The GST Law provides for refund of unutilized input credit or tax paid on inward supplies under certain circumstances. Under the GST regime, there will be a standardized form for making any claim for refunds. The claim and sanctioning procedure will be completely online and time bound, which is a marked departure from the existing time consuming and cumbersome procedure. The relevant provisions embodied in Section 54, Sec. 77 of the CGST Act, 2017 and the requirement of submission of relevant documents as listed in Rule 1(2) of Refund Rules, is an indicator of the various situations that may necessitate a refund claim. The circumstances in which refunds under GST are available, the conditions to be complied with and the procedures for the same are explained below:
A. Refund of any balance in the electronic cash ledger can be claimed in the return furnished under sec. 39 in Form GSTR-3, GSTR-4 or GSTR-7 before the expiry of 2 years from relevant date.
B. Unutilized input Tax credit – The Refund of Unutilized input credit can be claimed at the end of any tax period in the following cases:
a. where the rate of tax on inward supply is higher than rate of tax on the outward supply (Inverted rated supplies), and
b. where exports (including supply to SEZ) of goods or services or both were made without payment of IGST.
C. Tax paid – The refund of tax paid can be claimed in the following cases, at the end of any tax period:
D. Refund of tax paid by a specialized agency of UNO, consulate or embassy of foreign countries – on inward supplies of goods or services or both, by making refund application within 6 months from the end of the quarter in which such supply was received.
E. Other cases – refund is available for:
F. Refund to international tourist – Where an international tourist procured goods in India, while leaving the country seek refund of IGST paid, the refund of IGST paid will be available at the port of exit provided adequate proof has been presented to substantiate the fact that the person had entered India as a tourist for genuine non-immigrant purposes. However, the international tourist will exclude:
G. Credit notes for post supply discounts or if goods are returned back within a stipulated time- Further, under sec. 34 of the CGST Act, 2017 provides credit notes can be issued for post supply discounts or if goods are returned back within a stipulated time. When such credit notes are issued, obviously it would reduce output liability of the supplier. Hence, the taxes paid initially on the supply would be higher than what is actually payable. In such a case, the excess tax paid by the supplier needs to be refunded.
However, instead of refunding it outright, it is sought to be adjusted after verifying the corresponding reduction in the input tax credit availed by the recipient. Section 43 of the CGST Act, 2017 provides for procedure for reduction in output liability on account of issuance of such credit notes. This is another form of refund by adjustments in the output tax liability. However, such refund is not governed under the general refund provisions contained in Section 54 of the CGST Act, 2017.
Conditions for claiming refund
The conditions for claiming refund in all the cases except export of goods on payment of IGST are:
In case of Casual Taxable Person or Non Resident Taxable Person, all monthly returns have been filed.
Documentation for Refund Application: Documents evidencing tax, interest or any other amount paid, Copy of proof of deposit of tax and invoices and Documents evidencing export should be attached with refund application.
Where the refund claimed is less than Rs. 2 Lakh – The applicant need not furnish Documentary evidences and instead can file a declaration based on available evidences.
Export income received through “PayPal”- Obtaining the FIRCs
In case the export proceeds are received in the PayPal account, the PayPal converts the money from USD to INR at their end and then route the money to Citibank India which in turn sends NEFT transaction in INR to the respective bank account of service providers in India. Request for FIRC for funds received through PayPal can be placed with Citibank India through applicant’s bank where the amount from PayPal was received.
The process for this is :
i. The Unique Transaction Reference number (UTR);
ii. Customer Name;
iii. Account Number;
iv. Date and purpose of the payment;
v. Address where FIRC need to be delivered
Procedure for claiming Refund:
Interest on Refund:
Calculation of Refund for export supplies and inverted rated supplies – The refund for export supplies and inverted rated supplies shall be calculated as per below:
Payment of Refunds to be credited online –The refund amount will be credited directly to the bank account of applicant. The applicant is not required to come to the authorities for collecting refund.
Unjust enrichment –Test of unjust enrichment will be satisfied before granting refund.
Consumer welfare fund – A Consumer welfare fund will be created in such manner as may be prescribed for crediting refund amount.
Compliance with natural justice – In case of claim of refund is sought to be rejected by the PO, a notice has to be given online to the applicant stating the ground on which refund is sought to be rejected. Reply for the same shall be given within 15 days.