Refund refers to the amount that is due to the tax payer from the Tax Administration. According to the Report of the Joint Committee on Business Processes for GST constituted by Empowered Committee on 10th March 2014, below mentioned are the situations where refund may arise:
1) Excess payment of tax due to mistake or inadvertence by taxpayer
- If tax payer has made excess payment by mistake or by inadvertence, which was actually not required to be paid, the same should be refunded to the taxpayer.
- It may be on account of following reasons:
- Wrong mention of nature of tax (SGST, CGST, IGST)
- Wrong mention of GSTIN
- Wrong mention of tax amount while making payment
- Tax payment is made on two accounts i.e. payment linked to a return or payment in response to a specific demand arising out of audit, etc. The committee will decide whether payment is to be made tax period wise or a system of Personal Ledger Account (PLA) is to be used.
- In first two scenarios, refund will be allowed by department on the basis of application made by tax payer after verifying the correctness of the claim.
- In third situation, excess payment can be automatically setoff, if it is not on account of interpretation of notifications, application of exemptions etc., i.e. the excess payment is not on account of difference of opinion between the tax administration and the taxpayer. Refund may also be provided in this case if application is made by the tax payer.
2) EXPORT (INCLUDING DEEMED EXPORT) OF GOODS / SERVICES UNDER CLAIM OF REBATE OR REFUND OF ACCUMULATED CREDIT OF TAX WHEN GOODS / SERVICES ARE EXPORTED
Export of goods
- The option to procure duty free inputs for exported goods should not be available in the GST regime.
- In GST regime, exports are proposed to be Zero rated. So there should be a mechanism whereby the GST paid on the inputs or on exported finished goods, either through cash or by utilization of input tax credit, is refunded to the exporter.
- The exporter has a time period of one year from the date of export, within which the export proceeds are required to be remitted into India
Export of services
- Invoice and Bank Realization Certificate (BRC) are the only documents that can substantiate the occurrence of event of export of services.
- The relevant date, in case of export of services, will be the date of invoice or the date of BRC, whichever is later
- Since export of services cannot be verified online so there should be a separate application for refund.
- Supplier of final goods in the course of deemed export, will pay IGST which may be claimed as refund, provided the burden of which will not be passed on to the buyer and such fact is certified by a CA.
- The recipient unit would be eligible for refund of IGST, if it has actually paid IGST at the time of obtaining goods / services from the domestic supplier.
- In no case, both the supplier and the recipient unit can obtain refund at the same time in respect of the same transaction.
- Such recipients may not be registered under GST regime and therefore they would have to submit copies of all the invoices, etc. in case claim of refund is filed by them.
It was also noted that there may be certain goods on which Custom export duty will be leviable and GST paid on inputs will not be admissible.
3) Finalisation of Provisional tax assessment
- Return can be filed on provisional basis along with the reason specified for the same. The return may be taken up for finalization once the issue involved in provisional assessment is settled.
- A speaking order may be issued which will also quantify the amount that the taxpayer is required to pay or is eligible for refund.
- Refund will be allowed only if tax burden is not passed on to the consumer. Taxpayer is required to substantiate this fact by CA Certificate.
- The differential amount claimed as refund will be reflected in the return for the month in which the finalization takes place.
4) REFUND OF PRE – DEPOSIT FOR FILING APPEAL INCLUDING REFUND ARISING IN PURSUANCE OF AN APPELLATE AUTHORITY’S ORDER
Refund arising in pursuance of appellate authority’s order is another area that has been subject of judicial scrutiny. The following process is recommended to streamline this matter:
- To make it hassle free, it is recommended that a simple application for refund is required to be filed along with the CA certificate certifying that burden of GST is not passed on to the buyer.
- Refund shall not be restricted unless the jurisdictional authority obtains a stay order from the higher appellate authority against the refund order of appellate authority.
- GST law may define mandatory waiting period during which refund will not be granted.
- Drafting committee is also considering to provide powers to jurisdictional authority for withholding the refund in exceptional cases, interest is required to be paid at appropriate rate to the taxpayer.
5) PAYMENT OF DUTY/TAX DURING INVESTIGATION BUT NO / LESS LIABILITY ARISES AT THE TIME OF FINALIZATION OF INVESTIGATION / ADJUDICATION
If the GST Law does not debar suo-motto payments during investigation / audit process and ultimately no / less demand arises, then amount already paid can be claimed as refund.
- When Investigation is over, which does not lead to issuance of a show cause notice or where after investigation, show cause notice is issued but the adjudication order is in favour of the taxpayer, taxpayer is eligible to claim refund of such excess amount by filing an application with the department.
- GST Law may provide for the time limit after which only the refund may be sanctioned. Time limit will be granted considering time to be taken by department for filing an appeal along with stay application, if any against adjudication order.
- Refund may be withheld only if the department has obtained a stay order on the operation of the adjudication order
6) REFUND FOR TAX PAYMENT ON PURCHASE BY UN BODIES, SUPPLIES TO CSD CANTEENS, PARA MILITARY FORCES CANTEENS, ETC
- UN Bodies will be granted unique Identification number (ID) which would be uniform across the states. A column for capturing this unique ID will be provided in registration document, return document and invoices.
- The UN Bodies may file their purchase statements (without purchase invoices) along with their claim for refund.
- Some purchases which are ineligible for refund as prescribed by GST law, will be deducted from total purchases to find the net claim.
- IT system will carry out the matching with the sales statement of the counter party suppliers with the purchase statement.
- GST law may provide for refund on account of tax paid on personal purchases by staff indicating ID of the UN Body on the invoice marked as “for personal consumption”.
- No exemption would be granted for supplies to CSD Canteens, Para Military Canteens. These bodies can claim refund as per the procedure entailed for UN bodies.
7) TAX CREDIT ON INPUTS USED FOR MANUFACTURING /GENERATION /PRODUCTION /CREATION OF TAX FREE SUPPLIES OR NON-GST SUPPLIES
- ITC is allowed to remove cascading but as on output supplied, no GST is being levied, so by proving refund of input taxes, such goods will become exempt from tax.
- No ITC of GST paid on Inputs, capital goods and services received, will be allowed if the output supplied is exempt/ Nil rated/ non-GST supplies. Such ITC will be treated as “Ineligible input tax credit”.
- In case of mixed supplies, credit will be allowed proportionately, only for the inputs used to supply taxable output.
- It is also recommended that such ineligible tax credit should accrue to the importing States in accordance with the Place of Supply Rules. The mechanism for flow of such funds to importing state will be done by a system based apportionment.
8) REFUND OF CARRY FORWARD INPUT TAX CREDIT
- ITC may accumulate on account of following reasons:
- Inverted Duty Structure i.e. GST on output supplies is less than the GST on the input supplies;
- Stock accumulation;
- Capital goods; and
- Partial Reverse charge mechanism
- If accumulated ITC attributes to accumulation of stock or capital goods, refund of ITC may not be allowed and hence such amount is required to be carried forward.
- Accumulation accruing due to Inverted duty structure would be minimal as fewer tax rates are recommended under GST.
- It is recommended that in such case, cash refund may be granted on submission of an application after due audit and should be sanctioned only after the ITC has been matched from the purchase and sales statements filed along with monthly returns.
- Two options i.e. blocking the utilization of input tax credit claimed as refund at the time of submission of application for refund itself or debiting the input tax credit account / cash ledger subject to the amount available in either account at the time of issuance of sanction order of refund were discussed.
- Suitable linkage between refund application and blocking of “Carry forward ITC” in return/ cash ledger is recommended to be built.
- In case of partial reverse charge, service provider may be left with unutilized balance in the input credit account as he is not liable to discharge the tax liability in full, if Joint reverse charge is provided in GST law.
9) REFUND ON ACCOUNT OF YEAR END OR VOLUME BASED INCENTIVES PROVIDED BY THE SUPPLIER THROUGH CREDIT NOTES
- Refund would be granted on submission of application along with a CA certificate certifying the fact of non-passing of the GST burden by the taxpayer.
- Issue of credit notes by the supplier and corresponding issue of debit notes by the buyer will reduce the eligible ITC at the buyer’s end and output liability at supplier’s end.
- This would require provisional assessment to be undertaken as stated in 3rd
- GSTN should have suitable validation procedure to track the mismatch cases before providing refund.
10) TAX REFUND FOR INTERNATIONAL TOURISTS
- International Tourist scheme provides an opportunity to foreign tourist to avail the refund of tax paid by them on purchases made during their stay in the country.
- Nearly 52 countries have adopted this scheme. It entails to support Make in India Initiative of Government and attract foreign tourist in our country.
- Refund of GST will be available at designated airports and ports only.
- A part of the eligible amount of refund will be deducted by the department as handling fee for services rendered.
(Author can be reached at email@example.com)
Read More : Reverse charge under GST