Refund of Tax wrongly collected and paid under Section 77 of CGST and Section 19 of the IGST

Goods and Services Tax [GST] is a destination-based consumption tax and the GST rates of tax on supplies of goods or services or both are the same throughout the country.

This principle of destination-based consumption tax is the cardinal principle of the whole scheme of Goods and Services Tax [GST] and, therefore, provisions under section 77 of CGST Act and section 19 of IGST Act provide for correction of errors, if any, in this regard.

Article 265 of our Constitution stipulates that no tax shall be levied or collected except by the authority of law. The provisions laid down under sub-section (1) of section 77 of the CGST Act and sub-section (1) of section 19 of the IGST Act are strictly in line with the above said constitutional stipulation and provide that the amount paid as tax under wrong head has to be refunded.

Taxable person who has paid tax in error is entitled to refund by first restoring the discharge of the correct tax due.

Now, coming to the issue of refund, the relevant part of section 77 reads

Statutory Provisions:-

Section 77(CGST). Tax wrongfully collected and paid to Central Government or State Government

(1) A registered person who has paid the Central tax and State tax or, as the case may be, the Central tax and the Union territory tax on a transaction considered by him to be an intra-State supply, but which is subsequently held to be an inter-State supply, shall be refunded the amount of taxes so paid in such manner and subject to such conditions as may be prescribed.

(2) A registered person who has paid integrated tax on a transaction considered by him to be an inter-State supply, but which is subsequently held to be an intra-State supply, shall not be required to pay any interest on the amount of central tax and State tax or, as the case may be, the Central tax and the Union territory tax payable.

Section 19(IGST). Tax wrongfully collected and paid to Central Government or State Government

(1) A registered person who has paid integrated tax on a supply considered by him to be an inter-State supply, but which is subsequently held to be an intra-State supply, shall be granted refund of the amount of integrated tax so paid in such manner and subject to such conditions as may be prescribed.

(2) A registered person who has paid central tax and State tax or Union territory tax, as the case may be, on a transaction considered by him to be an intra-State supply, but which is subsequently held to be an inter-State supply, shall not be required to pay any interest on the amount of integrated tax payable.

ANALYSIS:-

This provision deals with a situation when CGST/SGST or CGST/UTGST is paid on any inter-State supply. Further also it covers interest implication in a situation where IGST is paid on transaction of intra-State supply.

  • Sub-section (1) of section 77 of the CGST Act deals with a situation where CGST and SGST has been paid considering the supply “intra-State”and subsequently the same is held to be inter-State and, therefore, it is stipulated that in such situation the amounts of CGST and SGST, which were paid wrongly, shall be refunded and, of course, the registered person has to pay IGST on such supply for which no interest shall be required to be paid as stipulated under sub-section (2) of section 19 of the IGST Act.
  • Sub-section (1) of section 19 of the IGST Act deals with a situation where IGST has been paid considering the supply “inter-State”and subsequently the same is held to be intra-State and, therefore, it is stipulated that in such situation the IGST, which was paid wrongly, shall be refunded and, of course, the registered person has to pay CGST and SGST on such supply for which no interest shall be required to be paid as stipulated under sub-section (2) of section 77 of the CGST Act.
  • Payment of tax based on erroneous determination of ‘nature of supply’ is not permitted to be adjusted because of the above appropriation of payments. Remedy lies in refund.
  • Please note that Jurisdiction to demand for CGST (and SGST) is contained in section 77(1) whereas jurisdiction to demand IGST is contained in section 19(1) of IGST Act.
  • And relief from payment of interest on CGST-SGST is allowed under section 77(2) whereas relief from payment of interest on IGST is allowed under section 19(2) of IGST Act.

Applicability of limitation period for claiming refund of taxes paid by a registered person on a supply considering the same as intra-State and which is subsequently held to be inter-State and vice-versa.

One view is that all refunds, except those under section 55, section 77 of the Central Goods and Services Tax Act [CGST Act] and Section 19 of IGST Act are governed by the limitation period of two years from relevant date as provided under the said section .

The other view is that section 77 of CGST Act is independent of section 54, therefore, limitation of period as provided under the said section is not applicable for such refunds.

An effort is being made to critically examine both the views in the light of the relevant legal provisions of the GST.

In the intra-State supplies, Central Goods and Services Tax [CGST] and State Goods and Services Tax [SGST]/ Union Territory Goods and Services Tax [UTGST] are levied and collected in the ratio of 50:50. The CGST goes to the Consolidated Fund of India and the SGST goes to the respective State/ UT exchequer.

However, in case of inter-State supplies Integrated Goods and Services Tax [IGST], which is equal to the sum total of the CGST and SGST, is levied on the said supply of goods or services or both and collected by the Union Government.

50 percent of the IGST goes to the Consolidated Fund of India and the 50 percent goes to the exchequer of the respective destination State/ UT as per the detailed procedure prescribed under the Goods and Services Tax Settlement of Funds Rules, 2017.

To appreciate the issue at hand fully, the provisions of section 77 of the CGST Act and section 19 of the IGST Act are reproduced below:

Article 265 of our Constitution stipulates that no tax shall be levied or collected except by the authority of law. The provisions laid down under sub-section (1) of section 77 of the CGST Act and sub-section (1) of section 19 of the IGST Act are strictly in line with the above said constitutional stipulation and provide that the amount paid as tax under wrong head has to be refunded.

In both the situations, the tax-payer has paid amount equal to the tax leviable but under wrong head(s),but

  • the registered person was not beneficiary in any way on this account,
  • the Union Government also got its share,
  • the originating State or the destination State, as the case may be, could not get its due share.

Now, coming to the issue of refund, the relevant part of sub-section (1) of section 77 reads:

“… shall be refunded the amount of taxes so paid in such manner and subject to such conditions as may be prescribed.”

The word “shall” used here is in the sense of “must” as per such usage of this word in various statutes, therefore, the tax paid under wrong heads must be refunded.

The word “Prescribed” as per clause (87) of section 2 of the CGST/SGST Act means prescribed by rules made under this Act….

The procedure for filing “Application for refund of tax, interest, penalty, fees or any other amount” is prescribed under rule 89 of the CGST Rules, 2017.

This rule covers all refunds except refund under Section 55 and refund of IGST paid on goods exported out of India ( zero rated supplies).

The refund under section 77 of CGST Act is specifically covered under Rule 89 of the CGST Rules as clause (j) of sub-rule (2) stipulates that application in FORM GST RFD-01 under sub-rule (1) shall be accompanied by documentary evidence in the form of “a statement showing details of transactions considered as intra-State supply but which is subsequently held to be inter-State supply.”

Taxable person who has paid tax in error is entitled to refund by first restoring the discharge of the correct tax due so that the incorrect tax paid reflects on the Common Portal as ‘paid in excess’ and:

  • IGST paid in error will be refunded subject to conditions prescribed
  • IGST payable due to payment of CGST/SGST/UTGST is exempted from payment of interest on IGST due.

Provisions of section 54 of CGST Act have not been extended to this refund although the conditions to be prescribed would not be too far from the requirements in section 54.

No limitation period is mentioned in section 77 of the CGST Act, therefore, the moot question is – should we seek shelter under section 54 so as to invoke limitation provisions to debar refunds under section 77 beyond a period of two years from the relevant date which in this case would be “date of payment of tax” applying the residuary provision under clause (h) of Explanation (2) to section 54.

In such situation, though the registered person will be liable to pay tax under correct head as and when the supply is ‘held’ to be “inter-state”, may be in the third year but will not be entitled to claim refund of amount paid in wrong heads beyond the limitation period.

There is no mention of application of the provisions of section 54 in section 77 as we find at certain other places, e.g. sections 10(5), 21, 35(6) & 129(2) of the CGST Act where provisions of certain other sections have been made applicable mutatis mutandis.

The second argument for invoking provisions of section 54 for refunds under section 77 of the CGST Act is that the words “refund of tax in pursuance of section 77 are mentioned in section 54(8)(d), hence such refunds are covered under section 54.

The sub-section (8) of section 54 deals with certain situations where concept of unjust enrichment is not applicable, and the amount refunded has to be disbursed to the applicant instead of crediting it into the Consumer welfare Fund. Mentioning of refund “in pursuance of section 77” is apparently clarificatory in nature to make it amply clear that merely collection of tax amount which was paid in wrong head(s) (CGST+SGST/UTGST instead of IGST) does not debar the registered person from claiming the refund by invoking the principle of “unjust enrichment”.

The person had paid the amount which he had collected from the recipient as tax, though under wrong heads, but now he has paid the equal amount of tax in the correct head(s).

The provisions of refund under CGST Act are applicable to refund under IGST Act as stipulated under Section 20 of the IGST Act and similarly, the provisions of refund under CGST Rules are made applicable to the refund of IGST as provided by Rule 2 of the IGST Rules, 2017.

Therefore, the refund of the wrongly paid IGST under section 19 of IGST Act has to be dealt on the similar lines as in the case of refund of wrongly paid CGST and SGST/UTGST under Section 77 of the CGST Act.

The provisions for refund under section 77 of the CGST Act and section 19 of the IGST Act simply present a “give and take” situation.

Here the registered person has to pay the tax under the correct head when it is held subsequently that the supply which he considered as intra state was actually inter-state, thus instead of CGST and SGST/UTGST, IGST was required to be paid or the vice-versa and as the registered person pays the tax amount in correct head(s), the tax already paid [under wrong head(s)] is liable to be refunded.

The third and the final argument, that it is also a fact that section 77 of the CGST Act and section 19 of IGST Act do not start with non obstante clause “Notwithstanding” with regard to provisions of section 54 of the CGST Act, however, they also do not contain any wording like “subject to the provisions of…” referring to any other section including section 54, as many other provisions such as section 10(1), 10(2A), 16(2)(c), 60(5) etc. contain such provisions referring to some other section. Both the sections only stipulate that the amount of tax(s) so paid [under wrong heads] shall be refunded “in such manner and subject to such conditions as maybe prescribed” and the manner and conditions are prescribed in Rule 89 of the CGST Rules.

Further, there is nothing to suggest that rule 89 is under section 54 only but it is a rule laying down procedure for filing refund under GST except to specific exclusions.

The sub-section (2) of Section 77 of the CGST Act and sub-section (2) of section 19 of the IGST Act clearly stipulate that no interest is required to be paid when the payment is made under the correct head thus no allegation of non-payment of tax is made as it is merely correction of an error so as to comply with the “destination based, consumption tax” principle under GST.

It is also pertinent to mention here that there is no time limit specified in section 77 of CGST Act within which the supply can “…subsequently held to be inter-State supply” as well as in section 19 of IGST Act within which the supply can “…subsequently held to be intra-State supply”. It simply means that as and when it is held so, the refund of wrongly paid tax “shall” be granted.

Therefore, in view of the said arguments it is pertinent to mention here that no limitation period appears to be there in section 77 of CGST Act or section 19 of the IGST Act, as the case may be, and the procedure for claiming refunds of tax wrongly collected and paid in wrong head(s) thereunder is prescribed under Rule 89 of CGST Rules without invoking the provisions of Section 54 of the CGST Act.

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The author-CA (Adv) Sikander Sachdeva, FCA is a Chartered Accountant in Practice from Delhi and can be contacted for further clarification at 8882370570 or via mail at slsachdeva3@gmail.com

Disclaimer : The contents of this document are solely for informational purpose. It does not constitute professional advice or a formal recommendation. The document is made with utmost professional caution but in no manner guarantees the content for use by any person. It is suggested to go through original statute / notification / circular / pronouncements before relying on the matter given. The document is meant for general guidance and no responsibility for loss arising to any person acting or refraining from acting as a result of any material contained in this document will be accepted by us. Professional advice recommended to be sought before any action or refrainment.

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One Comment

  1. THOMAS K J says:

    Tax wrongly paid cgst @ sgst and correctly paid in IGST (17-18). but same has not shown in our balance as to receivable. now (20-21) we got refund and in our ele.cash ledger. how we show/adjustments in our book of accounts.

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