Simplified GST Series –Section 54 Refund of Tax – Part -2

CGST Rules 2017 relating to Refund of Tax-

Rule 89-Application for refund of tax, interest, penalty, fees or any other amount- 

Summary of sub –rules- 

  • Sub –rule (1)- Any person claiming refund of any tax, interest, penalty, fees or any other amount other than refund of IGST paid on goods exported out of India may file an application electronically in FORM RFD-01 through common portal. Any claim for balance in the electronic cash ledger may be made through the return furnished for the relevant tax period in FORM GSTR-3 or FORM GSTR-4 or FORM GSTR-7, as the case may be:
  • Sub rule (2) –List of Documents to be attached with RFD-01
  • Sub-rule (3) – In case of application relates to refund of ITC –Electronic credit ledger debited with amount equal to refund.
  • Sub-rule (4)- Formula for refund of ITC in case of zero-rated supply of goods or services or both without payment of tax under bond or letter of undertaking

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

  •  Sub rule (5)- [In the case of refund on account of inverted duty structure, 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 ITC ÷ Adjusted Total Turnover} – tax payable on such inverted rated supply of goods and services

Rule 90- Acknowledgement 

  • Sub-rule-(1)- In case of  application relates to a claim for refund from the electronic cash ledger acknowledgement in FORM GST RFD-02 available to applicant through portal electronically indicating date of filling of claim of refund and time period of 60 days shall be counted from such date of filling.
  • Sub-rule-(2)- The application for refund, other than claim for refund from electronic cash ledger, shall be forwarded to the proper officer who shall, within a period of fifteen days of filing of the said application, scrutinize the application for its completeness an acknowledgement in FORM GST RFD-02 shall be made available to the applicant through the common portal electronically, clearly indicating the date of filing of the claim for refund and time period of 60 days shall be counted from such date of filling.
  • Sub-rule-(3) – In case any deficiencies are noticed – FORM GST RFD-03 available to applicant requiring him to file a fresh refund application after rectification of such deficiencies.

Also Read-Section 54 – Refund of tax- CGST Act 2017- Part 1

Rule 91- Grant of provisional refund 

Sub-rule (1)- In the case of any claim for refund on account of zero-rated supply of goods or services or both the provisional refund shall be granted subject to the condition that 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. 

Sub-rule (2)- FORM GST RFD-04, sanctioning the amount of refund due to the said applicant on a provisional basis within a period not exceeding seven days from the date of the acknowledgement under sub-rule (1) or sub-rule (2) of rule 90. 

Sub-rule (3)- The proper officer shall issue a payment order in FORM GST RFD-05 for the amount sanctioned under sub-rule (2) and the same shall be electronically credited to any of the bank accounts of the applicant

Rule 92- Order sanctioning refund 

Sub-rule (1)-  The  proper officer is satisfied that a refund is due and payable to the applicant, he shall make an order in FORM GST RFD-06 sanctioning the amount of refund to which the applicant is entitled, mentioning therein the amount, if any, refunded to him on provisional basis and also amount adjusted against any outstanding demand under the Act –Part –A Form RFD-07. 

Sub –rule (2) – The amount of refund is liable to be withheld the proper officer shall pass an order in Part B of FORM GST RFD-07 informing him the reasons for withholding of such refund. 

Sub-rule (3) – Where whole or any part of the amount claimed as refund is not admissible or is not payable to the applicant, he shall issue a notice in FORM GST RFD-08 to the applicant requiring him to furnish a reply in FORM GST RFD-09 within a period of fifteen days of the receipt of such notice and after considering the reply, make an order in FORM GST RFD-06 sanctioning the amount of refund in whole or part, or rejecting the said refund claim

Rule 93- Credit of the amount of rejected refund claim – 

  • Where any deficiencies have been communicated under RFD-03, the amount debited under sub-rule (3) of rule 89 shall be re-credited to the electronic credit ledger.
  • Where any amount claimed as refund is rejected under rule 92 either fully or partly, the amount debited, to the extent of rejection, shall be re-credited to the electronic credit ledger by an order made in FORM GST PMT-03
  • A refund shall be deemed to be rejected, if the appeal is finally rejected or if the claimant gives an undertaking in writing to the proper officer that he shall not file an appeal.

Rule 96- Refund of integrated tax paid on goods [or services] exported out of India 

  • The shipping bill filed by an exporter of goods shall be deemed to be an application for refund of integrated tax paid on the goods exported out of India.
  • The applicant has furnished a valid return in FORM GSTR-3 or FORM GSTR3B as the case may be
  • The details of the [relevant export invoices in respect of export of goods] contained in FORM GSTR-1 shall be transmitted electronically by the common portal to the system designated by the Customs.
  • Upon the receipt of the information regarding the furnishing of a valid return in FORM GSTR-3 or FORM GSTR-3B, as the case may be from the common portal, the system designated by the Customs or the proper officer of Customs, as the case may be, shall process the claim of refund in respect of export of goods and an amount equal to the integrated tax paid in respect of each shipping bill or bill of export shall be electronically credited to the bank account of the applicant mentioned in his registration particulars and as intimated to the Customs authorities.

Rule 96A- Export of Goods or services under Bond or Letter of Undertaking 

  • Export of Goods or Services without payment of IGST subject to furnish of Bond or LUT in form GST RFD-11 with condition to pay the tax with interest if goods or services are not exported out of India within stipulated time.
  • Details of Export Invoices contained in GSTR-1 electronically transmitted to the system designated by the custom to verify good covered under invoices have been exported out of India.
  • Provisions of Bond or LUT shall be mutatis mutandis apply in respect of supply to SEZ or SEZU.

 Summary of Forms explained in rules above  -Application for refund till sanction of refund – 

RFD-01 Application for Refund.
RFD-02 Acknowledgement
RFD-03 Deficiency Notice
RFD-04 Provisional Refund
RFD-05 Payment advice
RFD-06 Sanction order
RFD-07 Reasons for withholding refund
RFD-08 Discrepancies in Refund claim
RFD-09 Reply to discrepancies in refund claim
  • Reasons for refund –

1. Excess Balance in Electronic Cash Ledger –Any person can claim the refund of tax under the head “refund of excess balance in the electronic cash ledger” due to any of the following reasons:

  • where taxes so deducted or collected are deposited under the wrong head (e.g., an amount deducted as Central Tax is deposited as Integrated Tax), thereby creating excess balance in the cash ledger of the deductor or the collector as the case may be.
  • where tax deducted or collected in excess is paid while discharging the liability in FORM GSTR-7 or FORM GSTR-8, as the case may be, and the said amount has been credited to the electronic cash ledger of the deductee, who does not have the means for adjusting the same.

2. Zero Rated Supply –All exports (whether of goods or services), as well as supplies to Special Economic Zones, have been categorized as Zero Rated Supplies in the IGST Act, 2017.

On account of zero-rating of supplies, the supplier will be entitled to claim the ITC in respect of goods or services or both used for such supplies even though they might be non-taxable or even exempt supplies.

Every person claiming a refund on account of zero-rated supplies has two options-

√ Either he can export under Bond/LUT and claim a refund of accumulated ITC or

√ Export on payment of integrated tax and claim refund thereof as per the provisions of Section 54 of the CGST Act.

3. Payment of Wrong Tax –Under the GST a taxable person might pay IGST instead of CGST plus SGST and vice versa because of incorrect application of the place of supply provisions. In such Cases In such cases, while making the appropriate payment of tax, interest will not be charged and the refund claim of the wrong tax paid earlier will be entertained without subjecting it to the provision of unjust enrichment.

4. Casual/Non-Resident Taxable Persons –A casual/Non-resident taxable person has to pay tax in advance at the time of registration. A refund may become due to such persons at the end of the registration period because the tax paid in advance may be more than the actual tax liability on the supplies made by them during the validity period of the registration period.

5. Merchant Export should be under the cover of Letter of Undertaking –

When the goods are procured by the merchant exporter at a concessional rate of 0.05% as prescribed under Notification No. 40/2017- Central Tax (Rate), dated 23.10.2017, subject to certain conditions specified in the said notifications. [Parallel notification issued for the IGST rate of 0.1% vide Notification No. 41/2017- Central Tax (Rate), dated 14.11.2017]. The exporter will be eligible to take credit for the tax @ 0.05% / 0.1% paid by him and export the goods only under the cover of LUT/Bond and apply for the refund of the ITC on such export. Further, it has been clarified vide Circular 125/44/2019 that such export cannot happen on the payment of IGST. The supplier who supplies goods at the concessional rate for merchant export is eligible for refund on account of an inverted tax structure as per the provisions of clause (ii) of the first proviso to sub-section (3) of Section 54 of the CGST Act.

6. Inverted Tax Structure –Where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies (other than nil rated or fully exempt supplies), except supplies of goods or services or both as may be notified by the Government on the recommendations of the Council. This would include even those cases where supply has been made to merchant exporters under Notification No. 40/2017- Central Tax (Rate), dated 23.10.2017 or Notification No. 41/2017- Central Tax (Rate), dated 14.11.2017 or both. In such cases also, a refund can be applied under Section 54 of the CGST Act read with Rule 89 of the CGST Rules.

7. Deemed Export Supplies –The Government has issued Notification No. 48/2017-Central Tax, dated 18.10.2017(“NN 48/2017-CT-18.10.2017”) under Section 147 of the CGST Act wherein certain supplies of goods have been notified as deemed export. Further, the third proviso to Rule 89(1) of the CGST Rules allows the recipient or the supplier to apply for a refund of tax paid on such deemed export supplies. In case such refund is sought by the supplier of deemed export supplies, the documentary evidence as specified in Notification No. 49/2017-Central Tax, dated 18.10.2017 is also required to be furnished, which includes an undertaking by the recipient of deemed export supplies that he shall not claim the refund in respect of such supplies and that no ITC on such supplies has been availed by him. The undertaking from the recipient should be submitted electronically by the supplier along with his application for a refund claim. Similarly, in case the refund is filed by the recipient of deemed export supplies, an undertaking by the supplier of deemed export supplies that he shall not claim the refund in respect of such supplies is also required to be furnished electronically. The procedure regarding the procurement of supplies of goods from DTA by Export Oriented Unit (“EOU”) / Electronic Hardware Technology Park (“EHTP”) Unit / Software Technology Park (“STP”) Unit / Bio-Technology Parks (“BTP”) Unit under deemed export as laid down in Circular no. 14/14/2017-GST dated 06.11.2017 needs to be complied with.

Important Circulars relating to GST refund- 

Circular No. 125/44/2019 – GST dated 18-11-2019:

Summary of important points laid down in above circular

√ Old Circulars based on manual processing of refund application have been rescinded.

√ Applications filed before 26.09.2019 shall be dealt as per old circular.

√ Now RFD-01 shall be submitted instead of RFD-01A electronically and supporting documents/undertakings/invoices also to be submitted electronically.

√ List of documents are prescribed in Annexure A mentioned in Circular. 4 Annexure may be submitted with size of each annexure not exceeding 5 MB.

√ No document shall be submitted physically.

√ Time of generation of ARN-within 15 days from date of receipt of refund application.

√ Refund sanction /Provisional refund (RFD-06/RFD-04) shall be done by single jurisdictional officer (Centre/State).

√ All pending returns to be filed before refund application.

√ Refund applications for different tax periods may be clubbed to apply for consolidated refund application.

√ For claiming refund of unutilized ITC on exports, supplies to SEZ and inverted duty refund shall be applied chronologically only.

√ Deficiency Memo/Acknowledgment to be issued in 15 days only.

√ No deficiency memo shall be issued after issue of acknowledgment

√ After issue of deficiency memo there shall be auto re credit to electronic credit ledge No PMT-03 or undertaking for non filing of appeal is required at this stage

√ Fresh Refund applicationfiled pursuant to deficiency memo shall have new and distinct ARN.

√ No adjustment of outstanding dues or withholding shall be done from provisional refund. In case of need, final refund may be granted instead of provisional refund and withholding/recovery may be done there from

√ Disbursal of refund amountshall be done through PFMS after validating bank details provided in refund application. PFMS shall create unique assessee code to facilitate payment. The taxpayers have been advised not change bank details in respective refund applications

√ Refund of unutilized ITC (except compensation cess)- GST- 2A relating to period for which Invoice carrying ITC pertain to be uploaded.  List of Invoices not appearing in 2A for which refund is being claimed to be provided in Annexure B along with declaration of eligibility and subject to restrictions of ITC not exceeding 10% of invoices appearing in 2A. Invoices not uploaded in 2A and declared eligible in Annexure B to be self certified and to be uploaded along RFD-01.

√ Order of Debit in Credit Ledger : First utilize IGST Credit to the extent possible, 2nd:  utilize CGST and SGST equally to the extent of balance available 3rd: If there is shortfall in some credit ledger, then utilize other credit ledger to the extent balance is available

√ Order of Debit facility is not available on portal and to be followed manually. However no adverse view to be taken if order of debit is not followed. Hence it is not compulsory to follow order of debit.

√ Exports after expiry of time limit under LUT may be allowed id goods have actually been exported after 3 months from the date of invoice.

√ During the processing of the refund claim, the value of the goods declared in the GST invoice and the value in the corresponding shipping bill / bill of export should be examined and the lower of the two values should be taken into account while calculating the eligible amount of refund.

In case of zero-rated supply of exempted or non-GST goods, the requirement for furnishing a bond or LUT cannot be insisted upon.

√ Refund of Transitional Credit is not allowed

√ NO refund for Inverted Duty on Input service and Capital goods.

√ Where there are multiple inputs attracting different rates of tax, in the formula provided in rule 89(5) of the CGST Rules, some of which have rate lower or equal to rate of output supplies, the term “Net ITC‟ covers the ITC availed on all inputs in the relevant period, irrespective of their rate of tax.

√ Tax Deductor/collector may claim refund of tax deposited in wrong head.  After filing of GSTR-7/8, Deductee may claim refund of the TDS/TCS under the category “refund of excess balance in the electronic cash ledger.

√ Refund on ITC @ 0.05%/0.1% on inward supplies received by merchant exporter can be claimed under Category “any other” instead of under the category “refund of unutilized ITC on account of exports without payment of tax”.

√ However merchant exporter can export such goods only against LUT.

√ Limit of rupees one thousand u/s 54(14) shall be applied for each tax head separately.

Circular No 135/05/2020- dated 31.03.2020– Key points of this circular summarised below 

√ Bunching of refund claims across Financial Years– This circular allows bunching of refund claims across financial years.

√ Change in manner of refund of tax paid on supplies other than zero rated supplies:-

  • Refund allowed in proportion of cash and credit ledger has been debited for discharging the total tax liability for the relevant period for which refund application is filed for following refund types-
  • Refund of Excess payment of Taxes
  • Refund of tax paid on intra-State supply which is subsequently held to be inter State supply and vice versa;
  • Refund on account of assessment/provisional assessment/appeal/any other order;
  • Refund on account of “any other” ground or reason.

Guidelines for refunds of Input Tax Credit under Section 54(3)- Refund of ITC restricted to the extent reflected in Form GSTR-2A

New Requirement to mention HSN/SAC in Annexure ‘B’-In order to distinguish ITC on capital goods and/or input services out of total ITC for a relevant tax period, changes have been made in Annexure B by adding a column relating to HSN/SAC Code. Such distinction is required where refund of credit on Capital goods and/or services is not permissible in certain cases.

Important Note-CBIC Vide Circular No. 139/09/2020 dated 10th June, 2020 has clarified in respect of invoices which are not appearing in the GSTR-2A of Applicant who has filed refund application on account of accumulated ITC. It is hereby clarified that the treatment of refund of such ITC relating to imports, ISD invoices and the inward supplies liable to Reverse Charge (RCM supplies) will continue to be same as it was before the issuance of Circular No. 135/05/2020- GST dated 31st March, 2020. 

The author can be reached at Contact No-9813458638

Also Read-Section 54 – Refund of tax- CGST Act 2017- Part 1


Disclaimer: The contents of this article are for information purposes only and do not constitute an advice or a legal opinion and are personal views of the author. It is based upon relevant law and/or facts available at that point of time and prepared with due accuracy & reliability. Readers are requested to check and refer relevant provisions of statute, latest judicial pronouncements, circulars, clarifications etc before acting on the basis of the above write up.  The possibility of other views on the subject matter cannot be ruled out. By the use of the said information, you agree that Author / TaxGuru is not responsible or liable in any manner for the authenticity, accuracy, completeness, errors or any kind of omissions in this piece of information for any action taken thereof. This is not any kind of advertisement or solicitation of work by a professional.

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