embassy is only 90 days from the quarter end when they have procured the goods or services. Also, they must make their GST claim through a different GST Form – RFD-10.

3. Documents Required for GST Refund

The following documents must be submitted for GST refund claim:

GST Refund for Exports: If a refund claim is made on account of exports or supply to SEZ, the relevant invoice pertaining to the transaction must be submitted. Along with the invoice, 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, in a case where the refund is on account of export of goods must also be provided. In case of GST refund on account of export of services, along with the tax invoices, the relevant bank realisation certificates evidencing receipt of payment in foreign currency is also required to be submitted.

GST Refund for Supply to SEZ: If a GST refund claim is made by the supplier to an SEZ unit, an endorsement from the Proper Officer evidencing receipt of such goods/ services in the SEZ should be submitted along with the tax invoice. Further, a declaration is also required from the SEZ unit to the effect that they have not availed input tax credit of the tax paid by the supplier. If the claim is for

GST Refund for Accumulated Input Tax Credit: If the GST refund claim is for an accumulated input tax credit, only a statement containing invoice details as prescribed in the GST refund rules must be submitted. It is important to note that no refund of the unutilised input tax credit will be allowed on CGST and IGST paid, in case of the supply of services for the construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly. Also, no refund of the unutilised input tax credit will be allowed for CGST and IGST, where the credit has accumulated on account of the GST rate of tax on inputs being higher than the rate of tax on output supplies.

GST Refund on Account of Order: In case of a claim of GST refund on account of any order or judgment of appellate authority or court, the reference number of the order giving rise to refund should be given along with the relevant tax invoices.

4. Scrutiny of the GST refund application

As per current regulations, it would take about 30 days to process a refund application. Where the refund claim exceeds a prescribed amount, then the same shall be subjected to an audit process. If the same qualifies for a refund, then an order shall be passed to that extent, or if it meets the criterion for being “unjustly enriching” the taxpayer, then the amount shall be transferred to the Consumer Welfare Fund. The above declaration may be required to be certified by a Chartered Accountant.

5. Processing Of Claim For GST Refunds (Refund Order)

GST refunds are processed normally within a period of 30 days from filing a GST refund form. This period may alter in some cases depending on the amount of GST refunds to be processed. The GST claim application shall undergo scrutiny or audit as may be applicable and the said amount shall be processed to taxpayer’s account when found eligible. In case the adjudicating body finds that the taxpayer comes under the category of being “unjustly enriching” then the GST refunds amount shall be transferred to Consumer Welfare Fund.

When the GST refunds arise out of export of goods or services then authorized officer can issue a provisional refund order through GST Form RFD-04 of 90% of the GST refunds claim. The remaining 10% comes when the refund is finalised, typically within 60 days. This kind of provision can only be made if the taxpayer has never been found guilty of evading taxes for amounts more than two hundred and fifty lakh rupees over a period of past five years and his GST compliance rating is five or more out of the score often and he does not have any appeal pending in respect to his GST refunds.

6. Payment to be Credited Online

The refund claim, wherever due, will be directly credited to the bank account of the applicant. The applicant need not come to the authorities to collect the cheques or for any other issues relating to the refund claim.

7. Power with the Commissioner to Withhold GST Refund in Certain Cases

GST law provides that where an order giving rise to a refund is the subject matter of an appeal or further proceedings or where any other proceedings under this Act are pending and the Commissioner is of the opinion that grant of such refund is likely to adversely affect the revenue in the said appeal or other proceedings on account of malfeasance or fraud committed, he may, after giving the taxable person an opportunity of being heard, withhold the refund till such time as he may determine. But it has been adequately safeguarded by provision for payment of interest @ 9% if, as a result of the appeal, or further proceedings, the applicant becomes eligible for a refund.

8. Exceptional Scenarios of GST Refund

Following are few exceptional GST refund rules, India might come across:

  • Tax on supply of goods regarded as deemed exports: For example supply of goods or services to an SEZ (Special Economic Zone) or EOU (Export Oriented Unit).
  • Tax is refundable as a consequence of a judgement, decree, order or on the direction of an Appellate Authority, Appellate Tribunal or any court.
  • The tax has been paid on a supply which has not been provided, either wholly or partially, and for which an invoice has not been issued.
  • Tax wrongly collected and deposited with the Central or State Government: If a person has paid CGST and SGST on an interstate supply or IGST on an intrastate supply, the person is eligible for refund of the amount once the tax has been remitted correctly.
  • IGST paid on supply of goods to tourists traveling out of India, if the goods are taken out of India.

9. Important Forms for Refund Claims

Form Name

Form RFD-01

Form RFD-02

Form RFD-03

Form RFD-04

Form RFD-05

Form RFD-06

Form RFD-07

Form RFD-08

Form RFD-10

10. Conclusion

In sum, the law envisages a simplified, timebound, and technology-driven refund procedure with a minimal human interface between the taxpayer and tax authorities. The new GST Refund process is thorough and effective. It follows the trail of invoices to process the GST claim and is designed by keeping in mind the ease for manufacturers and exporters. Previously which tax refunds use to take years to pass is now being processed within not more than sixty days, with improvements being made to the system every passing day.

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Location: Chennai, Tamil Nadu, IN
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October 2021