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:

Circumstances:

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:

  • Exports of goods or services or both on payment of IGST
  • Tax paid on deemed export
  • Excess payment of tax
  • Payment of tax on a provisional basis
  • Advance tax paid by a Casual Taxable Person or Non Resident Taxable Person under Section 27(2). However the amount shall not be refunded unless such person has furnished all the returns required under Section 39, i.e., filed during the period of registration.
  • CGST and SGST/ UTGST paid on intra-state supply but held as inter-state supply.

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:

  • Finalisation of provisional assessment.
  • Favorable order of an appellate authority, in favor of any taxpayer.
  • Finalization of investigation procedures -No/Less tax liability arising thereof.
  • Refund oftax paid wrongly e. IGST paid instead of CGST/SGST or vice versa

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:

  • Persons resident in India, exiting the country for a long or short duration irrespective of whether they hold an Indian Passport.
  • Deputation of Indian Resident to overseas diplomatic posts.
  • Children born in India to Foreign Nationals during their stay in India.

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:

  • Application must be made within 2 years from the relevant date.
  • GSTR-3 for the relevant tax period should have been filed.
  • The outward supplies are not nil rated or exempt.
  • In case of goods exported:
    • They were not subjected to export duty,
    • No drawback of central tax or refund of integrated tax paid on supplies have been availed.

In case of Casual Taxable Person or Non Resident Taxable Person, all monthly returns have been filed.

  • In case of  CGST and SGST/ UTGST  paid on intra-state supply but held as inter-state supply, the appropriate amount of IGST has been paid [Note: In case IGST had been paid instead of CGST and SGST/ UTGST, no refund would be available.

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 :

  • A letter to Citibank mentioning following:

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

  • Submit the letter to the banker where the monies were received and the banker will forward it to Citibank.
  • Citibank will process and FIRC and send to the address mentioned on the request letter.

Procedure for claiming Refund:

  1. Application is to be filed in form GSTRFD-01.
  2. Acknowledgement in form GSTRFD-02 shall be made available to the applicant within a period of 15 days of filling application.
  3. If there any deficiency is noticed then communication shall be made through GSTRFD- 03.
  4. After scrutiny of the claim PO shall make provisional order in form GSTRFD-04, sanctioning the amount of refund within 7 days from date of Note in case of refund of export under sec. 54(6). The 90% of the amount will be granted subject to condition that the person claiming refund has not been prosecuted for any offence under the Act where tax evasion exceeds Rs. 2500 during preceding 5 years.
  5. PO shall issue a payment advice in form GSTRFD-05.
  6. After examining all the documents PO make final order under GSTRFD-06 for actual amount of refund.
  7. If PO is of the opinion that the amount of refund is liable to be withheld , then he shall pass an order in GSTRFD-07.
  8. Where the PO is satisfied, that the whole or any part of the amount claimed as refund is not admissible, he shall issue a notice in form GSTRFD-08 to the applicant requiring him to furnish a reply in form GSTRFD-09.

Interest on Refund:

  1. The Government shall pay interest @ 6% from the date immediately after the expiry of 60 days from the date of receipt of application of refund.
  2. The Government shall pay interest @ 9% from the date immediately after the expiry of 60 days from the date of receipt of application of refund in case of refund arising from an order passed by the adjudicating authority, appellate authority or appellate tribunal.
  3. Refund application to be processed within 60 days from the date of application.
  4. No refund, if the amount is less than Rs. 1,000.

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:

  • Export supplies – Refund Amount = (Export turnover * Net ITC) / (Total Turnover – Exempt Turnover)
  • Where rate of taxes on inward supply is higher than rate of tax on the outward supply (Inverted rated supply) – Refund Amount = ((Turnover of the inverted rated supply * Net ITC) / (Total Turnover – Export Turnover) – Tax payable on the inverted rated supply

Payment of Refunds to be credited onlineThe 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 enrichmentTest 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 justiceIn 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.

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Qualified CA with around 35 years of experience in manufacturing sector - Financial Accounting, Core Finance, Taxation, Insurance Management, Logistics Management, ERP- Finance Module implementation, EPCG & Duty Draw Back, etc. Author of many books on VAT, Central Excise, Customs & Direct Ta View Full Profile

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One response to “Refunds under GST – Circumstances, Conditions and Procedure”

  1. Ajay joshi says:

    I will come back on your query. Pl. suggest other topics for write up on GST

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