Refund in GST regime

For a tax payer refunds are always pleasant and it is been looked upon as a blessing in spite of the fact what it really is the reimbursement of tax payers own money by the government. This factor brings it near to recovery of money loaned to a friend that you thought might never came back.

In every taxing statute administration of refund aims at providing prompt payments to the taxpayers in order to minimize the loss of interest to taxpayers and so is the case with GST.  The article is an attempt to compile the common issues or errors faced by taxpayers in processing of their refunds.

Under GST regime the cases of refund can be summarized as below and evidently they are mostly governed by Section 54 of CGST Act, 2017 and Rules 89/96 of CGST Rules, 2017

Particular Provision   of Law Form of Appli-cation Conditions Tax Outflow Refund
Export of goods/ services with LUT (without payment of Tax) Rule 89 rws Section 54 of CGST Act RFD-01 Restriction on value to 1.5 of value of domestic goods Input of capital goods not allowed Duty drawback of GST shall not be availed Refund as per formula envisaged 0% on Supply ITC and refund allowed
Export of goods with payment of tax Rule 96 rws Section 54 of CGST Act Shipping Bill deemed to be refund appli-cation Validation of return data with shipping bill/EGM data on ICEGATE Duty drawback of GST shall not be availed Levy  IGST Refund of IGST paid allowed
Export of Services with payment of tax Rule 89 rws Section 54 of CGST Act RFD-01 Uploading of details related to export viz. invoices/BRC on portal Duty drawback of GST shall not be availed Levy  IGST Refund of IGST paid allowed
Refund in case of supplies to SEZ/ deemed exports with payment of tax Rule 89 rws Section 54 of CGST Act RFD-01 Uploading of invoice details with relevant endorsement/ delarations Levy  IGST Refund of IGST paid allowed
Refund in case of supplies to SEZ without payment of tax Rule 89 rws Section 54 of CGST Act RFD-01 Refund as per formula envisaged 0% on Supply ITC and refund allowed
Unutilized Credit in case of inverted duty structure Rule 89 rws Section 54 of CGST Act RFD-01 Input tax credit of services disputed Refund as per formula envisaged No refund on invoices not appearing in GSTR 2A HSN/SAC wise summary of inward supplies required Tax payable under same head (CGST/IGST/ SGST) Refund of excess credit allowed

Refund issues in Inverted Duty Structure

In the wake of conflicting judgments by the Gujarat High Court and Madras High court, the basic issue faced by taxpayers is whether or not to include the amount of unutilized ITC in respect of input services in their refund application.

Gujarat High Court in the case of VKC Footsteps India Pvt. Ltd. Vs. Union of India have declared that Rule 89(5) is ultravires to Section 54(3) of CGST Act in as much as it debars the refund of ITC on input services. However Madras High Court while deciding the issue in the case of Tvl. Transtonnelstroy Afcons Joint venture ruled out :-

“The extension of the benefit of refund only to the unutilised credit that accumulates on account of the rate of tax on input goods being higher than the rate of tax on output supplies by excluding unutilised input tax credit that accumulated on account of input services is a valid classification and a valid exercise of legislative power”

As per settled law decision of high courts are only applicable only to the relevant states and thus until and unless issue is settled by the supreme court only recourse available to the taxpayers is to file a writ petition in the respective states in case the refund of unutilized ITC in respect of input services is sought.

Refund in GST

Refund issues in Exports

Section 16(3) of the CGST Act, 2017 entitles a person making zero rated supply to claim refund as per Section 54 of the CGST Act, 2017 in following two ways:-

1. Claim refund of unutilized tax credit (aka rebate under LUT) ; or

2. Claim refund of tax paid on exported goods (aka export without LUT)

In consonance with intent of law Section 54 defines refund to include refund of unutilized input tax credit of every kind however Rule 89 governing form and manner of refund prescribes formula that include only input and input services in net ITC and thereby exclude ITC in respect of capital goods.

Therefore the exporters are often in dilemma whether to include ITC of capital goods in refund application or not. To address the same circular no 18/18/2017-GST clarified that ITC on capital goods is not available under LUT option however the matter still can  contested legally using the rationale and analogy of ruling of Gujarat high court in the VKC Footsteps India Pvt. Ltd. Vs. Union of India.

Other common issue in refund faced by exporters is invoice mismatching i.e. details filed in Table 6A of GSTR-1 or GSTR-3B and Shipping Bill details on Customs EDI are not coinciding. Circular No. 42/2017-Customs highlight errors noted at customs EDI and possible remedies as below:

Error Code Particular Action Recommended
SB001 Invalid Shipping Bill Number Amend details through Table 9 of GSTR-1 and enter correct number
SB002 EGM not filed Exporter may approach the Shipping Lines to file the EGM        immediately. If EGM is already filed by shipping line correctly, “Revalidate EGM” option may be used by EGM Officer
SB003   Mismatch of GSTIN in shipping bill and GSTR-1/3B where PAN provided in shipping bill is same as that of GSTR-1 Submit undertaking at customs
SB004 Invoice already received and validated Duplicated entry. Check shipping bill status on ICES
SB005  Amount of IGST paid is different in Shipping Bill and GSTR-1 Amend GSTR-1 and adjust amount in GSTR 3B of subsequent period Ensure that admitted tax liability of IGST under table 3.1(b) of GSTR-3B(Exports), is equal to, or greater than, the IGST amount claimed to have been paid under Table 6A of GSTR-1 of the corresponding period
SB005 Incorrect Shipping Bill/ Invoice details in GSTR-1 Amend details through Table 9 of GSTR-1

Another common query is that what to do in a case where while filing refund application an error as to amount has been committed but the application has been processed and amount has been remitted in the bank account. The taxpayers shall bear in mind that the department can consider this as a case of erroneous refund and recover the same along with interest under Section 73. Therefore it is advisable that tax payers should repay excess refund along with interest through DRC-03 and intimate proper officer in writing.

Refund application by SEZ units

As per section 54(3) read with Rule 89(1)(2) of CGST Rules, 2017 in respect of supplies to a special economic zone unit or a special economic zone developer, the application 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:

Rule 89 further stipulates that a declaration to the effect that tax has not been collected by SEZ or SEZ developer shall be accompanied with refund application in cases of supply of goods/services made to SEZ unit or developer

Thus it can be inferred from above that SEZ unit or developers themselves cannot file a refund application even in case of unutilized tax credit where SEZ has made “Zero rated supply without payment of tax” and supplies have been procured from DTA vendors who have actually recovered tax from them which seems to be a bit absurd for the reason that allowing supplier to claim refund and not SEZ unit will result in increased cost & defy the objective of promoting exports. Although this view has been upheld by honorable high court in the case of M/s Vaachi International India Private Limited the matter can be suitably contested at higher forums.

The author is chartered accountant offering GST advisory & consultancy and can be reached on email : cachandaninawalkha@gmail.com. The views are strictly personal.

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