Refund Under GST- Scope and Types

Introduction to GST Refund:

The word refund, in simple terms, means an amount of money that is given back to a person upon happening or occurring of some event. In taxation, refund refers to any amount that is due to the taxpayer from the tax administration due to excess payment of taxes or any other reason.

Several types of GST refund :

• Excess payment of tax due to mistake or inadvertence
• Excess balance in Electronic Cash Ledger
• Export with payment of IGST or under Bond/ LUT
• Supplies made to SEZ unit/developer on payment of IGST or under Bond/LUT
• Inverted duty structure
• Deemed Exports
• Persons holding UIN
• Miscellaneous refunds

Scope of Refund under GST Act:

Explanation to section 54 defines the term “refund” which includes:

i) Refund of tax (output tax) paid on zero-rated supplies of goods and/or services, or

ii) Refund of tax (input tax) on inputs or input services used in making zero-rated supplies, or

iii) Refund of tax on the supply of goods regarded as deemed exports, or

iv) Refund of unutilized input tax credit as provided under section 54(3) i.e. due to inverted duty structure

The aforesaid explanation prescribes the situations in which the refund can be granted as the term used in the aforesaid explanation is that refund ‘includes’. It clearly means that there can be various other situations wherein refund can be granted to the person and/or the registered persons as per the provisions of refund.

Let’s discuss the above mentioned refund, one by one:

1) Refund to persons holding UIN (Unique Identification Number)

The government may, on recommendation of the council, by notification, specify any

• specialized agency of United Nations Organization or
• any Multilateral Financial Institution and Organization or
• consulate or embassy of foreign country and
• any other person of class of persons

be entitled to claim refund of taxes paid on notified supply of goods or services received by them.

Application Form No.	Tenure	Maximum Due date by refund has to be claimed
GST RFD 10	Once in every quarter	Within 6 months from last day of Quarter in which supply was received

2) Excess balance in Electronic Cash Ledger

Any balance in the electronic Cash ledger can be claimed by furnishing the return for the relevant tax period in Form GSTR 3 (presently 3B) or Form GSTR 4 or Form GSTR 7 as the case may be.

3) Refund of tax (input tax) on inputs or input services used in making zero-rated supplies under LUT/Bond:

A formula has been prescribed in this regard:

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 maximum refund that is admissible;

B) Net ITC means ITC on inputs and input services availed during relevant period for which refund is Since this explanation do not mention about capital goods, we can conclude that ITC of capital is not allowed;

C) Turnover of zero rated supply of goods means all type of export of goods made during the relevant period for which refund is to be applied under Bond/LUT;

D) Turnover of zero rated supply of services shall be calculated in following manner :

Aggregate of payments received for zero rated supply of services during relevant period

Add: Zero rated supply of services completed during the relevant period but payment for which has been received prior to relevant period

Less: Supplies for which advances which have been received during the relevant period but for which supply is to be made after the relevant period

E) Adjusted Total Turnover means aggregate of :

Particulars	Goods	Services	Remarks
All taxable supply (except inward supply under RCM)	√	√
Exempt supply -Nil rated -Wholly exempt – Non taxable	x x x	x x x
Export supply : -under bond/ LUT -without bond/ LUT – export supply which is not a zero rated supply	√ √ √	√ x √
Interstate supply	√	√
Export of supply that is exempted	√	√	Example: a doctor providing services outside india
Total	xxx	xxx
Deemed supply u/s 84 (4A)	x	x
Penultimate supply u/s 89 (4B)	x	x
Adjusted Total Turnover	xxx	xxx

In simple words, for calculation of adjusted total turnover, take turnover in state of goods as well as service but for supply of service exclude zero rate supply without bond.

4) Refund of unutilized input tax credit as provided under section 54(3) i.e. due to inverted duty structure:

Inverted tax structure means where the rate of tax paid on input is higher than rate of tax on output supplies.

Such supplies lead to accumulation of credit for which the refund can be claimed. A formula has been prescribed in this regard:

Where,-

A) Net ITC shall mean ITC availed on inputs during the relevant period. Since the explanation do not mention about ITC relating to capital goods and input services, the same shall not be allowed.

B) Adjusted total turnover shall have the same meaning as explained above under ITC refund for zero rated

5) Refund of tax (output tax) paid on zero-rated supplies of goods and/or services:

Since export of goods is also governed by the customs authority, hence, there has to be a communication between both the GST and customs common portal. Procedure has been defined under CGST rules in order to claim refund of output tax paid on export of goods which is as follows: