Refund of Tax Paid In Wrong Head-CGST/SGST Vs IGST

1. The provisions of CGST/SGST Act, enables a taxpayer to claim for a refund  of the tax levied on the particular supply of Goods and Services. Likewise, a person having GSTregistration can claim for refundon tax paid for the intra-state supply which is consequently held to be inter-state supply and vice versa.

2. The applicant need not to made debit  of ITC from Electronic Credit Ledger at the time of filing refund claim , being claim of tax already paid. However, the total tax would have been normally paid by the applicant by debiting tax amount from both electronic credit ledger and electronic cash ledger. At present, in these cases, the amount of admissible refund, is paid in cash even when such payment of tax or any part thereof, has been made through ITC.

3. This issue has been engaging attention of the Government as this could lead to allowing unintended encashment of credit balances. Accordingly, vide notification No.16/2020-Central Tax dated 23.03.2020, sub-rule (4A) has been inserted in rule 86 of the CGST Rules, 2017 which reads as under:

3.1. Where a registered person has claimed refund of any amount paid as tax wrongly paid or paid in excess for which debit has been made from the electronic credit ledger, the said amount, if found admissible, shall be re-credited to the electronic credit ledger by the proper officer by an order made in FORM GST PMT-03.[ Sub Rule 4A of GST Rule 86]

4. Further, vide the same notification, sub-rule (1A) has also been inserted in rule 92 of the CGST Rules, 2017 . The same is reproduced here under :-

4.1. As per GST Rule 92[1A]  of the CGST Rules, 2017 – Where, upon examination of the application of refund of any amount paid as tax other than the refund of tax paid on zero-rated supplies or deemed export, the proper officer is satisfied that a refund under sub-section (5) of section 54 of the Act is due and payable to the applicant, he shall make an order in FORM RFD-06 sanctioning the amount of refund to be paid, in cash, proportionate to the amount debited in cash against the total amount paid for discharging tax liability for the relevant period, mentioning therein the amount adjusted against any outstanding demand under the Act or under any existing law and the balance amount refundable and for the remaining amount which has been debited from the electronic credit ledger for making payment of such tax, the proper officer shall issue FORM GST PMT-03 re-crediting the said amount as Input Tax Credit in electronic credit ledger.

5. CBEC vide Para 4 of circular No. 135/05/202 dated 31.03.2020 clarified -The combined effect of the   Rule 86 (4A) and 92 (1A)  is that refund of tax paid on supplies (other than zero rated supplies ) will now be admissible proportionately in the respective original mode of payment.

6. Where the tax to be refunded has been paid by debiting both electronic cash and credit ledgers (other than the refund of tax paid on zero-rated supplies or deemed export), the refund shall be calculated in the same proportion in which the cash and credit ledger has been debited for discharging the total tax.

7. Refund amount shall be accordingly paid by issuance of order in FORM GST PMT-03 for re-crediting the said amount as Input Tax Credit in electronic credit ledger and ”Form GST RFD -06 for amount refundable in Cash .